Topic and End of Theme Tests - Bishop Wordsworth's School...1.1 Enterprise and entrepreneurship 1.2...

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Topic and End of Theme Tests

for Edexcel GCSE (9-1) Business

Theme 1:

Investigating Small Business

98 ‘Section A’ Style Exam Questions 7 Tests of 14 Questions

5 Individual Topic Tests 2 ‘End of Theme’ Tests

Detailed Mark Schemes / Answers

Minimising Workloads, Maximising Performance

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APT’s Topic & End of Theme Tests for Edexcel GCSE (9-1) Business - Theme 1: Investigating Small Business

APT Initiatives Ltd, 2017.

i

FOREWORD

This resource consists of 7 sets of 14 ‘Section A’ style exam questions to test students' knowledge and understanding of the subject content required to be covered for Edexcel GCSE (9-1) Business - Theme 1: Investigating Small Business. The resource contains a set of 14 questions on each of the 5 topic areas listed in the Edexcel Theme 1 specification, ie 14 ‘Section A’ style exam questions on each of the following topics: 1.1 Enterprise and entrepreneurship 1.2 Spotting a business opportunity 1.3 Putting a business idea into practice 1.4 Making the business effective 1.5 Understanding external influences on business. It also contains:

2 'end of theme' tests, ie 2 sets of 14 questions which test students’ knowledge and understanding of any aspect of Theme 1.

A comprehensive range of possible answers are provided for each question posed. The resource enables students to be tested at the end of each topic covered in class, as well as at the very end of their study of Theme 1, with the tests being issued either for homework, or undertaken in more formal exam conditions. The question papers could be used as worksheets - with students researching topics / sub-topics independently to find answers to the questions posed. The answers section could also be used to support the teaching of each topic, due to the comprehensive range of possible responses provided. Several words and phrases are highlighted in bold in the answers section. These words / phrases are business concepts or issues that students need to learn about - as detailed in the Edexcel GCSE (9-1) Business Specification. Each test reflects the sample assessment material produced by Edexcel for ‘Section A’ of Paper 1, which is based on Theme 1. Each 30-35 minute test is, therefore, marked out of 35 and largely consists of 1 and 2-mark ‘multiple-choice’, 3-mark ‘explain’ and 6-mark ‘discuss’ questions. Edexcel’s sample assessment material for ‘Section A’ of Paper 1 also includes two 2-mark ‘calculation’ questions. Calculation questions are included in the two ‘end of theme’ tests contained within this resource, which test students on any aspect of Theme 1. They are also included in the individual topic tests - where topic content allows. Where topic content does not include financial or numerical business concepts, 2-mark questions requiring students to ‘give’ answers, which test recall of knowledge from the specification content, are used instead. (‘Give’ is listed as a command word that may be used in Edexcel GCSE Business question papers - in Appendix 1 on p.29 of the Specification).



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CONTENTS

Page No

FOREWORD

Topic 1: Enterprise and Entrepreneurship 1 Test 2 Answers 8 Topic 2: Spotting a business opportunity 16 Test 17 Answers 23 Topic 3: Putting a business idea into practice 32 Test 33 Answers 40 Topic 4: Making the business effective 48 Test 49 Answers 55 Topic 5: Understanding external influences on business 64 Test 65 Answers 71

END OF THEME 1 - Test 1 82 Test 83 Answers 89 END OF THEME 1 - Test 2 99 Test 100 Answers 106



1

Topic 1.1

Enterprise and Entrepreneurship

Note to teachers: The specification for Topic 1 (and specifically

Topic 1.1.2 on ‘Risk and reward’) requires students to learn that ‘profit’ is a reward for starting and running a business. Although the concept and calculation of profit is subsequently referred to in Topic 3 (on ‘Business revenues, costs and profit’), it is assumed that in order to understand profit as a reward for risk, a definition of profit which covers its basic calculation, ie profit = revenue - costs, is included in the teaching of Topic 1. This provides scope to test students’ quantitative skills early on in the course; hence the inclusion, in this first Topic Test on Theme 1, of two 2-mark questions requiring students to know how to calculate profit, as well as testing students’ more general understanding of percentages.



2

TOPIC 1 Test: Enterprise and Entrepreneurship

Answer ALL questions. Write your answers in the spaces provided.

Some questions must be answered with a cross in the box . If you change your mind about an answer, put a line through the box and then mark your new question with a cross .

1 (a) Which one of the following is an example of a service?

Select one answer: (1)

A Mountain bike

B Dental treatment

C Earphones

D Laptop

(b) Which one of the following describes the role of an entrepreneur?


A To work alone in a business

B To buy shares in a new business

C To work for a large company

D To organise resources to start a business

(c) Explain one reason why new business ideas come about. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one reward that entrepreneurs may enjoy from starting a new business. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………

(Total for Question 1 = 8 marks)



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2 (a) Which two of the following are examples of products (or goods) as opposed to services?

Select two answers: (2)

A School uniform

B Journey in a taxi

C Geography lesson

D Tennis ball

E Pedicure

(b) Which two of the following are least likely to be demonstrated by a successful entrepreneur?


A Tends to be cautious

B Determined to succeed

C Passionate about their business idea

D Makes timely business decisions

E Unwilling to take responsibility

The table below shows some key financial information for a small business.

(c) Complete the table with the two missing figures. (2)

Year 1 (£) Year 2 (£)

Revenue 87 613 100 349

Costs 63 408 (ii)

Profit (i) 38 714



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(d) Explain one way in which a new business idea comes about. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain one role of a business enterprise.

(3)

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3 (a) Which one of the following does the acronym USP stand for?


A Unique sales point

B Unique sales promotion

C Unique selling point

D Unique standing position

(b) Using the information below calculate the profit for the business. You are advised to show your workings.

Revenue: £117 200

Costs: 60% of revenue (2)

£ …………………………………………

(c) Explain one way in which a business can add value to its product or service.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one reason why it is important for a business to add value. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………

(e) Discuss the potential risks a potential entrepreneur should consider when deciding whether or not to start a business.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………


TOTAL FOR TOPIC 1 TEST = 35 marks)



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TOPIC 1: Enterprise and Entrepreneurship - Mark Scheme / Answers

Q1 (a) Which one of the following is an example of a service?

A Mountain bike B Dental treatment C Earphones D Laptop

Question number

Answer Mark

1(a) B (1) AO1a

Q1 (b) Which one of the following describes the role of an entrepreneur?

A To work alone in a business B To buy shares in a new business C To work for a large company D To organise resources to start a business

Question number

Answer Mark

1(b) D (1) AO1a

Q1 (c) Explain one reason why new business ideas come about.

Question number

Answer Mark

1(c) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks.

Teacher’s note: There is a range of possible 3-mark responses to this question. Several examples are provided below. As explained in the foreword, several words and phrases are highlighted in bold in the answers. These words / phrases are business concepts or issues that the Edexcel GCSE (9-1) Business Specification specifically advises students to learn about.

New business ideas can come about as a result of changes in (or, more specifically, advances in) technology (1). Advances in technology enable completely new products (or services) to be designed and developed that were not able to be produced (or provided) using previous technologies (1). For example… …self-cleaning cars using nano-paint technology (1). …self-driving cars using autopilot technology (1). Advances in technology also enable existing products, services or processes to be improved upon (1), for example, in terms of… …better performance (1). …enabling products (or services) to be produced at lower cost (1).

(3) AO1a=1 AO1b=2



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Changes in what consumers want can encourage the identification and development of new business ideas (1). For example, people are increasingly concerned about the impact of a business’s activities on the environment (1), and this has led to development of… …new materials and processes to produce (and package) products (1). …environmentally friendly products, such as electric-powered cars (1). New business ideas will be developed as existing products or services become obsolete (1). This can stem from advances in technology and / or changes in attitudes / tastes / fashion (1). For example, DVDs may eventually become obsolete as a result of the rise in internet and satellite technology (1). This has enabled films to be downloaded, and has led to a rapid increase in the number of satellite channels (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

Q1 (d) Explain one reward that entrepreneurs may enjoy from starting a new business.

Question number

Answer Mark

1(d) Award 1 mark for identification of a reward, plus 2 further marks for explaining this reward, up to a total of 3 marks.

There is a range of possible responses to this question. Several examples are provided below.

The main reward associated with entrepreneurship is business success (1) and the financial reward that this can bring in the form of profit (1). Profit is the amount which is left from revenue after all costs have been deducted (1). Alternative... One of the main rewards associated with entrepreneurship is profit (1), which is revenue minus costs (1). Without the prospect of profit, an entrepreneur has no incentive to start a business (1). The amount of profit made must be enough, compared to the risks and challenges involved (1), otherwise an entrepreneur will, in the longer run, leave the market, or even give up being an entrepreneur (1).

There are also non-financial rewards associated with starting and running a business….

Being your own boss / being able to work independently without any interference (1) can provide a great deal of freedom and flexibility (1) that working for someone else might not provide (1). An entrepreneur may also gain a tremendous sense of achievement (1) from establishing and building their own business over time (1) that working for someone else might not provide (1).

Accept any other appropriate response. Answers that list more than one reward with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



10

Q2 (a) Which two of the following are examples of products (or goods) as opposed to services?

A School uniform B Journey in a taxi C Geography lesson D Tennis ball E Pedicure

Question number

Answer Mark

2(a) A, D (2) AO1a

Q2 (b) Which two of the following are least likely to be demonstrated by a successful entrepreneur?

A Tends to be cautious B Determination to succeed C Passionate about their business idea D Makes timely business decisions E Unwilling to take responsibility

Question number

Answer Mark

2(b) A, E (2) AO1a

The table below shows some key financial information for a small business.

Q2 (c) Complete the table with the two missing figures.

Year 1 (£) Year 2 (£)

Revenue 87 613 100 349

Costs 63 408 (ii)

Profit (i) 38 714

Question number

Answer Additional guidance Mark

2(c) (i) £24 205 (£87 613 - £63 408)

Do not accept any other answer (1) AO2

Question number


2(c) (ii) £61 635 (£100 349 - £38 714)




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Q2 (d) Explain one way in which a new business idea comes about.

Question number

Answer Mark

2(d) Award 1 mark for identification of a way in which a new business idea comes about, plus 2 further marks for explaining this, up to a total of 3 marks. A new business idea may arise following a review of existing products and services (1). This may result in… …adapting successful business products / services (1). …addressing the faults or shortcomings of existing products / services (1). …combining two or more existing ideas in a unique way (1). …identifying a gap in a market not currently being filled (1). New, original business ideas may be generated through brainstorming (1). This involves a group of people being encouraged to put forward their ideas in relation to a specific question posed / problem to be solved (1). Once a range of ideas have been identified, any ideas not considered to be practical (eg due to difficulty securing resources, legal or ethical reasons) should be eliminated and a shortlist is determined for more careful consideration (1). Accept any other appropriate response. Answers that list more than one way with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q2 (e) Explain one role of a business enterprise.

Question number

Answer Mark

2(e) Award 1 mark for identification of a role, plus 2 further marks for explaining this role, up to a total of 3 marks. There is a range of possible 3-mark responses to this question. Several examples are provided below. One role of business enterprise is to produce goods or services (1). Goods are tangible ie physical objects that can be seen and touched (1) - for example - food, shampoo, newspapers, microwaves, cars, machine parts, computers, pens (1). Services are intangible, ie they cannot be seen or touched / They are things other people do for you (1), such as cutting your hair, looking after your money, or prescribing treatment when you are ill (1). One role of business enterprise is to meet / satisfy customer needs and wants (1). People have basic needs that must be satisfied in order to survive (1). These include food, water, warmth, shelter and clothes (1).

(3) AO1a=1 AO1b=2



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Wants are not essential for survival but help to make life more comfortable and enjoyable (1). These include microwaves, magazines, computer games and holidays (1). One role of business enterprise is to provide a product (or service) which meets / satisfies customer expectations (1). Once a person commits to buying a product they become customers of a business and have certain expectations about the product they are buying, which they expect the business to satisfy (1). These largely concern product attributes / quality (1), as well as other aspects relating to the sale, such as price, credit terms, delivery times, and after sales service (1). The main role of a business is to generate wealth for those who own and control the business (1). Businesses do this by taking inputs (resources such as raw materials) and through various processes transform these into more valuable outputs (finished goods and services) (1). For example (1 mark for any single, accurate example…), the ingredients needed to produce a chocolate bar (eg cocoa, sugar, milk) may cost 20p, but the selling price may be £1. The original ingredients have gone through various processes which require the application of additional resources and this increases their worth (value) to the customer (1). Alternative answer re adding value… Business have numerous goals (aims and objectives) which they strive to achieve but the majority of these can be directly related to generating / maximising wealth for the entrepreneur (and employees) and adding value for customers (1). For the business, adding value is reflected in the difference between the selling price of a product or service and the cost of bought-in materials or components used to product / provide it (1). For consumers, adding value involves providing products / services that consumers need or want and so they do not have to produce or do things for themselves (1). Accept any other appropriate response. Answers that list more than one role with no explanation will be awarded a maximum of 1 mark.

Q3 (a) Which one of the following does the acronym USP stand for?

A Unique sales point B Unique sales promotion C Unique selling point D Unique standing position

Question number

Answer Mark

3(a) C (1) AO1a



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Q3 (b) Using the information below calculate the profit for the business. You are advised to show your workings. Revenue: £117 200. Costs: 60% of revenue.

Question number


3(b) (Profit = Revenue - Costs) Substitution into correct formula: £117 200 - (£117 200 x 0.6) (1) Answer: £46 880 (1)

Award full marks for correct numerical answer without working

(2) AO2

Q3 (c) Explain one way in which a business can add value to its product or service.

Question number

Answer Mark

3(c) Award 1 mark for identification of a way in which a business can add value, plus 2 further marks for explaining this, up to a total of 3 marks.

There is a wide range of possible 3-mark responses to this question. Several examples are provided below.

One way in which a business could add value is… …by making it more convenient for customers to purchase a product or use a service (1), for example, by extending opening hours (1). As a result, people may be willing to pay a higher price for a product that they can access outside normal working hours (1). …through branding (1). Having a distinct name or style enables a business and / or its products to be easily recognised by customers and differentiates it from others (1). People may then be willing to pay a higher price for a product that appears superior in some way to others in the marketplace (1). …by investing in more effective or extensive advertising (1). Advertising can make a product more appealing (1) and, as a result, customers may be willing to pay a higher price (1). …by offering a better quality product (1). If a business improves its product (or service), so that it meets customers’ needs more effectively than competitors (1), customers may be willing to pay a higher price (1). …by improving the design of the product (1). Improved design may make a product more effective in carrying out its function (1), and for this people may be willing to pay a higher price (1). …by improving the design of the product (1). Improved design may make the product more visually appealing (1), and for this people may be willing to pay a higher price (1). …by having a unique selling point (USP) (1). This will help make the product stand out from competitors (1), and customers may be willing to pay more for a distinctive product, particularly if the USP meets their needs better than competitors (1).

Accept any other appropriate response. Answers that list more than one way with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



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Q3 (d) Explain one reason why it is important for a business to add value.

Question number

Answer Mark

3(d) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks. For businesses owned by private individuals, it is by adding value that such organisations meet their primary objective of making a profit (1). The route to more profit is by increasing product value and thereby increasing sales revenue (1), either by selling greater volumes and / or charging a higher price (1), as the product is seen as more desirable (1). The more effective businesses are at adding value, the more profit they make (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q3 (e) Discuss the potential risks a potential entrepreneur should consider when deciding whether or not to start a business.

Question number

Indicative content

Mark

3(e) Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines allocated for their answer. Several bulleted paragraphs with relevant points are presented below, not all of which would be required to secure maximum marks. In these 6-mark questions, just 2 or 3 relevant, well-developed points should be sufficient to secure the maximum marks. These questions are marked using level descriptors detailed on the following page.

Risk is the possibility of an event or condition occurring that will have a negative or harmful impact (eg cause damage, injury or loss) on something perceived to be of value (AO1b).

In the context of starting up a business, risk mainly concerns the fact that money, time and effort is invested into an idea for which there is no guarantee of success (AO1b). There is, in fact, a great deal of uncertainty and lack of security (eg in terms of guaranteed income and profit) associated with starting a new business (AO1b). This is because, even if the concept has been tried and tested there are numerous factors outside the control of a business that are difficult to predict, that can impinge upon the business’s performance and could, ultimately, result in business failure (AO3a). For example, the arrival of a new competitor, or unforeseen changes in the economic climate, such as changes in interest rates or taxations rates, can negatively affect the costs and / or demand for a business product or service and, ultimately, make it difficult to generate the sales required to make a satisfactory level of profit, or even generate the cash required to pay the business debts (eg for rent, electricity, materials from suppliers) as they fall due (AO3a).

(6) AO1b=3 AO3a=3



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In which case, the business could be forced, by its creditors (the people it owes money to) to close down and sell off any assets in order to pay these debts (AO3a).

Business failure could, ultimately, lead to financial loss and emotional suffering, (not only for the entrepreneur, but also for its employees and suppliers) (AO3a).

In terms of financial loss, a significant amount of money may be required to purchase the resources (eg the initial premises, plant, machinery, materials, etc) to start a business, a large proportion of which may be paid for using the entrepreneur’s own personal funds (AO1b). If the business fails, the entrepreneur (and / or any other business investors) will have to bear the financial costs of failure and pay off any debts incurred (AO3a).

The entrepreneur may also suffer emotionally (eg from low self-esteem) as a result of failure to establish his / her idea in the market place (AO1b, AO3a).

Even if the business does not fail, setting up and running a business requires a great deal of hard work which can put a strain on social and family life and relationships, and can cause emotional stress (AO1b, AO3a). If an entrepreneur does not have the support of their partner / family to begin with, then this could create conflict later and could, ultimately, be a factor leading to business failure (AO3a).

Level Mark Descriptor 0 No rewardable material.

Level 1 1-2 Demonstrates elements of knowledge and understanding of business concepts and issues, with limited use of business terminology (AO1b).

Attempts to deconstruct (interpret and/or analyse) business information and / or issues, finding limited connections (links, relationships) between points (AO3a).

Level 2 3-4 Demonstrates mostly accurate knowledge and understanding of business concepts and issues, including appropriate use of business terminology in places (AO1b).

Deconstructs business information and / or issues, finding interconnected points with chains of reasoning, although there may be some logical inconsistencies (AO3a).

Level 3 5-6 Demonstrates accurate knowledge and understanding of business concepts and issues throughout, including appropriate use of business terminology (AO1b).

Deconstructs business information and / or issues, finding detailed interconnected points with logical chains of reasoning (AO3a).



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Topic 1.2

Spotting a Business Opportunity

Note to teachers: The specification for this Topic 1.2 does not include financial or numerical business concepts; hence the use of two 2-mark questions requiring students to ‘give’ answers which test recall of knowledge from the specification content, instead of two 2-mark calculation questions (as explained in the Foreword to these test papers).



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TOPIC 2 Test: Spotting a Business Opportunity



1 (a) Which one of the following is the correct definition of secondary market research?


A The gathering of data which already exists

B The gathering of data which does not already exist

C The study of the behaviour of secondary school children

D The study of materials and sources to improve knowledge

(b) Which one of the following statements is an accurate description of quantitative data and qualitative data?


A Quantitative data is data obtained first hand, whereas qualitative data is second hand data

B Quantitative data can be measured, whereas qualitative data cannot be measured

C Qualitative data concerns numerical data, whereas quantitative data concerns descriptive data

D Qualitative data is easier to analyse, whereas quantitative data is more difficult to analyse

(c) Explain one need that customers expect businesses to satisfy.

(3)

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(d) Explain one reason why it is important for a business to identify and understand customers.

(3)

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2 (a) Which two of the following are examples of primary market research?


A Postal questionnaires

B Information published on the Internet

C Reports by market intelligence agencies

D Government reports and statistics

E Direct observation

(b) Which two of the following are examples of quantitative data?


A The sky is blue

B All of the women in the group are friendly

C The average shoe size for men in the UK is size 10

D 18% of the UK population are aged 65 or over

E Most of the people in the group do not look very well

(c) Give two ways in which a business might use market mapping. (2)

1 …………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… 2 …………………………………………………………………………………………………………………………………………………………… .………………………………………………………………………………………………………………………………………………………………



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(d) Explain one purpose of market research when starting a new business. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain one reason why the reliability of market research data is important when starting a new business.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




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3 (a) Which one of the following is the correct definition of a focus group?


A A number of people gathered together who can see clearly

B A number of people gathered together so that their behaviour can be observed and recorded

C A number of people gathered together to participate in a discussion about a product before it is launched

D A number of people gathered together to be interviewed and selected for a job

(b) Give two factors customers are likely to consider when choosing between competing businesses’ products.

(2)

1 …………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… 2 …………………………………………………………………………………………………………………………………………………………… .……………………………………………………………………………………………………………………………………………………………… (c) Explain one way in which a business might segment the market.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one way in which operating in a competitive environment may impact on a business’s decision making.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Discuss the methods of primary research an entrepreneur could use to identify and understand potential customers’ needs.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………





23

TOPIC 2: Spotting a Business Opportunity - Mark Scheme / Answers

Q1 (a) Which one of the following is the correct definition of secondary market research?

A The gathering of data which already exists B The gathering of data which does not already exist C The study of the behaviour of secondary school children D The study of materials and sources to improve knowledge

Question number

Answer Mark

1(a) A (1) AO1a

Q1 (b) Which one of the following statements is an accurate description of quantitative data and qualitative data?

A Quantitative data is data obtained first hand, whereas qualitative data is second hand data B Quantitative data can be measured, whereas qualitative data cannot be measured C Qualitative data concerns numerical data, whereas quantitative data concerns descriptive data D Qualitative data is easier to analyse, whereas quantitative data is more difficult to analyse

Question number

Answer Mark

1(b) B (1) AO1a

Q1 (c) Explain one need that customers expect businesses to satisfy.

Question number

Answer Mark

1(c) Award 1 mark for identification of a customer need (or expectation), plus 2 further marks for explaining this need / expectation, up to a total of 3 marks. There is a range of possible responses to this question. Several examples are provided below. As explained in the foreword, several words and phrases are highlighted in bold in the answers. These words/phrases are business concepts or issues the Edexcel GCSE (9-1) Business Specification specifically advises students to learn about. Customers expect the product (or service) they are buying to be of good quality (1). This does not necessarily mean luxurious or top of the range (1), but a product that is fit for its purpose (performs as expected) (1), and as described (1).

(3) AO1a=1 AO1b=2



24

Customers expect reasonable prices / value for money (1). Price has a direct influence on a customer’s purchasing decision and on the overall demand for a business’s product / service (and profitability of a business) (1). If price is set too high, sales and, thus, profits may never be realised (1). This is because customers cannot afford to buy, or may not be willing to buy at that price (1), as they do not feel they are getting value for money (1). Customers expect choice (1). This means they require a range of options when it comes to buying a product or service (1). For example… …Customers may require a product to be offered in a range of colours or flavours (in the case of food items) (1). …Customers may want to access a product or service through a physical store, or online (1). …If ordering online customers may want the convenience of reserving the product online and then collecting and paying for it in a physical store, or buying the product online for home delivery (1). …Customers may want the opportunity to choose from different payment methods when buying a product or service (eg PayPal, debit card, credit card, BACS transfer) (1). Customers expect convenience (1). Convenience is all about making the process of buying a product or service easier in some way (1). For example… …Customers may prefer to park their car near to a retail outlet, in order to avoid walking, especially in bad weather (1). …Customers may want the convenience of buying a product or service online whilst commuting, or away from home or their usual place of work, using a variety of mobile devices and applications (1). Accept any other appropriate response. Answers that list more than one need / expectation with no explanation will be awarded a maximum of 1 mark.

Q1 (d) Explain one reason why it is important for a business to identify and understand customers.

Question Number

Answer Mark

1(d) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks. Taking the time to identify customers and understand their requirements is crucial to generating sales (1). This is because if a business understands its customers, it is more likely to provide a product / service that meets customer requirements and expectations (1). Therefore, it is more likely to generate sales from repeat business and word of mouth recommendations (1).

(3) AO1a=1 AO1b=2



25

Taking the time to identify customers and understand their requirements is fundamental to the survival and success of every business (1). If a business does not understand its customers, it is less likely to meet customer needs and expectations (1). This will lead to dissatisfied customers (1), lack of repeat business (1), and a failure to gain new customers from customer recommendations (1). As a result, sales, revenue and profit will be limited (1) and will ultimately threaten the business’s survival (1).

Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

Q2 (a) Which two of the following are examples of primary market research?

A Postal questionnaires B Information published on the Internet C Reports by market intelligence agencies D Government reports and statistics E Direct observation

Question number

Answer Mark

2(a) A, E (2) AO1a

Q2 (b) Which two of the following are examples of quantitative data?

A The sky is blue B All of the women in the group are friendly C The average shoe size for men in the UK is size 10 D 18% of the UK population are aged 65 or over E Most of the people in the group do not look very well

Question number

Answer Mark

2(b) C, D (2) AO1a

Q2 (c) Give two ways in which a business might use market mapping.

Question Number

Answer Mark

2(c) Award 1 mark for each way identified, up to a maximum of 2 marks.

A business might use market mapping to… …identify where competing products fall across two dimensions (eg price and quality) (1). …identify a gap in a market that might be exploited (1).

Accept any other appropriate response.

(2) AO1a



26

Q2 (d) Explain one purpose of market research when starting a new business.

Question Number

Answer Mark

2(d) Award 1 mark for identification of a purpose, plus 2 further marks for explaining this purpose, up to a total of 3 marks. There is a range of possible responses to this question. Several examples are provided below. When starting a new business, market research is carried out to identify and understand customer needs (1). For example, it can help to identify what product (or service) attributes customers require and the price customers are willing to pay (1). The business can then design the product (or service) and set the price, etc, according to customer requirements and expectations (1). This will be crucial in maximising sales (1). For a person wanting to start their own business, market research can identify gaps in the market (1). They can do this, for example, by asking people what products (or services) they would like see that are not already being provided in the marketplace (1), or that are already being provided but which could be improved upon (1). One of the main purposes of undertaking market research when starting a new business is to reduce risk (1). Launching a new business on hunches alone, without any researching or testing, runs a greater risk of failure (1). This is because market research is more likely to detect potential problems / weaknesses with the business idea and enable improvements to be made prior to a full launch (1). In the context of starting a new business, market research can help an entrepreneur make informed decisions over how to maximise the business’s success (1). For example, information gathered from market research can help to improve decisions over product (or service) features, prices to charge, where and how to sell the product / service, etc (1). This information will help to accurately identify and meet customer needs, preferences and expectations (1), and will thereby be crucial to maximising sales and, ultimately, the business’s success (1). Accept any other appropriate response. Answers that list more than one purpose with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



27

Q2 (e) Explain one reason why the reliability of market research data is important when starting a new business.

Question Number

Answer Mark

2(e) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks. [Note: Reliability of market research concerns the repeatability of findings, ie if the research was to be carried out again would it produce the same results? If so, then the data would be reliable.] It is important for a decision to start a new business to be based on reliable market research data, otherwise the business may not sell as many products as expected (1), and thus fail to make enough money from revenue to cover its costs and make an acceptable profit (1). This could ultimately result in business failure (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q3 (a) Which one of the following is the correct definition of a focus group?

A A number of people gathered together who can see clearly B A number of people gathered together so that their behaviour can be observed and recorded C A number of people gathered together to participate in a discussion about a product before it is launched D A number of people gathered together to be interviewed and selected for a job

Question number

Answer Mark

3(a) C (1) AO1a



28

Q3 (b) Give two factors customers are likely to consider when choosing between competing businesses’ products.

Question Number

Answer Mark

3(b) Award 1 mark for each factor identified, up to a maximum of 2 marks.

There is a wide range of possible responses to this question. Several examples are provided below. The price of the product (1). The quality of the product (1). The range of products on offer (choice) (1). The level / standard of customer service provided (1). The location of the business / How close the business is to them (1). How convenient / easy it is to purchase the product (1). How fast the product can be delivered (1). Whether or not the product can be purchased on credit / the credit terms offered (1). The length of any guarantees / warranties (1). Whether products are available online and / or in physical outlets (1). The reputation of the businesses and its products (1). Accept any other appropriate response.

(2) AO1a

Q3 (c) Explain one way in which a business might segment the market.

Question number

Answer Mark

3(c) Award 1 mark for identification of a method of market segmentation, plus 2 further marks for explaining this method, up to a total of 3 marks.

There is a range of possible responses to this question. Several examples are provided below. A business might segment the market geographically (1), because customer preferences may differ by locality (1). This involves dividing the market up into customer groups according to where customers are located (1) - for example - into countries, regions, counties, cities, towns, neighbourhoods, post codes (1). A business might segment the market according to demographic factors (1), because customer preferences may differ according to personal characteristics (1). This involves dividing the market up into customer groups according to a range of these personal characteristics and related variables (1) - for example - gender, age, size, income, occupation, education, race, religion, nationality, marital status, family size, family cycles (1).

(3) AO1a=1 AO1b=2



29

A business might use psychographic segmentation (1), because customer preferences may vary according to their attitudes and behaviour (1). This involves dividing the market up into groups according to these psychological differences (1) - for example - according to their activities, attitudes, beliefs, interests, lifestyle, opinions, personality, values (1). A business might use behavioural segmentation (1). This involves classifying people based on their actions / responses (1) - for example - what they use a product for (end use of a product), the benefits sought from the product or service, how often they purchase or use the product / service (usage rate), the level of loyalty to companies and their products and services (loyalty status) (1). Accept any other appropriate response. Answers that list more than one method of market segmentation with no explanation will be awarded a maximum of 1 mark.

Q3 (d) Explain one way in which operating in a competitive environment may impact on a business’s decision making.

Question number

Answer Mark

3(d) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks. There is a wide range of possible responses to this question. Several examples are provided below. In general, competition forces a business to look more carefully at how it can meet or exceed customer requirements and expectations (1), and give customers something that they value over and above what rivals offer (1) - for example - by offering lower prices, superior products, incentives eg free gifts, superior delivery (eg faster or more reliable), superior customer service (eg more friendly, helpful staff) (1). These types of added value will be important in order to maintain and increase sales / market share (1). A business operating in a competitive environment may be forced to offer lower prices (1). This is because people will buy from the seller with the lowest price (1), unless a product is considered to be superior in ways that customers value (in which case customers will be prepared to pay a higher price) (1). The presence of competition may force a business to become more efficient (eg by minimising waste) (1), in order to reduce costs (1), and ultimately enable the business to charge lower prices (and still earn an acceptable profit) (1).

(3) AO1a=1 AO1b=2



30

Competition encourages firms to innovate and to develop new and improved products (1) - for example - better tasting (in terms of food), longer-lasting (in terms of car tyres, batteries, etc), and improved design (in terms of furniture, clothing, etc) (1), in order to more closely meet the needs and expectations of customers (1).

Competition might also encourage a business to increase investment in promotion (1), in order to raise awareness of its existence and its USP (1). A well-designed promotional strategy can be used to highlight ways in which a business’s product might be superior to competitors and, ultimately, help win sales (1).

Accept any other appropriate response. Answers that list more than one impact with no explanation will be awarded a maximum of 1 mark.

Q3 (e) Discuss the methods of primary research an entrepreneur could use to identify and understand potential customers’ needs.

Question number

Indicative content

Mark

3(e) Remember: Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines allocated for their answer. Several paragraphs with relevant points are presented below. Not all of these points would be required to secure maximum marks. In these 6-mark questions, just 2 or 3 relevant, well-developed points should be sufficient to secure the maximum marks. These questions are marked using level descriptors detailed on the following page.

If the entrepreneur can get hold of the contact details of potential customers, he / she could send a questionnaire via post or email (AO1b). This could be a relatively cheap and quick way for the entrepreneur to find out about customer needs, especially a questionnaire sent via email (AO1b). This is because no stationery, printing or postage would be required, and the email can be received within minutes of being sent (AO3a). However, postal and email questionnaires can be easy to ignore and can easily get thrown away or deleted (AO1b), and so the entrepreneur might not get back many replies / the response rate may be poor (AO3a). The entrepreneur may, therefore, need to offer an incentive to retain and complete the questionnaire promptly (AO3a) - for example - free entry into a prize draw, but this would add to the cost of the research (AO3a).

The entrepreneur could also carry out a survey and ask potential customers questions about their business idea face to face (AO1b). It is harder to ignore a real person wanting to ask questions than a postal or email questionnaire, and so the response rate may be higher (AO3a). There is also the opportunity to clarify questions, and obtain more detailed feedback with face to face surveys, and this can improve the quality of the research collected (AO1b, AO3a).

(6) AO1b=3 AO3a=3



31

Face to face surveys can, however, be time consuming and expensive to carry out (AO1b), and so the entrepreneur may not be able to afford the time and cost involved in carrying out a survey big enough to produce reliable results (AO3a). In addition, the answers might not be entirely truthful (AO1b). This is because people may be uncomfortable telling the truth if they think this is not what the researcher wants to hear, or if they are in a hurry (AO3a). A highly skilled interviewer may, therefore, be required - one skilled in detecting whether or not people are telling the truth (AO3a), which would increase the cost of carrying out the survey (AO3a).










32

Topic 1.3

Putting a Business Idea into Practice



33

TOPIC 3 Test: Putting a Business Idea into Practice



1 (a) Which one of the following is an example of a non-financial objective for an entrepreneur when starting a new business?


A Profit

B Sales

C Personal satisfaction

D Financial security

(b) Which one of the following is not the correct formula for calculating the concept listed?


A Revenue = Quantity sold x Selling price per unit

B Total costs = Total fixed costs + Total variable costs

C Margin of safety = Planned or Actual output - Breakeven level of output

D Breakeven level of output = Total fixed costs / Selling price per unit

(c) Explain one reason why making a profit is a key business objective. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



34

(d) Explain one reason why aims and objectives differ between businesses. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




35

2 (a) Which two of the following are examples of variable costs?


A Raw materials

B Rent on premises

C Insurance

D Salaries of managers

E Wages of production staff

(b) Which two of the following are examples of an overhead?


A Rent

B Insurance

C Packaging

D Raw materials

E Wages of production staff

(c) Using the information below, calculate the break even level of output for the business. You are advised to show your workings.

Fixed costs: £16 500

Selling price per unit: £60

Variable costs per unit: £30 (2)

£ …………………………………………



36

(d) Explain one way in which a business can reduce the amount needed to be sold to break even.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain the impact on a business’s break even level of output if fixed costs increased.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




37

3 (a) With reference to the diagram below, which one of the following is not correct?


A A = Break even point

B B = Variable costs

C C = Fixed costs

D D = Profit

The table below shows the cash-flow forecast for a small business.

(b) Complete the table with the two missing figures. (2)

April (£) May (£)

Receipts 12 700 13 460

Raw materials 6 030 5 380

Rent 1 540 1 540

Total payments 7 570 6 920

Net cash flow (i) 6 540

Opening balance 4 700 9 830

Closing balance 9 830 (ii)

Co

sts

/ R

even

ue / P

rofit (£

000

’s)

40

35

30

25

20 0 1 2 3 4 5 6 7 8 9 10

Output (000’s)

C

Total Costs

B

Total Revenue D

A



38

(c) Explain one reason why cash is important to a business. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………

(d) Explain one short-term method of finance for a start-up or established small business.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



39

(e) Discuss reasons why an established business might prefer to use retained profit over a bank loan to fund the business’s expansion.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………





40

TOPIC 3: Putting a Business Idea into Practice - Mark Scheme / Answers

Q1 (a) Which one of the following is an example of a non-financial objective for an entrepreneur when starting a new business?

A Profit B Sales C Personal satisfaction D Financial security

Question number

Answer Mark

1(a) C (1) AO1a

Q1 (b) Which one of the following is not the correct formula for calculating the concept listed?

A Revenue = Quantity sold x Selling price per unit B Total costs = Total fixed costs + Total variable costs C Margin of safety = Planned or Actual output - Breakeven level of output D Breakeven level of output = Total fixed costs / Selling price per unit

Question number

Answer Mark

1(b) D (Should be ‘Contribution’ not ‘Selling price’ per unit) (1) AO1a

Q1 (c) Explain one reason why making a profit is a key business objective.

Question number

Answer Mark

1(c) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks. There is a range of possible responses to this question. Several examples are provided below. Making a profit is essential to a business’s survival in the long-term (1). This is because… …The prospect of making a profit is the main reason why most businesses are established (1). It is the reward for the risk (financial and other), effort and time involved in setting up a business (1). Without profit, there is no reason for a business’s continued existence, and therefore it would close (1). …If the business was started using a bank loan and it does not make a profit, it will not be able to repay the loan (1). The bank could then force the business close (1) - in order to sell assets to raise the funds required to repay the loan (1).

(3) AO1a=1 AO1b=2



41

In the case of private limited companies, making a profit is important to keep shareholders happy (1). They expect to receive a return as a reward for their investment, in the form of a dividend (1). This is a percentage of profits (after tax) (1). Making a profit provides internal finance for investment (1), for example for growth and expansion (1). The higher the (net) profit, the more finance there is, from within the business, to fund future growth / expansion plans (1). Making a profit can also help to secure external finance - for example in the form of loans and / or share capital (equity finance) (1). This is because external providers of finance will be interested in a business’s profit performance, in terms of amount and duration (1). The higher the net profit, the more likely the business will be able to attract potential investors / raise external finance to fund future growth / expansion (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

Q1 (d) Explain one reason why aims and objectives differ between businesses.

Question Number

Answer Mark

1(d) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks. There is a range of possible 3-mark responses to this question. Several examples are provided below. The age of businesses / how long businesses have been in existence (1). Many businesses, just starting up, may be content to survive and break-even in the short to medium term, as it takes time to build a customer base (1). In contrast, an older, more established business may be expected to focus on maintaining or adding to market share to ensure continued profits (1). The size of the business (1). Small businesses may not be able to raise the capital required to fund expansion (1) and so their objectives may be less ambitious (eg in terms of sales, profits and market share) than those of larger businesses (1). The type of business structure (1), for example, sole traders have less capital raising opportunities than limited companies to fund growth (1). Therefore, sole traders may have less ambitious objectives (eg in terms of sales growth and market share) than limited companies, which can raise additional finance for expansion by selling shares (1).

(3) AO1a=1 AO1b=2



42

The business owner’s attitude towards risk (1). Some owners may be more willing than others to take a risk (1) and, as a result, may pursue more ambitious growth objectives, such as diversification into new markets (1). Note: The difference between the public sector and private sector is not mentioned in the Theme 1 specification but the following could also be referred to… Whether the business operates in the public or private sector / type of business ownership (1). This is because businesses operating in the private sector are more likely to have commercial aims, such as profit maximisation in order to reward the entrepreneur (1), whereas public sector organisations are likely to have more socially orientated aims, such as maximising the welfare of the local community (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

Q2 (a) Which two of the following are examples of variable costs?

A Raw materials B Rent on premises C Insurance D Salaries of managers E Wages of production staff

Question number

Answer Mark

2(a) A, E (2) AO1a

Q2 (b) Which two of the following are examples of an overhead?

A Rent B Insurance C Packaging D Raw materials E Wages of production staff

Question number

Answer Mark

2(b) A, B (2) AO1a



43

Q2 (c) Using the information below, calculate the break even level of output for the business. You are advised to show your workings. Fixed costs: £16 500 Selling price per unit: £60 Variable costs per unit: £30

Question number


2(c) Break even = Fixed costs / contribution per unit (ie Unit selling price - Variable costs per unit) Substitution into correct formula: £16 500 / (£60 - £30) (1) Answer: 550 (1)

Award full marks for correct numerical answer without working

(2) AO2

Q2 (d) Explain one way in which a business can reduce the amount needed to be sold to break even.

Question Number

Answer Mark

2(d) Award 1 mark for identification of a way to reduce the amount needed to be sold to break even, plus 2 further marks for explaining this, up to a total of 3 marks. Possible responses: A business might be able to reduce the break-even level of sales by reducing variable costs (1), for example, by switching to cheaper suppliers, as long as they do not compromise quality (1). This action would reduce total costs and lower the break-even quantity (1). A business might be able to reduce the break-even level of sales by reducing fixed costs (1), for example, by locating to cheaper rented premises (1). This action would reduce total costs and lower the break-even quantity (1). A business might be able to reduce the break-even level of sales by increasing the unit selling price (1). This would increase total sales revenue and have the effect of lowering the break-even level of sales (1). However, raising prices… …could lead to a fall in demand (sales) and, thus, sales revenue (1), as customers are not willing or cannot afford to pay the higher price (1). .. might be unwise, when a high degree of competition exists (1), because customers might decide not to buy from a business if they are able to obtain the same goods and services more cheaply elsewhere (1). Accept any other appropriate response. Answers that list more than one way to reduce the amount needed to be sold to break even, with no explanation, will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



44

Q2 (e) Explain the impact on a business’s break even level of output if fixed costs increased.

Question Number

Answer Mark

2(e) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks. Possible response: If a business’s fixed costs increased, the break even level of output would increase (1). This is because an increase in fixed costs would increase total costs (1), resulting in more products having to be sold to break even (1). Accept any other appropriate response.

(3) AO1a=1 AO1b=2

Q3 (a) With reference to the diagram below, which one of the following is not correct?

A A = Break even point B B = Variable costs C C = Fixed costs D D = Profit

Question number

Answer Mark

3(a) A (The break even point is where the Total Revenue and Total Costs lines cross)

(1) AO1a

Co

sts

/ R

even

ue / P

rofit

(£0

00

’s)

40

35

30

25

20 0 1 2 3 4 5 6 7 8 9 10

Output (000’s)

C

Total Costs

B

Total Revenue D

A



45

The table below shows the cash-flow forecast for a small business. Q3 (b) Complete the table with the two missing figures.

April (£) May (£)

Receipts 12 700 13 460


Rent 1 540 1 540

Total payments 7 570 6 920

Net cash flow (i) 6 540


Closing balance 9 830 (ii)

Question number


3(b) (i) £5 130 (£12 700 - £7 570) (also £9 830 - £4 700)


Question number


3(b) (ii) £16 370 (£9 830 + £6 540) Do not accept any other answer (1) AO2

Q3 (c) Explain one reason why cash is important to a business.

Question number

Answer Mark


There is a range of possible 3-mark responses to this question. Several examples are provided below. Cash is essential to the survival of every business (1). This is because without sufficient cash to pay debts as they fall due, a business could be forced by those who are owed money (the business’s creditors) to sell off business assets in order to settle any debt (1). Ultimately, these creditors could force the business to close, after all assets have been sold (1).

Alternative answers using key words / phrases from the specification:

Cash is important to a business in order to pay suppliers (for goods purchased), employees (for time worked) and overheads (eg rent, insurance) (1). If a business does not pay its debts on time it could be forced to close (1), resulting in business failure (1).

(3) AO1a=1 AO1b=2



46

Cash is important for a business in order to pay its suppliers, employees and overheads (1) and, ultimately, prevent a situation of insolvency (1), which is where a business does not have enough cash to meet debts as they fall due (1). Cash is important to prevent business failure through insolvency (1). This is a situation where a business does not have enough cash to meet debts as they fall due (1). If it does become insolvent it could be forced by its creditors to sell all its assets and close (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

Q3 (d) Explain one short-term method of finance for a start-up or established small business.

Question number

Answer Mark

3(d) Award 1 mark for identification of a short-term method, plus 2 further marks for explaining this method, up to a total of 3 marks. Possible responses: An overdraft (1). An overdraft is an arrangement between a firm and its bank or building society to withdraw more money from a bank account than the amount deposited in it (1), up to an agreed limit (1). Interest is usually charged on any amounts overdrawn (1) and in proportion to the periods during which the debt is outstanding (1). Overdrafts are typically used to help a business to pay for stock before it receives money from sales (1). Trade credit (1). This is finance offered by a business’s supplier (1). It grants the business an interest free period in which to pay for goods / services once received (1). This period is formally usually specified as 30 days, but in practice it is nearer 70 days (1). Accept any other appropriate response. Answers that list more than one method with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q3 (e) Discuss reasons why an established business might prefer to use retained profit over a bank loan to fund the business’s expansion.

Question number

Indicative content

Mark

3(e) Remember: Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines for their answer. Several paragraphs with relevant points are presented below, not all of which would be required to secure maximum marks. In these 6-mark questions, 2 or 3 relevant, well-developed points should be sufficient. These questions are marked using level descriptors detailed on the following page.

(6) AO1b=3 AO3a=3



47

Retained profit is the money remaining after cost of sales, other expenses, interest, tax and any dividends to shareholders have been deducted from revenues (AO1b). It is profit which is reinvested in the business (AO1b). A bank loan is an amount of money which a bank advances to a business (or individual), but which must be repaid over an agreed period of time, at an agreed rate of interest (AO1b). This interest may be fixed or variable, although many lenders provide the opportunity of switching from one to the other at pre-specified periods (AO1b). Using retained profits is a quicker and easier way to raise finance than bank loans (AO1b). This is because, unlike bank loans, retained profits are available immediately and there is no need to fill in any application forms, as would be the case with a bank loan (AO3a). Using retained profit is also a cheaper way to raise finance than loans (AO1b). This is because it does not incur interest payments or require payment of a set-up fee, which some loans also require (AO3a). Both payments would increase costs and, thus, negatively affect cash flow and reduce profit (AO3a).










48

Topic 1.4

Making the Business Effective

Note to teachers: The specification for this Topic 1.4 does not include financial or numerical business concepts; hence the use of two 2-mark questions requiring students to ‘give’ answers which test recall of knowledge from the specification content, instead of two 2-mark calculation questions (as explained in the Foreword to these test papers).



49

TOPIC 4 Test: Making the Business Effective



1 (a) Which one of the following is the correct definition of unlimited liability?


A When a business owner is not liable for the actions of the business’s employees

B When a business owner is liable for the actions of the business’s suppliers

C When a business’s assets are not sufficient to cover the business’s debts, the business owner’s personal assets are protected

D When a business’s assets are not sufficient to cover the business’s debts, the business owner’s personal assets are not protected

(b) Which one of the following is a true statement about private limited companies?


A They are owned by shareholders

B They have at least two directors

C They do not have a separate legal identify to the business’s owners

D They do not have to pay corporation tax

(c) Explain one advantage of limited liability to the shareholders of a private limited company.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one advantage of a sole trader business over a partnership or private limited company.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




51

2 (a) Which two of the following are methods of promotion?


A Promotional selling

B Personal selling

C Niche marketing

D Mass marketing

E Direct marketing

(b) Which two of the following are advantages of a partnership over a sole trader?


A Profits are shared

B Responsibility and risk is shared

C There is scope for conflict

D There is cover for holidays and illness

E Decision making may be slow

(c) Give two components of a business plan. (2)

1 …………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… 2 …………………………………………………………………………………………………………………………………………………………… .………………………………………………………………………………………………………………………………………………………………



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(d) Explain one reason why a person may choose to start up and run a franchise operation, rather than choosing to own and run a business completely independently.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain one factor an entrepreneur should consider when deciding upon a suitable location for their business.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




53

3 (a) Which one of the following is not an element of the marketing mix?


A Place

B Price

C Production

D Promotion

(b) Give two disadvantages associated with buying and running a franchise operation, as opposed to starting up and running a completely independent business.

(2)

1 …………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… 2 …………………………………………………………………………………………………………………………………………………………… .……………………………………………………………………………………………………………………………………………………………… (c) Explain one way in which changing consumer needs might impact on a business’s marketing mix.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one reason why an entrepreneur would produce a business plan. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Discuss reasons why a business might choose to sell direct to customers through a website with e-commerce facilities, as opposed to through fixed (physical ‘bricks and mortar’) premises.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………





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TOPIC 4: Making the Business Effective - Mark Scheme / Answers

Q1 (a) Which one of the following is the correct definition of unlimited liability?

A When a business owner is not liable for the actions of the business’s employees B When a business owner is liable for the actions of the business’s suppliers C When a business’s assets are not sufficient to cover the business’s debts, the business owner’s personal assets are protected D When a business’s assets are not sufficient to cover the business’s debts, the business owner’s personal assets are not protected

Question number

Answer Mark

1(a) D (1) AO1a

Q1 (b) Which one of the following is a true statement about private limited companies?

A They are owned by shareholders B They have at least two directors C They do not have a separate legal identify to the business’s owners D They do not have to pay corporation tax

Question number

Answer Mark

1(b) A (1) AO1a

Q1 (c) Explain one advantage of limited liability to the shareholders of a private limited company.

Question number

Answer Mark

1(c) Award 1 mark for identification of an advantage, plus 2 further marks for explaining this advantage, up to a total of 3 marks. Limited liability removes the personal financial risk associated with owning a business (1). This is because the personal assets of the owners are regarded as separate to the business assets (1). Hence, in the event of business failure and the business assets being insufficient to settle all debts, shareholders in private limited companies will not be forced to use / sell their own personal assets to raise the money required to settle any remaining business debts (1). Accept any other appropriate response. Answers that list more than one advantage with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



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Q1 (d) Explain one advantage of a sole trader business over a partnership or private limited company.

Question Number

Answer Mark

1(d) Award 1 mark for identification of an advantage, plus 2 further marks for explaining this advantage, up to a total of 3 marks. There is a wide range of possible 3-mark responses to this question. Several examples are provided below. Sole traders are more flexible than private limited companies (Ltd’s) (1). This is because, unlike Ltd’s, there are no registration documents restricting sole traders to object clauses (1). Therefore, sole traders can quickly change their business activity / activities without having to file amended forms / follow any complex legal procedure (1).

Due to the single ownership, a sole trader has complete autonomy over decision making, unlike a partnership (1), where the other business owners need to be consulted before making key business decisions (1). Hence, faster decisions are more likely in sole traders than in a partnership (1).

A sole trader gets to keep all of the profits after income tax, which is not the case for private limited companies or partnerships (1). In private limited companies, for example, corporation tax has to be paid on profits made by the company before being distributed to the owner(s) (1). Unlike partnerships, single ownership means that there is also no obligation for a sole trader to share profits with others (1).

There is less ongoing legal paperwork required for sole traders than with private limited companies (1). For example, sole traders do not have to prepare and file a separate set of annual accounts and reports, which is the case for private limited companies (1). Nor do sole traders have to file a confirmation statement (formerly known as an annual return) at Companies House, to confirm or update key company details (1).

The financial circumstances and performance of a sole trader business remain private (1). In contrast, private limited companies have to produce and file a separate set of accounts with Companies House (1), which can then be made available for the public to view (1).

Sole traders are also easier to close down than private limited companies (1), which have to follow a range of legal formalities, including completion of an application form to strike the company off the register (of companies) held at Companies House (1). These legal formalities can take several months to complete (1). Accept any other appropriate response. Answers that list more than one advantage with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



57

Q2 (a) Which two of the following are methods of promotion?

A Promotion selling B Personal selling C Niche marketing D Mass marketing E Direct marketing

Question number

Answer Mark

2(a) B, E (2) AO1a

Q2 (b) Which two of the following are advantages of a partnership over a sole trader?

A Profits are shared B Responsibility and risk is shared C There is scope for conflict D There is cover for holidays and illness E Decision making may be slow

Question number

Answer Mark

2(b) B, D (All statements are true, but only B and D are advantages of partnerships, the other 3 statements are disadvantages)

(2) AO1a

Q2 (c) Give two components of a business plan.

Question Number

Answer Mark

2(c) Award 1 mark for each component identified, up to a maximum of 2 marks.

The business idea (1) The business aims and objectives (1) The target market (1) Market research (1) Forecast revenue, costs and profit (1) Cash-flow forecast (1) Sources of finance (1) The business location (1) Marketing mix (1) Accept any other appropriate response.

(2) AO1a



58

Q2 (d) Explain one reason why a person may choose to start up and run a franchise operation, rather than choosing to own and run a business completely independently.

Question Number

Answer Mark

2(d) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks. There is a wide range of possible 3-mark responses to this question. Several examples are provided below. The risk of failure is lower when a person starts up and runs a franchise operation rather than a completely independent business (1). This is because the product / service the business is selling has been tried and tested (1), and any problems encountered by established franchisees have already been met and overcome (1). It might be easier to raise money to start up a franchise operation than a completely independent business (1). This is because the franchise idea has been tried and tested elsewhere (1), and therefore banks and other investors recognise that they are not taking such a big risk (1). A franchise operation may secure greater sales than the levels which could be achieved by a completely independent business (1). This is because the franchisee is able to use an established brand name and logos which may be instantly recognised by customers (1), and therefore result in greater sales, due to the lower perceived risk of purchase (1). A franchised operation may also benefit from larger and more extensive advertising campaigns than any that a completely independent business owner could afford (1). This could be crucial in quickly raising awareness (1), and ultimately in generating sales (1). It can be easier and quicker to start up a franchise operation than starting up a business completely independently (1). This is because the franchisor will help the franchisee to source the equipment and stock required from suppliers (1), who are long-established, and tried and trusted (1). It can be easier to establish a successful franchise operation than a completely independent business (1). This is because franchisors may not only provide initial training for the franchisee (1), but will also provide ongoing support and advice (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



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Q2 (e) Explain one factor an entrepreneur should consider when deciding upon a suitable location for their business.

Question Number

Answer Mark

2(e) Award 1 mark for identification of a factor, plus 2 further marks for explaining this factor, up to a total of 3 marks. There is a wide range of possible responses to this question. Several examples are provided below. Proximity to customers (the market) (1). For businesses whose customers travel to the premises, the closer the business is to customers, the more visible and accessible it will be to customers (1), and the more passing trade it will attract (1), which is crucial in maximising revenues (1).

Alternative answer for proximity to customers (the market) (1). The closer a manufacturing business is to its customers,… …the lower the transportation costs to deliver orders to customers (1) and, therefore, the higher the profit (1). …the faster the delivery (lead) time (1), which could be crucial in winning orders and, ultimately, in maximising sales (1).

Proximity to labour (1). The price of labour will vary across regions (1). This factor affects both fixed costs, in the context of management salaries, and variable costs, in the context of direct labour (1). Any changes in costs will affect break-even and profit levels (1).

Proximity to materials (1). The closer a business is to the materials it needs to produce its products, the lower the transportation / delivery costs (1) and, therefore, the higher the profits (1).

Proximity to competitors (1). The closer a business is to competitors the less able a business, such as a retailer, will be to charge a higher price (1), because customers will easily be able to go elsewhere (1).

Alternative answer to proximity to competitors (1). The closer a business is to competitors, the easier it is for customers to compare its product / service against competitors (1), and thus the greater the investment in product development and promotion may be required (1) in order to differentiate the business’s products and services from competitors’ in ways that customers value (1).

The nature of the business activity (1). For example…

…For a traditional ‘physical’ retailer, proximity to customers (the market) will be more important than proximity to materials (1). It will be crucial to maximise the number of customers that are able to access the business’s products / service (1).

(3) AO1a=1 AO1b=2



60

…For a manufacturer, proximity to materials and labour may be more important than proximity to customers (the market) (1), in order to ensure lower transportation costs and continuity of production (1).

…For an e-retailer (ie a business selling products online), proximity to customers (the market) is not as important as it is for a traditional, physical retail outlet (1). However, if the product cannot be digitised, it will have to be despatched by ‘snail mail’ (1). Hence, close proximity to main transport links will be important in order to keep delivery costs down (1).

…The more labour intensive the business activity, the more important will be proximity to labour (1). This is important to ensure the business has a sufficient supply of labour to produce its products / provide its service to meet customer demand (1). Accept any other appropriate response. Answers that list more than one factor with no explanation will be awarded a maximum of 1 mark.

Q3 (a) Which one of the following is not an element of the marketing mix?

A Place B Price C Production D Promotion

Question number

Answer Mark

3(a) C (1) AO1a

Q3 (b) Give two disadvantages associated with buying and running a franchise operation, as opposed to starting up and running a completely independent business.

Question Number

Answer Mark

3(b) Award 1 mark for each disadvantage identified, up to a maximum of 2 marks.

Royalty payments (1). Possible restrictions on purchases (1). Less autonomy (1). No automatic right to renew the franchise (1). Unable to sell without franchisor’s agreement (1). May be affected by negative publicity associated with other

franchisees (1). Accept any other appropriate response.

(2) AO1a



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Q3 (c) Explain one way in which changing consumer needs might impact on a business’s marketing mix.

Question number

Answer Mark

3(c) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks.

Changing consumer needs might lead to the introduction of a completely new product, or modifications made to existing products (1), in order to more closely match customer requirements (1), and ultimately achieve the business’s objectives (eg relating to sales and profit) (1).

A fall in consumers’ income could result in consumers needing a product which still meets their requirements but at a lower price (1). Hence, a business may have to lower its prices in order to maintain sales / consumer demand for its product (1). This would result in lower profit margins (1), unless the business could make the product / provide the service at a lower cost (1).


(3) AO1a=1 AO1b=2

Q3 (d) Explain one reason why an entrepreneur would produce a business plan.

Question number

Answer Mark

3(d) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks.

Drawing up a detailed business plan can help to minimise risk, in particular the risk of failure (1). This is because… …It should ensure that the business idea is properly thought through (1), and that the right resources are in the right place, at the right time to meet customer expectations (1). …The completed plan provides a means of monitoring performance and activities (1), enabling timely and appropriate action to be taken to help ensure the business’s success (1).

Drawing up a detailed business plan may be essential to obtain the finance required to start a business (1). This is because the market research and financial forecasts contained within the plan can help to convince potential lenders or investors that there is a viable market for the business’s products / service (1) and, ultimately, that there is a good chance they will be repaid / receive a satisfactory return on their investment (1).


(3) AO1a=1 AO1b=2



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Q3 (e) Discuss the reasons why a business might choose to sell direct to customers through a website with e-commerce facilities, as opposed to through fixed (physical ‘bricks and mortar’) premises.

Question number

Indicative content

Mark

3(e) Remember: Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines allocated for their answer. Several paragraphs with relevant points are presented below, not all of which would be required to secure maximum marks. In these 6-mark questions, just 2 or 3 relevant, well-developed points should be sufficient to secure the maximum marks. These questions are marked using level descriptors detailed on the following page. A website provides access to a global market without the fixed costs, such as premises and staffing, which would be involved in opening fixed (physical ‘’bricks and mortar’) premises (AO1b). Therefore, selling through a website can be a cheaper, less risky way of reaching a much bigger market than selling through fixed premises (AO3a). A website provider is not constrained by closing hours (AO1b); orders can be placed by customers at their convenience any time of day or night, and from anywhere in the world (AO1b). This 24-hour ability to buy can help to maximise sales (AO3a). Selling through a website reduces the need to carry large quantities of stock, as stock is displayed virtually (AO1b), thereby reducing management and premises costs associated with stockholding (AO3a). E-commerce transactions are automated; the customer inputs the data which would typically include name, product, payment details etc (AO1b), thereby reducing the need for staff to handle and process orders and avoiding the associated labour costs (AO3a). Invoices and receipts can also be sent via email (AO1b), reducing the need for stationery (eg paper and envelopes), printing (eg ink cartridges) and postage and the associated costs (AO3a). Frequently asked questions by customers can also be posted on the website for customers to access and view online (AO1b). This reduces the need for personnel to handle queries / answer questions and the associated labour costs (AO3a). Interactive areas for customer feedback, can also be included on an e-commerce website (AO1b), helping to reduce market research costs and provide valuable information to improve / enhance the product / service provided, which could ultimately help to maximise sales (AO3a).

(6) AO1b=3 AO3a=3



63

Selling via a website with e-commerce facilities can, ultimately, be more efficient than selling through fixed premises, as it uses fewer resources, in particular human and financial ones, and thus incurs fewer costs, and is therefore more profitable (AO1a, AO3b). Selling via a website with e-commerce facilities may also enable a business to be more competitive - because lower costs may enable lower prices, and this may deliver higher sales and more profit (AO1a, AO3b).










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Topic 1.5

Understanding External Influences

on Business



65

TOPIC 5 Test: Understanding External Influences on Business



1 (a) Which one of the following is most likely to be an example of an objective of a business’s customers?


A Interesting work

B Safe working environment

C Sound return on investment

D Value for money

(b) Which one of the following is the correct definition of e-commerce?


A A way of making financial transactions through the use of microchips and transistors that control and direct electric currents

B The electronic transmission of information that has been encoded for storage and processing by computers

C The sale or purchase of goods or services conducted over computer networks

D Websites and applications that enable users to create and share content and interact with others

(c) Explain one way in which stakeholders can impact on business activity.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one way in which digital communication can impact on a business’s marketing mix.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




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2 (a) Which two of the following business stakeholder objectives are most likely to be the objectives of a business’s managers?


A Employment for local people

B High rewards

C Investment in local events

D Job security

E Protection of wildlife

(b) Which two of the following business stakeholder objectives are most likely to be the objectives of the government?


A Capital gain on shares

B Compliance with legislation

C Interesting work

D Payment of taxes

E Regular, secure, high dividends

(c) Give two basic rights of consumers. (2)

1 …………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… 2 …………………………………………………………………………………………………………………………………………………………… .………………………………………………………………………………………………………………………………………………………………



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(d) Explain one way in which employment legislation impacts on businesses. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain one way in which unemployment might impact on a business.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




69

3 (a) Which one of the following is the correct definition of inflation?


A The continuous and sustained rise in the general level of prices

B The cost of borrowing and the reward for saving

C A fee on income, property or goods, which is payable to the government

D The price of one currency in relation to another

The price of a business’s product is £60. It sells one of these products to a customer in the Eurozone. At an exchange rate of £1 = 1.1 euros, the Eurozone customer pays 66 euros.

(b) Calculate the extra amount this customer would have paid in euros if the exchange rate had been £1 = 1.3 euros. You are advised to show your workings.

(2)

£ …………………………………………

(c) Explain one way in which a rise in interest rates might affect a business.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one way in which a business might respond to a rise in interest rates. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………

(e) Discuss possible conflicts that can exist between stakeholders of a business.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………





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TOPIC 5: Understanding External Influences on Business - Mark Scheme / Answers

Q1 (a) Which one of the following is most likely to be an example of an objective of a business’s customers?

A Interesting work B Safe working environment C Sound return on investment D Value for money

Question number

Answer Mark

1(a) D (1) AO1a

Q1 (b) Which one of the following is the correct definition of e-commerce?

A A way of making financial transactions through the use of microchips and transistors that control and direct electric currents B The electronic transmission of information that has been encoded for storage and processing by computers C The sale or purchase of goods or services conducted over computer networks D Websites and applications that enable users to create and share content and interact with others

Question number

Answer Mark

1(b) C (1) AO1a

Q1 (c) Explain one way in which stakeholders can impact on business activity.

Question number

Answer Mark

1(c) Award 1 mark for identification of an impact associated with a particular stakeholder, plus 2 further marks for explaining this impact, up to a total of 3 marks. There is a very wide range of possible responses to this question. A wide range of examples are provided below.

Shareholders provide the capital which a business may need to start-up or expand, and they expect a return on their investment (1). If shareholders are not happy with the performance (or activities) of a business they can refuse to invest further (or discourage others from investing) (1). This could force a company to use other more costly sources of finance (1) - for example a bank loan which, unlike share capital, incurs interest charges (1).

(3) AO1a=1 AO1b=2



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Managers play a crucial role in the efficiency and profitability of a business (1). This is because they are appointed to help direct, motivate and control employees, and plan and organise other resources (1). They are then expected to monitor the achievement of short to medium term goals, using these resources (1).

If managers were not happy they could resign (1) and, if they are difficult to replace this could lead to problems with coordination and control (1). This could ultimately make it difficult to meet targets and deadlines (1). Employees can have a direct influence on the quality of a business’s product / service (1) and, thus, a business’s sales and profits (1), through their knowledge, skills and motivation (1).

If employees are not happy they can exert informal influence on the business through reduced work effort, lateness, absenteeism and strikes (1). They could also choose to leave (1). All these actions could negatively affect business efficiency (1), and ultimately the profitability of a business and its ability to achieve its objectives (1).

Employees have higher expectations about employment than previous generations: they demand better working conditions and a better quality of working life, and want to be consulted on matters that affect them (1). This puts pressure on businesses to look for new ways of attracting and retaining employees, particularly in industries where competition is high (1). This may mean not only offering attractive pay packages linked with pension schemes, but also opportunities to participate in decisions, and flexible working arrangements (1). Customers provide the income / profit for the owners (and job security for managers and employees) (1). They exert influence through the purchase, or non-purchase of a business’s product or service (1) and, where this is offered, opportunities to provide valuable feedback (1).

Compared to previous generations, customers are generally more educated and experienced, have higher expectations of what they are buying, and have different objectives (1). This puts pressure on a business to adopt a more customer orientated approach (1). This is evident with the proliferation of ‘customer care’ departments and / or customer care policies and charters, as well as increase in the provision of ‘after sales’ services (1). Suppliers provide the materials and components a business requires to produce / provide their product / service (1). Suppliers also want to make a profit and / or achieve organisational growth (1). To achieve these aims they expect business customers to pay them on time (in order to meet their debts as they fall due) (1).



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If suppliers are not happy with a business customer they can exert pressure on the business by giving priority to other customers (1), for example, in terms of order volumes and deadlines, by imposing stricter credit terms, or by refusing to grant any further credit (1). On a positive note, they may, however, offer discounts for prompt payment (1), which may encourage a business to ensure payment is made on time (1). Government regulates business activity to ensure payment of taxes and fair treatment of stakeholders (1). The government (either centrally or through local authorities) can exert pressure on a business by imposing penalties (1), typically in the form of fines, possibly closure and, in the worst case scenario, imprisonment for breach of legislation (1). The government has four main macro-economic objectives which impact on business: stable economic growth, low inflation, low unemployment and balance of payments equilibrium, meaning exports equal to imports) (1). The policies the government uses to achieve these objectives can… …directly affect the level of profits a business is able to retain (1), for example, through changes in corporation tax (1). …indirectly affect a business through the effect they have on the spending power of consumers (1). For instance, an increase in income tax reduces the amount of disposable income people have to spend on goods / services (1). Local communities / residents could join forces against any negative externalities associated with a business, such as pollution, congestion, or noise (1). This could attract negative media attention / publicity (1), which could damage the image and reputation of a business and, ultimately, negatively affect sales (1). Pressure groups, which include trade unions as well as organisations such as Greenpeace and Amnesty International, may take direct action against a company, and attempt to negatively affect its public image and reputation (1), for example, through demonstrations (1). These may attract media attention, which can negatively affect sales and profits (1). For example…

…Pressure group activity can increase a business’s costs (1). These can be incurred if the business is taken to court and has to defend itself against charges (1), and / or from financing carefully planned public relations programmes designed to counter pressure group claims (1), or investment in extra marketing in order to persuade customers to stay with the company despite pressure group claims about the business (1).

…Pressure group activity can result in lower sales (1) - if a business is found guilty of contravening laws or regulation (1).



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…Pressure group activity can make it difficult for a business to secure finance (1). Once investors discover that a company has been involved, or might be involved in unethical practices for example, they might remove their investment by selling shares (1). This would serve to lower the share price (1).

…Pressure group activity against a business can make it difficult for a business to attract good staff (1). If an employer has been accused of harming the environment, or mistreating an employee, this might lead to a shortage of people applying for work in the business in question (1). This will increase recruitment costs (1) because the job will have to be advertised more widely (1) and possibly the salary / wage offered might need to be increased by way of an incentive (1).

…If a pressure group, such as Greenpeace, obtains significant public support for their cause, a business may be forced into pursuing an environmental objective, possibly at the expense of profit (1), in order to avoid negative publicity (1), and a subsequent fall in image, reputation and, ultimately, sales (1). Accept any other appropriate response. Answers that list more than one impact associated with a particular stakeholder, with no explanation, will be awarded a maximum of 1 mark.

Q1 (d) Explain one way in which digital communication can impact on a business’s marketing mix.

Question Number

Answer Mark

1(d) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks. There is a range of possible responses to this question. Several examples are provided below. Digital communication has resulted in new ways to promote a business’s products / service(s) (1). These can provide significant benefits over traditional print media (1). For example… A website with e-commerce facilities…

…provides a permanent marketing presence and increased marketing scope / promotional reach (1). This is because it can be accessed at any time of day or night from customers (with access to the Internet) around the world (1).

…is far cheaper than print, radio or TV advertising (1), yet it still benefits from the strengths of these media in terms of being able to incorporate text, graphics, and colour, and with regard to TV advertising, moving pictures and sound (1).

…reduces / eliminates the need for paper-based sales and promotional materials, such as catalogues and price lists (1), which have to be reprinted when products and prices change (1).

(3) AO1a=1 AO1b=2



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…allows information to be easily and instantly updated (1). This provides flexibility / enables rapid responses to problems and opportunities / cuts out the admin, labour, stationery and printing costs previously involved in printing new / updated information (1).

In terms of direct marketing and / or personal selling (1)…

…this can now take place with customers through email, online chat sessions and instant messaging (1).

…one single email can be typed and instantaneously sent to all customers held in a business’s database (1), in contrast to individual customers being posted a leaflet, or telephoned, faxed, or visited, one by one (1).

…new digital communication technologies, such as audio conferencing, teleconferencing, video conferencing, web conferencing and internet based (VoIP) technologies, enable meetings and presentations to take place with people situated in different geographical locations (1). This means that there is no need for sales representatives to travel to carry out meetings face to face (1), which reduces the costs associated with personal selling (1). In terms of the ‘product’ element of the marketing mix, digital communication technology has led to more customised and personalised products and services (1). This is because they enable direct contact with the consumer (1), which makes it easier for businesses to gather first-hand, personalised data on their customers and their preferences, including feedback on existing products / services (1). This can be a useful source of information for improving products, or designing new ones (1). Accept any other appropriate response. Answers that list more than one impact with no explanation will be awarded a maximum of 1 mark.

Q2 (a) Which two of the following business stakeholder objectives are most likely to be the objectives of a business’s managers?

A Employment for local people B High rewards C Investment in local events D Job security E Protection of wildlife

Question Number

Answer Mark

2(a) B, D (2) AO1a



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Q2 (b) Which two of the following business stakeholder objectives are most likely to be the objectives of the government?

A Capital gain on shares B Compliance with legislation C Interesting work D Payment of taxes E Regular, secure, high dividends

Question number

Answer Mark

2(b) B, D (2) AO1a

Q2 (c) Give two basic rights of consumers.

Question Number

Answer Mark

2(c) Award 1 mark for each right, up to a maximum of 2 marks. Possible responses: Consumers have the right to…

…safety (1) ie to be protected against products and services which are hazardous to health / unfit for the purpose for which they were intended to be used.

…be informed (1) ie to be given sufficient facts about a product / service to decide between alternatives / make an informed choice, as well as to be protected from false and misleading claims made in advertising or labelling.

…choose (1) ie to have a range of (competing) products and services to choose between.

…be heard (1) ie to be heard by the government when expressing any concerns raised about a product or service, and have their interests protected through legislation and regulation.

(2) AO1a



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Q2 (d) Explain one way in which employment legislation impacts on businesses.

Question Number

Answer Mark

2(d) Award 1 mark for identification of an impact of employment legislation in general, or identification of specific legislation relating to employment, plus 2 further marks for explaining this impact / the impact of this legislation on business, up to a total of 3 marks. There is a range of possible 3-mark responses to this question. Several examples are provided below. If a business fails to comply with employment legislation it could face claims for compensation (1), which could result in negative publicity (1), which could, in turn, negatively affect sales (1). Limits to working hours (1) have forced some businesses to employ more people (1), increasing recruitment, training and administration costs (1). Legislation relating to dismissal and redundancy (1) has increased the cost of making people redundant (1). It may also lead to firms seeking to redeploy redundant staff elsewhere in a business, wherever possible (1). Relatively new legislation extending the rights of full-time workers to part-time workers (1) has made some businesses reluctant to employ part-time staff (1), and has encouraged them to seek other ways of achieving labour flexibility (1) eg through overtime and annualised hours contracts (1). Employment legislation has led to many organisations drawing up policy statements on how employees can expect to be treated (1). Some organisations have incorporated statements about ‘fair and equal treatment’ and ‘employee welfare’ into their mission statements (1), in order to demonstrate their commitment to this issue (1). Health & Safety legislation (1) has led firms to invest in / undertake the following: …training - firms have had to invest more in educating the workforce (1); otherwise they might be found liable if accidents occur and it is deemed that the business has not taken sufficient measures to train the workforce in safe working practices (1). …new machinery (1), as old, inefficient machinery might need to be replaced to conform to new emission laws (1). …Health and Safety Audits (1) - Businesses have had to invest time in carrying out periodical inspections of the workplace, and make changes where necessary (1).

(3) AO1a=1 AO1b=2



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Action to comply with health and safety legislation may increase costs in the short-term, but reduce costs in the long run (1). This is because it is likely to lead to fewer accidents, stoppages and better working conditions (1), thereby helping to maximise employee morale and productivity (1).

Accept any other appropriate response. Answers that list more than one impact (or more than one aspect of employment legislation) with no explanation will be awarded a maximum of 1 mark.

Q2 (e) Explain one way in which unemployment might impact on a business.

Question Number

Answer Mark

2(e) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks.

There is a range of possible responses to this question. Several examples are provided below.

Unemployment may… …reduce the demand for a business’s products or services, especially those supplying luxuries (1). This is because those unemployed will have less money to spend (1). This would result in lower revenue and profit for the business (1). …increase the demand for businesses selling lower-priced products and services (1). This is because unemployed people (consumers) will have less money to spend (1), and this might lead to them to trade down ie buy cheaper products / services (1). This would increase the sales and profits of own-label products at the expense of the branded equivalents (1), and of discounters at the expense of mainstream retailers (1). …keep wage costs down (1). This is because potential employees become more plentiful (1) and, therefore, lower wages can be offered and still attract sufficient employees (1). Also, unions have less bargaining power when there is a surplus pool of labour available for work (1), leading to fewer demands for pay rises (1). …reduce recruitment and labour costs (1), thereby helping to increase profit and / or make it easier and cheaper to expand (1). This is because employees may approach the business rather than the business having to advertise for staff (1), and there are likely to be more candidates with the right skills and experience to choose from (1). …increase staff retention / lower labour turnover and the associated costs (1). This is because, during a period of job insecurity, employees will be less likely to leave (1), with fewer alternative job opportunities elsewhere (1).


(3) AO1a=1 AO1b=2



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Q3 (a) Which one of the following is the correct definition of inflation?

A The continuous and sustained rise in the general level of prices B The cost of borrowing and the reward for saving C A fee on income, property or goods, which is payable to the government D The price of one currency in relation to another

Question number

Answer Mark

3(a) A (1) AO1a

The price of a business’s product is £60. It sells one of these products to a customer in the Eurozone. At an exchange rate of £1 = 1.1 euros, the Eurozone customer pays 66 euros. Q3 (b) Calculate the extra amount this customer would have paid in euros if the exchange rate had been £1 = 1.3 euros. You are advised to show your workings.

Question number


3(b) (The extra amount paid = The new price paid in euros - The original price paid in euros) Substitution into correct formula: (60 x 1.3) - 66 (1) Answer: 12 euros (1)

Award full marks for correct numerical answer without working.

(2) AO2

Q3 (c) Explain one way in which a rise in interest rates might affect a business.

Question number

Answer Mark

3(c) Award 1 mark for identification of an effect, plus 2 further marks for explaining this effect, up to a total of 3 marks.

A rise in interest rates can lead to a fall in demand for (and, thus, sales of) a business’s product or service (1). This is because… …mortgage holders have more interest to pay to lenders (1) and this leaves less money available for other items (1). …consumers are more likely to save rather than spend (1) because there is greater reward for saving (1).

A rise in interest rates can lead to a rise in costs for businesses that have loans (1). This would result in lower profit (1), a higher break-even (1), and a further drain on cash flow (1). Longer term, this would also result in a business looking for alternative sources of finance, such as share capital (1).

Accept any other appropriate response. Answers that list more than one effect with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



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Q3 (d) Explain one way in which a business might respond to a rise in interest rates.

Question number

Answer Mark

3(d) Award 1 mark for identification of a response, plus 2 further marks for explaining this response, up to a total of 3 marks. There is a range of possible responses to this question. Several examples are provided below. A business might respond to a rise in interest rates by…

…reducing the amount of its borrowing (1). This might be achieved through the sale of an asset, possibly against which the loan has been raised (1), but this could limit potential future output, or the range of products produced (1).

…postponing or even cancelling planned investment (1), due to the higher cost (1), and thus the higher risk associated with the investment (1). This decision may lead to a loss of efficiency and competitiveness (1).

…reducing prices (1) in order to try and maintain demand for its product / services (1). However, this could reduce revenue and, ultimately, profit (1).

…cutting other costs (1), for example, by sourcing from cheaper suppliers (1) in order to maintain profits (1). However a business should ensure that it does not accept a loss of quality to secure a lower cost (1). Accept any other appropriate response. Answers that list more than way in which a business might respond to a rise in interest rates with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q3 (e) Discuss possible conflicts that can exist between stakeholders of a business.

Question number

Indicative content

Mark

3(e) Remember: Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines allocated for their answer. Several paragraphs with relevant points are presented below, not all of which would be required to secure maximum marks. In these 6-mark questions, just 2 or 3 relevant, well-developed points should be sufficient to secure the maximum marks. These questions are marked using level descriptors detailed on the following page. Conflict can exist between employees and owners of a business (AO1b). This is because employees may want more pay, whereas owners want to increase profit and more pay will increase costs and reduce profit (AO3a).

(6) AO1b=3 AO3a=3



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Conflict can exist between employees and owners of a business (AO1b). This is because employees may want long-term contracts to provide job security, whereas owners may prefer short-term contracts in order to provide greater flexibility to cope with changes in demand or production technology (AO3a). Conflict can exist between employees and owners of a business (AO1b). This is because owners want to increase profit and in order to do so they may seek to cut costs (AO3a). For example, the owners may decide to review staffing requirements and cut hours wherever possible, which may result in less work being completed and, thus, lower employee incomes and, even, staff losing their jobs (redundancies) (AO3a). Conflict may exist between suppliers and the owners or managers of a business (AO1b). This is because suppliers want to be paid on time, but businesses may prefer to take longer to pay, in order to ensure good cash flow (AO3a). Conflict may exist between the owners and managers of a business, especially as a business increases in size (AO1b). This is because, in larger businesses, management may become more powerful and influential and be able to pursue their own interests rather than those of the owners (AO3a). For example, managers may choose to increase their salary, or organise work time to suit their own needs, rather than the needs of the business (AO3a).










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End of Theme Test 1




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END OF THEME - Investigating Small Business - TEST 1



1 (a) Which one of the following is an example of a reward associated with starting a new business?


A Security

B Stress

C Profit

D Shares

(b) Which one of the following is not an example of market segmentation?


A Demographic

B Geographic

C Lifestyle

D Product specific

(c) Explain the impact on a business’s break even level of output if the business decided to increase the unit selling price of its products.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



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(d) Explain one long-term method of finance for a start-up or established small business. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




85

2 (a) Which two of the following are examples of non-financial objectives for an entrepreneur when starting a new business?


A Sales

B Profit

C Control

D Market share

E Challenge

(b) Which two of the following are not examples of components of a business plan?


A Business aims and objectives

B Location

C Target research

D Cash-flow statement

E Sources of finance


(c) Complete the table with the two missing figures. You are advised to show your workings.

(2)

Jan (£) Feb (£)

Receipts 16 300 27 650


Fixed costs 3 460 3 460

Total payments (i) 18 940

Net cash flow (180) (ii)


Closing balance 7 020 15 730



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(d) Explain one disadvantage of selling via a website with e-commerce facilities compared to selling through fixed (physical ‘bricks and mortar’) premises.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain one way in which a stakeholder of a business might be affected by the business’s expansion.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




87

3 (a) Which one of the following is not an example of a customer need?


A Quality

B Choice

C Leisure

D Convenience

(b) Using the information below calculate the business’s expected margin of safety. You are advised to show your workings.

A business decides to sell a product at £3 each.

The variable cost is £1.40 per unit and the fixed cost is £400 per month.

In its first month of trading the business plans to sell 340 of these products. (2)

£ …………………………………………

(c) Explain one method of secondary research a business might use to inform business decisions.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



88

(d) Explain one way in which the use of an electronic payment system might improve the performance of a business.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………

(e) Discuss reasons why an entrepreneur might prefer to start up and run a completely independent business, rather than to buy and run a franchise operation.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………


TOTAL FOR END OF THEME TEST 1 = 35 marks)



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END OF THEME - Investigating Small Business - Mark Scheme / Answers - TEST 1

Q1 (a) Which one of the following is an example of a reward associated with starting a new business?

A Security B Stress C Profit D Shares

Question number

Answer Mark

1(a) C (1) AO1a

Q1 (b) Which one of the following is not an example of market segmentation?

A Demographic B Geographic C Lifestyle D Product specific

Question number

Answer Mark

1(b) D (1) AO1a

Q1 (c) Explain the impact on a business’s break even level of output if the business decided to increase the unit selling price of its products.

Question number

Answer Mark

1(c) Award 1 mark for identification of the impact, plus 2 further marks for explaining this impact, up to a total of 3 marks.

The break even level of output would be lower (1). This is because the contribution per unit, necessary to cover fixed costs (and make a profit), would increase (1), resulting in fewer products having to be sold to break even (1). Accept any other appropriate response.

(3) AO1a=1 AO1b=2



90

Q1 (d) Explain one long-term method of finance for a start-up or established small business.

Question Number

Answer Mark

1(d) Award 1 mark for identification of a long-term method of finance, plus 2 further marks for explaining this method, up to a total of 3 marks. There is a range of possible 3-mark responses to this question. Several examples are provided below. A start-up or established small business could use… …personal savings (1). An entrepreneur may have savings held in a bank or building society that could be used to set up a business (1). Unlike selling shares, there would be no dilution of ownership and control (1), and unlike loans there would be no cost in terms of interest payments (1). …venture capital (1). This is finance provided by investors, typically merchant or specialised commercial banks or venture capital companies (1), which is typically available for new or early stage businesses with high growth potential (1). …share capital (1). This source of finance is only available to limited companies (1) and is raised by selling a portion of the business to other individuals or businesses, or in the case of private limited companies, to family and friends (1). Companies are permitted to issue shares up to an authorised capital, which reflects the realisable value of the assets owned by the company (1). …loans (1). This is where a business is advanced a specific amount and agrees to repay this over an agreed period of time, at an agreed rate of interest (1). Interest can be fixed or variable, although many lenders provide the opportunity of switching from one to the other at pre-specified periods (1). …retained profit (1). This is profit remaining after all costs have been deducted from revenues and any dividends to shareholders have also been paid (1). It is retained in order to be reinvested in the business (1). …crowd funding (1). This is finance raised from a large number of people (1) who each invest a small amount (1).

Accept any other appropriate response. Answers that list more than one method with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



91

Q2 (a) Which two of the following are examples of non-financial objective for an entrepreneur when starting a new business?

A Sales B Profit C Control D Market share E Challenge

Question number

Answer Mark

2(a) C, E (2) AO1a

Q2 (b) Which two of the following are not examples of components of a business plan?

A Business aims and objectives B Location C Target research D Cash-flow statement E Source of finance

Question number

Answer Mark

2(b) C, D (Should be ‘target market’ or ‘market research’ not target research, and cash-flow ‘forecast’ not statement)

(2) AO1a


Q2 (c) Complete the table with the two missing figures. You are advised to show your workings.

Jan (£) Feb (£)

Receipts 16 300 27 650


Fixed costs 3 460 3 460

Total payments (i) 18 940

Net cash flow (180) (ii)


Closing balance 7 020 15 730

Question number


2(c) (i) £16 480 (£13 020 + £3 460) Do not accept any other answer (1) AO2

Question number


2(c) (ii) £8 710 (£27 650 - £18 940) (or £15 730 - £7 020)




92

Q2 (d) Explain one disadvantage of selling via a website with e-commerce facilities compared to selling through fixed (physical ‘bricks and mortar’) premises.

Question Number

Answer Mark

2(d) Award 1 mark for identification of a disadvantage, plus 2 further marks for explaining this disadvantage, up to a total of 3 marks. There is a wide range of possible 3-mark responses to this question. Several examples are provided below. There is the cost of designing, maintaining and updating an online site (1), and of ensuring that the business has a prominent position in Google and other search engines (1). However, these costs are insignificant compared with those incurred in setting up a traditional shop / chain of shops (1). Online purchases do not immediately satisfy a consumer’s need or desire for a product (1). Unlike most goods purchased in bricks and mortar establishments where ‘delivery’ and consumption can be instant, with goods purchased online, delivery is almost always a good few hours away (1), unless the goods can be digitised and instantly downloaded, such as music and film (1). Unless the product / service can be digitised (and downloaded), online purchases incur additional packaging, transportation / delivery costs (1). However, a postage and packaging charge may be applied to cover these costs (1), which customers may be willing to pay, given the greater convenience of not having to travel to purchase the goods (1). Unlike traditional bricks and mortar businesses, with online selling there is not the opportunity to physically inspect or try on a product before buying (1). Some customers may prefer to ‘try before buying’ even if an online business offers a free returns policy (1). This is because they don’t want the extra hassle, in terms of admin time and effort, which is needed to send things back (1). This can put customers off from buying online and inhibit sales (1). Some customers lack trust in the security and confidentiality of online transactions (1), fearing internet fraud and identify theft (1). This can put customers off from buying online and inhibit sales (1). There is the potential for information and payments being lost (1) and / or being delayed (1), due to mechanical faults / breakdowns (1). Accept any other appropriate response. Answers that list more than one disadvantage with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



93

Q2 (e) Explain one way in which a stakeholder of a business might be affected by the business’s expansion.

Question Number

Answer Mark

2(e) Award 1 mark for identification of an effect of business expansion on a particular stakeholder, plus 2 further marks for explaining this effect, up to a total of 3 marks. There is a wide range of possible 3-mark responses to this question. Several examples are provided below. Shareholders are likely to benefit (1) from a greater return on their investment (1), in the form of greater dividends (1) and a capital gain on their shares (1).

Employees may benefit (1) from… …greater job security (1), as they are more likely to be needed to enable output to be increased (1). …greater pay (1), as more working hours may be required in order to increase output (1). …the chance of promotion (1). This is because when a business increases in size more managers might be required (1), in order to coordinate and control a larger and more complex business (1).

Customers may benefit (1) from lower prices (1) - if the business is willing to pass the benefits of growth in the form of lower unit costs (from economies of scale) and higher profits on to its customers in the form of lower prices (1).

Suppliers are likely to benefit (1) from increased order quantities (1) and, thus, increased sales revenue (1) and, possibly, lower unit costs (from economies of scale) (1) and, therefore, greater profits (1).

The government might benefit (1) from job creation (1) and greater revenue from tax (eg corporation tax, capital gains tax, national insurance) (1).

The local community might benefit (1) from… …more job opportunities (1), as more employees are required by the business from the local area to enable output to be increased (1). …increased investment in the local community (1) - if the business makes a higher profit and decides to re-invest some of this profit in local community projects (1). On the other hand, the local community / residents might suffer (1) - from increased noise, congestion or pollution (1), arising from the increased output (1). Accept any other appropriate response. Answers that list more than one effect with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



94

Q3 (a) Which one of the following is not an example of a customer need?

A Quality B Choice C Leisure D Convenience

Question number

Answer Mark

3(a) C (1) AO1a

Q3 (b) Using the information below calculate the business’s expected margin of safety. You are advised to show your workings.

A business decides to sell a product at £3 each.

The variable cost is £1.40 per unit and the fixed cost is £400 per month.

In its first month of trading the business plans to sell 340 of these products.

Question number


3(b) (Margin of safety is planned (or actual) output minus break even level of output. (Break even is fixed costs / contribution per unit) Substitution into correct formula: Margin of safety = 340 - (400 / £1.60) (1) Answer: 90 (1)


(2) AO2

Q3 (c) Explain one method of secondary research a business might use to inform business decisions.

Question number

Answer Mark

3(c) Award 1 mark for identification of a method of secondary research, plus 2 further marks for explaining this method, up to a total of 3 marks.

There is a wide range of possible 3-mark responses to this question. A wide range of examples is provided below. Surfing the internet (1) where numerous statistics, up-to-date reports and directories can be found on specific industries, markets and individual businesses (1), much of which can be obtained free of charge (1). Government reports and statistics (1). The government and its various offices / departments provide numerous documents and reports, the majority of which can be found in city centre libraries or on the Internet (1), and can be accessed and used free of charge (1). For example, The Office of National Statistics (ONS) publishes:

(3) AO1a=1 AO1b=2



95

…‘Sector Reviews’ (1), which are quarterly analyses of specific sectors (1); …Consumer Trends (1), which is a quarterly volume on consumer markets, including market size, seasonal trends (1); …Economic Trends (1), which provides information on Gross Domestic Product, inflation, employment, production, interest rates (1); …Labour Market Trends (1), which provides information on wage rates and prices, working hours, rates of training in sub-sectors (1); …Monthly Digest of Statistics (1), which provides info on population, inflation, production, employment, investment, weather (1); …Social Trends (1), which provides information on people’s lives / lifestyles including car ownership, leisure and sporting activities (produced annually) (1). Local authorities provide information on local population levels, the local economy, as well as local planning applications and enquiries (1).

Market reports published by market intelligence agencies, such as Key Note, Mintel and Dun & Bradstreet (1). These organisations produce reports on consumer and retail markets (1), including information on size, share / competitor analysis, trends, consumers, advertising and forecasts (1). Key Note provides updates on every major market every year (around 250 market sectors) (1). Summaries of the reports can be obtained free of charge on the website (1), but obtaining the detailed sector information can cost several hundred or even several thousand pounds (1).

Reports by the media (1). National and local press, radio and television publicise key economic data, and facts and figures about specific markets and businesses (1). The Financial Times newspaper and its web-site is particularly useful in providing up-to-date economic indicators (1).

The Trade Press provides specific information on new products / services and opportunities in specific trades / industrial sectors (1). For example, the Grocer and Sandwich and Snack News (1) provide up to date information on sales and investment within their sectors, case studies of companies, contact details of suppliers, and articles on current issues (1).

Reports by Professional Organisation, such as the Confederation of British Industry (1), which produces numerous business surveys (1), including the ‘Quarterly Industrial Trends’ specifically covering relatively small sectors (1).

Other professional organisations that provide useful market research information include the Institute of Management, and The Market Research Society (MRS) (1). The MRS provides various publications for a fee, although some are free to members (1). These publications include lists of market research companies, information, and case histories on the value of market research (1).



96

For local Information, the following sources may be useful… …Thompson Local (1), which list local firms alphabetically and by type of business (1) and can be useful to identify competitors, and create mailshot lists (1); …The Electoral Register (1), which is useful for identifying potential customers of a specific age (1), perhaps for a postal survey, or mailshot (1); …Chambers of Commerce (1), which is useful for local knowledge and contacts (1), for example, for information on the local economy, or details of potential suppliers (1).

A business may be able to obtain the Company Accounts of a competitor by phoning their Head Office directly (1). Alternatively, these can be obtained from Companies House or the Financial Times Annual Report Service (1), for a small fee (1).

Accept any other appropriate response. Answers that list more than one method with no explanation will be awarded a maximum of 1 mark.

Q3 (d) Explain one way in which the use of an electronic payment system might improve the performance of a business.

Question number

Answer Mark

3(d) Award 1 mark for identification of a way in which performance might be improved, plus 2 further marks for explaining this improvement, up to a total of 3 marks. Examples of possible responses: Electronic payment systems can increase sales (1). This is because they can make it easier for customers to buy a business’s products / service (1), and reduce the chance of customers abandoning a transaction because payment is not convenient (1).

Electronic payment systems may enable a business to reduce costs (1). This is because…

…payment is automated (1) and this reduces the chance of human error and, thus, the need for physical checks to be carried out (1), thereby reducing labour costs (1). It also reduces stationery (paper, envelopes, printing) and postage costs (1).

…payment is faster (1) which improves cash flow and may enable a business to secure discounts from its suppliers for early payment (1) and / or avoid making late payments (1), and thus reduce the occurrence of late payment charges / interest on overdrafts (1). Accept any other appropriate response. Answers that list more than one way in which performance might be improved, with no explanation, will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



97

Q3 (e) Discuss reasons why an entrepreneur might prefer to start up and run a completely independent business, rather than to buy and run a franchise operation.

Question number

Indicative content

Mark

3(e) Remember: Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines allocated for their answer. Several bulleted paragraphs with relevant points are presented below, not all of which would be required to secure maximum marks. In these 6-mark questions, just 2 or 3 relevant, well-developed points should be sufficient to secure the maximum marks. These questions are marked using level descriptors detailed on the following page. As the owner of a completely independent business, there would be no weekly or monthly royalty payments to the franchisor (AO1b). Therefore, the independent owner would be able to keep more profit than as a franchisee (AO3b). As the owner of a completely independent business, there would be no legal obligation to purchase supplies and equipment from a specific supplier (AO1b), which would often be included as part of a franchise agreement, and could cost more than using an independently sourced suppler (AO1b). Therefore, the owner of a completely independent business may enjoy lower costs and therefore higher profits (AO3a). Unlike the owner of a franchise, the owner of a completely independent business would have the freedom to run the business as they see fit, including control over the appearance of the building, where the business operates from, quality and operational standards, pricing, promotion and the distribution methods to be used (AO1b). This would make it easier to make changes in response to the specific and changing needs of the geographical market served by the business, which could be crucial in maximising sales (AO3a). There are also risks concerning continuity of ownership and management of a franchise operation that the entrepreneur may not consider worth taking (AO1b). For example, a franchisee has no automatic right to renew the franchise at the end of a franchise agreement (AO1b). Therefore, they may not be allowed to continue to operate the business at the end of the franchise agreement, even if they wanted to do so, and irrespective of the amount of time and effort they have put into running the business to date (AO3a). There are also restrictions on the sale of a franchise: A franchisee is unable to sell the business without the franchisor’s agreement (AO1b). Securing this agreement may take time, and thus restrict a franchisee’s ability to pursue other personal goals, interests and activities, at least in the short term (AO3a).

(6) AO1b=3 AO3a=3



98

A franchisee may also be affected by negative publicity arising from the activities of the franchisor / other franchisees (AO1b). This could negatively affect sales and make it difficult to achieve objectives relating to profit (AO3a).










99

End of Theme Test 2




100

END OF THEME - Investigating Small Business - TEST 2



1 (a) Which one of the following is not associated with being an entrepreneur?


A A person who organises resources

B A person who likes working for other people

C A person who makes business decisions

D A person who takes risks

(b) Which one of the following is covered in consumer law?


A Discrimination

B Pay

C Product quality

D Recruitment

(c) Explain one way in which social media could be used to collect market research data. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



101

(d) Explain one advantage of a private limited company over a sole trader business or partnership.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




102

2 (a) Which two of the following are examples of fixed costs?


A Raw materials

B Packaging

C Rent on premises

D Wages of production staff

E Salaries of managers

(b) Which two of the following are examples of secondary market research?


A Face to face surveys

B Focus group research

C Reports by market intelligence agencies

D Government reports and statistics

E Postal questionnaires

(c) Using the information below, calculate the number of phones that need to be sold in order to break even (to the nearest whole number).

The average selling price per phone is £100.

Variable costs per phone are £25.

Fixed costs are £5 000. (2)

£ …………………………………………



103

(d) Explain one reason why the amount of profit made and cash held by a business at a particular moment in time, may not be the same.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… (e) Explain one way in which the Internet impacts on location decisions.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………




104

3 (a) Which one of the following business stakeholder objectives is most likely to be the objective of a business’s shareholders?

Select one answer:

(1) A Job creation

B Opportunities for promotion

C Regular, secure, high dividends

D Timely and accurate delivery of orders

(b) Using the information below, calculate the total interest the business will pay for the loan as a percentage of the total amount borrowed. You are advised to show your workings.

A small business plans to borrow £6 800 for some new equipment.

It will repay this loan over 4 years, with a monthly repayment of £153. (2)

£ …………………………………………

(c) Explain one reason why getting the price ‘right’ is so important to a business’s success.

(3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………



105

(d) Explain one way in which changes in government taxation may impact on a business. (3)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………

(e) Discuss ways in which operating in a competitive environment may impact on a business’s decision making.

(6)

……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………. ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………………………


TOTAL FOR END OF THEME TEST 2 = 35 marks)



106

END OF THEME - Investigating Small Business - Mark Scheme / Answers - TEST 2 Q1 (a) Which one of the following is not associated with being an entrepreneur?

A A person who organises resources B A person who likes working for other people C A person who makes business decisions D A person who takes risks

Question number

Answer Mark

1(a) B (1) AO1a

Q1 (b) Which one of the following is covered in consumer law?

A Discrimination B Pay C Product quality D Recruitment

Question number

Answer Mark

1(b) C (1) AO1a

Q1 (c) Explain one way in which social media could be used to collect market research data.

Question number

Answer Mark

1(c) Award 1 mark for identification of a way in which social media could be used to collect market research data, plus 2 further marks for explaining this, up to a total of 3 marks.

Examples of possible responses:

Simply searching the latest posts and popular terms on social media platforms, such as Facebook and Twitter (1), can gain real-time information on customer needs and preferences (1), as well as emerging trends and gaps in the market (1).

Tools on social media platforms, such as Facebook, can be used to create and undertake surveys and / or polls (1), and can do this far more quickly and cheaply than traditional research methods (1), such as face to face surveys or postal questionnaires (1).

Accept any other appropriate response. Answers that list more than one way in which social media could be used to collect market research data, with no explanation, will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2



107

Q1 (d) Explain one advantage of a private limited company over a sole trader business or partnership.

Question Number

Answer Mark

1(d) Award 1 mark for identification of an advantage, plus 2 further marks for explaining this advantage, up to a total of 3 marks. There is a range of possible 3-mark responses to this question. Several examples are provided below. Unlike sole traders and ‘ordinary’ partnerships, the owners of private limited companies have limited liability (1). This means that the personal assets of the owners (called shareholders) are protected (1) in the event that the business assets are insufficient to pay off any outstanding debts (1). Private limited companies have greater capital raising opportunities than sole traders and, possibly, partnerships (1). This is because finance can be raised through selling shares in the business (1) to family and friends (1). Private limited companies have greater continuity than sole traders or partnerships (1). This is because the business is not dissolved upon the resignation, bankruptcy or death of a shareholder or director (1). The opposite is the case for sole traders and (ordinary) partnerships; if the owner or partner withdraws / dies, the business dies (1). Company status may provide enhanced prestige and a more professional image than a sole trader business (1), thus helping to secure finance (1) and / or more customers (1). Accept any other appropriate response. Answers that list more than one advantage with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q2 (a) Which two of the following are examples of fixed costs?

A Raw materials B Packaging C Rent on premises D Wages of production staff E Salaries of managers

Question number

Answer Mark

2(a) C, E (2) AO1a



108

Q2 (b) Which two of the following are examples of secondary market research?

A Face to face surveys B Focus group research C Reports by market intelligence agencies D Government reports and statistics E Postal questionnaires

Question number

Answer Mark

2(b) C, D (2) AO1a

Q2 (c) Using the information below, calculate the number of phones that need to be sold in order to break even (to the nearest whole number).

The average selling price per phone is £100. Variable costs per phone are £25. Fixed costs are £5 000.

Question number


2(c) Break even output = Fixed costs / Contribution per unit (which is unit selling price - unit variable cost).

Substitution into correct formula: £5 000 / (£100 - £25) (1). Answer: 67 (1)


(2) AO2

Q2 (d) Explain one reason why the amount of profit made and the amount of cash held by a business at a particular moment in time, may not be the same.

Question Number

Answer Mark

2(d) Award 1 mark for identification of a reason, plus 2 further marks for explaining this reason, up to a total of 3 marks.

Teacher’s note: This is not an easy question, but the specification requires students to understand the difference between cash and profit and this question tests this understanding. To answer the question students need to know the following about cash and profit: Cash is a business’s most liquid asset. It is used to pay for goods or services received.

The amount of cash held at a particular moment in time is the amount remaining from cash held at the start of a period and any receipts (cash inflows), after payments (cash outflows) have been made.

Cash inflows might not just include money from sales, but any money coming into the business in the form of a loan.

(3) AO1a=1 AO1b=2



109

The amount of profit made by a business in a given period is the amount of money remaining from revenue after deducting costs from revenue. Revenue and costs (and thus profit or loss) are recorded when goods / services have been received (and invoiced). However, payment for goods / services may not take place immediately upon receipt because individuals or businesses may be given credit - an interest free period in which to pay for goods / services received. It may also take a few days for cash to move from one bank account to another, depending on the payment method used. Hence, the amount of profit made may not be the same as the amount of cash held by a business at a particular moment in time. Example possible responses: The amount of profit made and the amount of cash held by a business at a particular moment in time may not be the same because…

…a business’s customers may have received goods or services from the business for which they have not yet paid (1), as the business has allowed these goods / services to be purchased on credit (1), and so the business may have less cash in the bank than that equal to profit (1).

…a business may have received goods or services for which it has not yet paid (1), because the suppliers of these goods / services have allowed these goods / services to be purchased on credit (1), and so the business may have more cash in the bank than that equal to profit (1).

…some goods and services might be purchased on credit (1), and so although a revenue or cost is incurred upon receipt of the goods / services (which affects profit) (1), actual payment has not been received / made (which affects cash held) (1), and so the business may have less or more cash in the bank than that equal to profit (1). …there may be a slight delay in receiving or making payment for goods and services, depending on the payment method used (1). For example, with payments made using a debit card or cheque, it may take a day or more for the actual cash to leave the purchaser’s bank account and be recorded in the supplier’s bank account (1). Thus, a business may have more or less cash in the bank than that equal to profit (1).

…cash held at a particular moment in time might include money received by a business from a bank loan (1). Loans are not a source of revenue, but a source of finance (1), and so the business may have more cash in the bank than that equal to profit (1).




110

Q2 (e) Explain one way in which the Internet impacts on location decisions.

Question Number

Answer Mark

2(e) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks.

Internet (and e-commerce) technologies have enabled businesses to sell their products / services ‘virtually’, which means online via a website (1). This has… …reduced the need to invest in fixed premises (ie physical, customer-facing, retail outlets) (1) and the associated operating costs (1). …enabled many businesses to operate from low cost (‘not on the high street’) locations (1) and, thereby, helped to increase profits (1). Accept any other appropriate response. Answers that list more than one impact with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q3 (a) Which one of the following business stakeholder objectives is most likely to be the objective of a business’s shareholders?

A Job creation B Opportunities for promotion C Regular, secure, high dividends D Timely and accurate delivery of orders

Question number

Answer Mark

3(a) C (1) AO1a

Q3 (b) Using the information below, calculate the total interest the business will pay for the loan as a percentage of the total amount borrowed. You are advised to show your workings.

A small business plans to borrow £6 800 for some new equipment. It will repay this loan over 4 years, with a monthly repayment of £153.

Question number


2(c) The total interest the business will pay as a percentage of the total amount borrowed: Total repayment - Amount borrowed Amount borrowed x 100 Substitution into the correct formula: (12 x 4 x £153) - £6 800 / £6 800 x 100 (1) Answer: 8% (1)


(2) AO2



111

Q3 (c) Explain one reason why getting the price ‘right’ is so important to a business’s success.

Question number

Answer Mark


Example 3-mark responses: Price has a very significant influence on a customer’s purchasing decision (1), and thus on the overall demand for / sales of a business’s product / service (1), and ultimately on the profit a business makes (1). If price is set too high, profit margins may be high but sales may suffer (1), and thus profit may never be realised (1). This is because customers can either not afford to, or may not be willing to buy at that price (1). If price is set too low, sales may be high but profit margins may be low (1), and in the worst case scenario a profit may not be earned at all (1). This is because many customers may be able and willing to buy at that price, but it is not high enough to cover the business’s costs (1). Accept any other appropriate response. Answers that list more than one reason with no explanation will be awarded a maximum of 1 mark.

(3) AO1a=1 AO1b=2

Q3 (d) Explain one way in which changes in government taxation may impact on a business.

Question number

Answer Mark

3(d) Award 1 mark for identification of an impact, plus 2 further marks for explaining this impact, up to a total of 3 marks. There is a wide range of possible 3-mark responses to this question. Several examples are provided below. An increase in income tax could reduce demand for a business’s products or service, especially luxuries (1). This is because this increase would reduce people’s disposable income (1) and therefore the amount available to spend on goods and services (1). However, some businesses may be able to cut costs and / or be willing to suffer lower margins (1), in order to reduce prices and maintain demand (1). Alternatively, an increase in income tax might increase the demand for the products and services of a business selling cheaper alternatives (1). This is because customers have less disposable income to spend on goods and services (1), and so they may trade down and buy cheaper alternatives (1).

(3) AO1a=1 AO1b=2



112

A reduction in corporation tax leaves the business with more profit (1), either to distribute to shareholders (as dividends) (1) and / or to use within the business (retained profit) to invest in future plans (1).

If a business sells products or services that are liable for value added tax (VAT), an increase in VAT will mean that a business may have to increase its prices (1)... …This would involve altering price lists and other promotional material (1), which would incur costs (1). …An increase in price could result in reduced demand for a business’s products (1) - if competitors have not increased their prices (1).

If VAT increases and a business does not increase the price of its ‘vatable’ goods and services, it will suffer a reduction in profit (1). Adopting this approach might, however, be important in maintaining custom (1), particularly if the business operates in a competitive environment, where price is an important differentiator (1) and where competitors have chosen to absorb the VAT increase (1).

An increase in business rates would increase costs (1), and thus… …reduce profit (1), unless other costs could be reduced (1), or it was able to put up prices without a subsequent fall in demand and, thus, revenue (1). …may affect a business’s location decisions (1), because rates differ across the country (1).


Q3 (e) Discuss ways in which operating in a competitive environment may impact on a business’s decision making.

Question number

Indicative content

Mark

3(e) Remember: Students only have around 6 minutes to answer these ‘Discuss’ questions, with 12 lines allocated for their answer. Several paragraphs with relevant points are presented below, not all of which would be required to secure maximum marks. In these 6-mark questions, just 2 or 3 relevant, well-developed points should be sufficient to secure the maximum marks. These questions are marked using level descriptors detailed on the following page.

Competition exists when more than one firm operates in a market or market segment by providing a similar product or service to another firm in this market / segment (AO1b).

In general, competition forces a business to look more carefully at how it can meet or exceed customer requirements, and give customers something that they value over and above what rivals offer (AO1b). This will be important to maintain or win sales and market share (AO3a). For example, a business operating in a competitive environment may be forced to take the decision to…

(6) AO1b=3 AO3a=3



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…lower prices (AO1b), which reduces profit margins, unless costs can also be reduced by the same amount (AO3a). Thus, competition encourages firms to become more efficient (ie minimise waste) in order to reduce costs and enable lower prices to be charged (AO3a). This will ultimately help to ensure that profit margins / profit is kept at an acceptable level (AO3a). The higher a business’s costs in relation to competitors, the less able it will be to offer lower prices, and vice versa (AO3a).

…invest in innovation / new product development (AO1b) - in order to develop superior products (eg better tasting - in terms of food, made from longer-lasting materials or components, improved design, etc) that more closely meet the needs / expectations of customers than competitors (AO3a).

…offer incentives eg free gifts (AO1b). These add value to a product purchase, and thus could help maintain / gain sales (AO3a).

…focus on providing superior delivery (eg faster or more reliable delivery) (AO1b). This benefit will add value to a product or service where a prompt response is considered particularly important by customers, and could be crucial in maintaining / gaining sales (AO3a).

…focus on providing superior customer service (eg friendlier, more helpful staff) (AO1b). This benefit will add value to a product or service where a prompt response to queries and complaints is particularly expected by customers and could be crucial in helping to maintain / gain sales (AO3a).

…increase investment in promotion (AO1b) - in order to increase awareness of the business, its various products / services, and its USP. A well-designed promotion strategy can be used to highlight ways in which a business’s product might be superior to competitors and, ultimately, help to win sales (AO3a).








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