Cambridge Assessment International Education

Cambridge International General Certificate of Secondary Education

*9988984949*

BUSINESS STUDIES 0450/12

Paper 1 February/March 2019
1 hour 30 minutes

Candidates answer on the Question Paper.

No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your centre number, candidate number and name in the spaces at the top of this page.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams, graphs or rough working.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

The businesses described in this question paper are entirely fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
The total number of marks for this paper is 80.

This syllabus is regulated for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 9 printed pages and 3 blank pages.

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1 Anna and James have formed a business partnership. They own an ice cream shop on the main
street in Capital city. The shop has 3 part-time employees and sells high quality ice cream to a
niche market. Anna and James gain feedback by asking customers to complete questionnaires.
Customers do not like the long queues and poor customer service. Anna thinks these problems
are caused by the shop always being busy. James has suggested moving to a larger shop in a
different location in Capital city.

(a) What is meant by ‘niche market’?

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

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

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

........................................................................................................................................... [2]

(b) Identify two disadvantages to a business of having part-time employees.

Disadvantage 1: ................................................................................................................

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

Disadvantage 2: ................................................................................................................

........................................................................................................................................... [2]

(c) Identify and explain two possible reasons why Anna and James formed a business partnership.

Reason 1: .........................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

Explanation: ......................................................................................................................

........................................................................................................................................... [4]

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(d) Identify and explain one advantage and one disadvantage to Anna and James’s business of
asking customers to complete questionnaires.

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

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

Explanation: ......................................................................................................................

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

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

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

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

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

Explanation: ......................................................................................................................

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

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

........................................................................................................................................... [6]

(e) Do you think Anna and James should move to a larger shop? Justify your answer.

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

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

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2 GXC produces car components in country X using imported raw materials. This year, GXC has
invested in new machinery. This has resulted in the redundancy of 100 employees, 30% of its
workforce. Some stakeholder groups were unhappy about this decision. GXC uses flow production
and benefits from economies of scale. It sells the components to car manufacturers based in country
Y. The exchange rate of country X’s currency has recently appreciated. GXC’s Managing Director
is worried about this.

(a) Identify two economies of scale.

Example 1: ........................................................................................................................

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

Example 2: ........................................................................................................................

........................................................................................................................................... [2]

(b) What is meant by ‘redundancy’?

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

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

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

........................................................................................................................................... [2]

(c) Identify and explain one advantage and one disadvantage to GXC of using flow production.

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

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

Explanation: ......................................................................................................................

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

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

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

Explanation: ......................................................................................................................

........................................................................................................................................... [4]

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(d) Identify and explain two stakeholder groups that could be affected by GXC’s decision to invest
in new machinery.

Stakeholder group 1: ........................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

Stakeholder group 2: ........................................................................................................

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

Explanation: ......................................................................................................................

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

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

........................................................................................................................................... [6]

(e) Do you think GXC’s Managing Director should be worried about the recent appreciation of the
exchange rate of country X’s currency?

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

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

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

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

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

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

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

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........................................................................................................................................... [6]

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3 Sachin’s business manufactures cricket bats for the mass market. He advertises in a national
newspaper every two weeks. Demand for the cricket bats has rapidly increased since the business
started two years ago. His 30 employees now produce 3 million cricket bats per year. A summary
of costs and selling price is shown in Table 1. Sachin is finding it difficult to manage the business
on his own. His friend has suggested delegating some tasks, such as marketing and production
decisions, to employees.

Table 1: Summary of costs and selling price ($)

Fixed costs per year ($) 200 000

Variable cost per unit ($) 4

Price per unit ($) 20

(a) Calculate the total cost of producing 3 million cricket bats.

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

........................................................................................................................................... [2]

(b) What is meant by ‘variable cost’?

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

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

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

........................................................................................................................................... [2]

(c) Identify and explain one advantage and one disadvantage to Sachin’s business of advertising
in a national newspaper.

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

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

Explanation: ......................................................................................................................

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

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

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

Explanation: ......................................................................................................................

........................................................................................................................................... [4]

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(d) Identify and explain two advantages to Sachin’s business of selling to the mass market.

Advantage 1: ....................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

Advantage 2: ....................................................................................................................

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

Explanation: ......................................................................................................................

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

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

........................................................................................................................................... [6]

(e) Do you think Sachin should delegate some tasks to employees? Justify your answer.

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

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

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

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

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

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

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

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........................................................................................................................................... [6]

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4 DGC is a public limited company. It has a reputation for selling high quality branded clothes and
shoes to women. It is a multinational company and owns shops in 10 countries. Each shop operates
with a short chain of command between the shop manager and sales employees. DGC is planning
to expand into country Z for the first time. DGC has carried out some secondary market research
and has found that country Z has different cultural and social trends to its existing markets. The
Managing Director thinks DGC should open the shops in country Z as a franchise. However, the
Finance Director thinks DGC should buy its own shops using a suitable source of finance.

(a) Identify two methods of secondary market research.

Method 1: ..........................................................................................................................

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

Method 2: ..........................................................................................................................

........................................................................................................................................... [2]

(b) What is meant by ‘chain of command’?

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

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

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

........................................................................................................................................... [2]

(c) Identify and explain two advantages to DGC of being a multinational company.

Advantage 1: ....................................................................................................................

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

Explanation: ......................................................................................................................

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

Advantage 2: ....................................................................................................................

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

Explanation: ......................................................................................................................

........................................................................................................................................... [4]

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(d) Identify and explain two factors that DGC should consider when choosing a source of finance
for expansion.

Factor 1: ...........................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

Factor 2: ...........................................................................................................................

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

Explanation: ......................................................................................................................

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

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

........................................................................................................................................... [6]

(e) Do you think DGC should open shops in country Z as a franchise? Justify your answer.

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

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

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

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

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

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

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BLANK PAGE

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

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

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

© UCLES 2019 03_0450_12_2019_1.16

 Cambridge Assessment International Education
Cambridge International General Certificate of Secondary Education

BUSINESS STUDIES 0450/22

Paper 2 February/March 2019
INSERT
1 hour 30 minutes

READ THESE INSTRUCTIONS FIRST

*9203891871-I*

This Insert contains the case study material.

Anything the candidate writes on this Insert will not be marked.

This syllabus is regulated for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 3 printed pages and 1 blank page.

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 2

Peter’s Restaurants (PR)

Peter has a successful restaurant business, called PR, which he set up 10 years ago. The business
has a chain of 5 restaurants located in the centre of the main city, in high income areas. The
business is in country Z which has had high levels of economic growth for the past 5 years. PR
has increasing sales and profits.

The 5 restaurants are well-known for the good quality of the food, which is sold at high prices. Peter
wants to expand the business and open a new restaurant with a takeaway service. He has written
a business plan for this expansion. Peter thinks locating the new restaurant in an area with low
incomes will be a new challenge for him. He also thinks there is a demand for takeaway food. These
are meals that are prepared and then delivered to customers’ homes to be eaten there. Peter needs
to decide which methods of sales promotion to use.

The new restaurant will need to employ 15 workers. There will be 3 chefs, 3 kitchen assistants, 5
people serving food, 3 delivery drivers and 1 office worker. Well-motivated employees will be
important to the success of the new restaurant and takeaway food service. The expansion of the
business should allow Peter to benefit from economies of scale.

Peter is considering the following two locations for the new restaurant.

Option 1: On a main road close to the city railway station. The area is very busy with many cars
and buses passing by most of the day and evening. The cost of the building and changing it to a
restaurant is $150 000. The building is currently used as a warehouse. It is estimated that it will be
1 year before the restaurant will be ready to open.

Option 2: This is already a restaurant and will cost $150 000 to buy. It is located on a quiet road
away from the city centre. The building is much smaller than Option 1 but is in a well-known and
popular area for restaurants. The owner is only selling it because he wants to retire. It is estimated
that it will take Peter 6 months to redecorate and change the restaurant to the PR style.

Appendix 1

Questionnaire results for the new restaurant takeaway service

Most popular response based on a

1 to 5 scale with 5 being very
Question
important and 1 being not important
at all

How important is price when deciding to use a takeaway

3
service?

How important are the type of meals available? 4

How important is the appearance of the restaurant? 1

How important is a delivery service with the meals? 5

How important are the opening times? 3

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Appendix 2

Newspaper article in Daily News – 15 February 2019

Takeaway restaurants in country Z are increasingly allowing customers to use new technology to
order and pay for food. Applications (apps) are available to download so that food can be ordered
using the customer’s mobile (cell) phone. Customers then either collect the food or pay a small
additional price to have it delivered to their home.

There is no need to employ workers to answer the phone as customers choose from the menu
displayed and the food order is then sent automatically to the restaurant kitchen. This increases
efficiency and reduces costs for the restaurant. This benefits both customers and businesses.

Appendix 3

Information for alternative sources of finance

The new restaurant will need $150 000 of finance.

Source of finance Additional information

Bank loan repaid over 1 year 5% interest for the year

Bank loan repaid over 3 years 3% interest every year

No interest charged but if cash is put in a bank

Retained profit
savings account it could earn 4% interest.

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BLANK PAGE

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

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

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

© UCLES 2019 03_0450_22_2019_1.8

 Cambridge Assessment International Education
Cambridge International General Certificate of Secondary Education
*9203891871*

BUSINESS STUDIES 0450/22

Paper 2 February/March 2019
1 hour 30 minutes

Candidates answer on the Question Paper.

No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your centre number, candidate number and name in the spaces at the top of this page.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams, graphs or rough working.
Do not use staples, paper clips, glue or correction fluid.

Answer all questions.

The Insert contains the case study.
The businesses described in this question paper are entirely fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
The total number of marks for this paper is 80.

This syllabus is regulated for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 9 printed pages and 3 blank pages.

03_0450_22_2019_1.8
© UCLES 2019 [Turn over
 2

1 (a) Identify and explain two ways a business plan could help Peter when expanding his business.

Way 1: ...............................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

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

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

Way 2: ...............................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

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

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

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(b) Consider the following three ways Peter could use to motivate his employees in the new
restaurant. Recommend which way he should choose. Justify your answer.

Pay a higher wage rate than competing restaurants: .......................................................

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

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

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

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

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

Use job rotation: ...............................................................................................................

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

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

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

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

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

Offer free food for the employees to take home each day: ..............................................

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

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

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

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

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

Recommendation: ............................................................................................................

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

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

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

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

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

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

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 4

2 (a) Identify and explain two ways in which the results from the questions in Appendix 1 might
affect Peter’s decisions about the new service.

Way 1: ...............................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

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

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

Way 2: ...............................................................................................................................

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

Explanation: ......................................................................................................................

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

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

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

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

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

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(b) Consider how the following three economies of scale might benefit Peter’s business. Which
economy of scale is likely to have the biggest effect on profits? Justify your answer.

Purchasing: .......................................................................................................................

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

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

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

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

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

Technical: ..........................................................................................................................

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

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

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

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

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

Financial: ..........................................................................................................................

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

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

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

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

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

Conclusion: .......................................................................................................................

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

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

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

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3 (a) Identify and explain two methods of sales promotion Peter could use for the new service.

Sales promotion method 1: ...............................................................................................

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

Explanation: ......................................................................................................................

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

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

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

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

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

Sales promotion method 2: ...............................................................................................

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

Explanation: ......................................................................................................................

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

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

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

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

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

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(b) Consider the two options for the location of the new business. Recommend which option Peter
should choose. Justify your answer.

Option 1: ...........................................................................................................................

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

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

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

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

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

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

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

Option 2: ...........................................................................................................................

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

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

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

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

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

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

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

Recommendation: ............................................................................................................

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

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

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

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

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

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4 (a) Identify and explain how the following four changes might affect the success of the new
business.

The economic cycle in country Z moves from boom into recession: ................................

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

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

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

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

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

Government in country Z lowers income tax: ...................................................................

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

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

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

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

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

New legal controls so all packaging for takeaways must be able to be recycled: ............

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

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

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

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

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

New legal controls that all menus must contain full information on the ingredients used: .

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

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

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

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

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

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(b) Consider the advantages and disadvantages of the three sources of finance outlined in
Appendix 3 for the new business. Recommend which source of finance Peter should choose.
Justify your choice using cost comparisons for each source.

1 year bank loan: ..............................................................................................................

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

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

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

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

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

3 year bank loan: ..............................................................................................................

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

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

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

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

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

Retained profit: .................................................................................................................

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

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

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

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

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

Recommendation: ............................................................................................................

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

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

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

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

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

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

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BLANK PAGE

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

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

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

© UCLES 2019 03_0450_22_2019_1.8

 Cambridge Assessment International Education
Cambridge International General Certificate of Secondary Education

BUSINESS STUDIES 0450/12

Paper 1 Short Answer/Structured Response March 2019
MARK SCHEME
Maximum Mark: 80

Published

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.

Cambridge International will not enter into discussions about these mark schemes.

Cambridge International is publishing the mark schemes for the March 2019 series for most Cambridge
IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

This syllabus is regulated for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 18 printed pages.

© UCLES 2019 [Turn over

0450/12 Cambridge IGCSE – Mark Scheme March 2019
PUBLISHED
Generic Marking Principles

These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the
specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these
marking principles.

GENERIC MARKING PRINCIPLE 1:

Marks must be awarded in line with:

• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.

GENERIC MARKING PRINCIPLE 2:

Marks awarded are always whole marks (not half marks, or other fractions).

GENERIC MARKING PRINCIPLE 3:

Marks must be awarded positively:

• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
question as indicated by the mark scheme. The meaning, however, should be unambiguous.

GENERIC MARKING PRINCIPLE 4:

Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.

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0450/12 Cambridge IGCSE – Mark Scheme March 2019
PUBLISHED
GENERIC MARKING PRINCIPLE 5:

Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may
be limited according to the quality of the candidate responses seen).

GENERIC MARKING PRINCIPLE 6:

Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or
grade descriptors in mind.

© UCLES 2019 Page 3 of 18

0450/12 Cambridge IGCSE – Mark Scheme March 2019
PUBLISHED
Question Answer Marks Notes

1(a) What is meant by ‘niche market’? 2 For 2 marks must have both elements

Clear understanding (2) e.g. a highly specialised [1] subpart of a larger market Do not credit answers such as small market
[1] OR small number of customers or small
Some understanding (1) e.g. selling to a small part / small segment of the group as these do not explain the term
market OR specialist market OR part of the market with specific needs and
characteristics

1(b) Identify two disadvantages to a business of having part-time employees. 2 Do not credit points such as less motivated /
less efficient OR less skilled/less trained as
Knowledge (2 × 1) – award one mark for each relevant disadvantage these are based on unknown assumptions

Disadvantages may include: Do not credit answers which confuse part-

• May take longer / more expensive to recruit two part-time workers than time employees with temporary workers.
one full time worker
• Can be less committed to the business OR more likely to leave
• Difficult to communicate / co-ordinate / lack of continuity as not there all
the time
• Extra training costs as need to train more people
• Manager may spend more time supervising two workers instead of one

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0450/12 Cambridge IGCSE – Mark Scheme March 2019
PUBLISHED
Question Answer Marks Notes

1(c) Identify and explain two possible reasons why Anna and James formed a 4 Application marks may be awarded for
business partnership. appropriate use of the following:
• Ice cream
Knowledge (2 × 1) – award one mark for each relevant reason (max 2) • Shop
Application (2 × 1) – award one mark for each explanation in context • Part-time
• Niche market
Advantages may include: • High quality
• Access to more capital (than sole trader)[k] to open a shop [app] • Questionnaires
• Shared responsibilities OR share decision making OR share workload [k] • Long queues
to deal with customer complaints [app] • Poor customer service
• Share costs OR share risk [k] of operating in a niche market [app] • Always busy
• New ideas into the business [k] about how to deal with long queues [app]
• More skills OR expertise OR can specialise in different areas [k] so such Do not credit comparative points such as
as managing the 3 part-time employees [app] less paperwork OR fewer legal
requirements unless clear reference to
limited companies.

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Question Answer Marks Notes

1(d) Identify and explain one advantage and one disadvantage to Anna and 6 Application marks may be awarded for
James’s business of asking customers to complete questionnaires. appropriate use of the following:
• Business partners
Knowledge (2 × 1) – award 1 mark for identification of advantage / • Ice cream
disadvantage (Max 2) • Shop
Application (2 × 1) – award 1 mark for each relevant reference to this business • Part-time
Analysis (2 × 1) – award 1 mark for each relevant explanation • Niche market
• High quality
Relevant points may include: • Long queues
• Poor customer service
Advantage: • Always busy
• Large amounts of information can be collected in a short period of time [k]
• Many people can be asked the same questions [k] helps increase the Accepts answers that refer to either online
sample size [an] or paper based questionnaires
• Respondent has time to consider question so more likely to complete [k] Do not credit points such as cheap or
as do not have to complete whilst in shop [app] expensive on own as there is no cost
• Relatively easy to analyse (as standard responses) [k] about poor information to make comparisons.
customer service [app] so quickly able to do something to solve it [an] Do not credit answers which refer to why
the market research has been carried out as
Disadvantage: this does not answer the question set
• Questions may be poorly worded OR difficult to phrase questions properly Note points should relate to business not
OR people interpret questions in a different way [k] so business makes the customers.
wrong decisions [an] about the ice cream [app]
• People may not tell the truth OR say what they think sounds good [k]
• Simple questionnaires cannot tell the meaning behind a response [k]
• Customers may not return / fill in the questionnaires [k]
• May have to pay someone with the right skills to design the questionnaire
properly [k]

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Question Answer Marks Notes

1(e) Do you think Anna and James should move to a larger shop? Justify your 6 Application marks may be awarded for
answer. appropriate use of the following:
• Business partners
Knowledge (1) – award 1 mark for identification of relevant issue(s) (Max 1) • Ice cream
Application (1) – award 1 mark for a relevant reference made to this business • Part-time
Analysis (2 × 1) – award up to 2 marks for relevant development of points • Niche market
Evaluation (2) – justified decision as to whether the business should move to a • High quality
larger shop • Questionnaires
• Long queues
Relevant points might include: • Poor/bad customer service
• Access to more customers / increase sales [k] by reducing the problem of • Always very busy
long queues [app] which can increase revenue [an]
• May need to recruit more employees [k] to sell its ice cream [app] which Note: candidate’s final decision can be
increases recruitment costs [an] either for or against moving to a larger shop.
• Business may not be known in new location [k] as its in a different part of Do not credit shop as application as stated
the city [app] increasing costs of advertising to raise awareness [an] in question.
• Could lose some existing customers if move too far away OR may not gain Question does allow for a one-sided
sufficient extra customers in new location [k] as it’s a niche market [app] answer.
• Access to capital OR possible increase in rent of a larger shop [k] which
will increase fixed costs [an] which they may not be able to afford [an]
• Possibility of increased competition in new location [k]
• Legal controls may restrict where they can move to [k]
• More storage [k]

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Question Answer Marks Notes

2(a) Identify two economies of scale. 2 Do not credit answers such as internal or
external economies of scale
Knowledge (2 × 1) – award one mark for each economy of scale

Examples may include:

• Purchasing / bulk buying
• Marketing
• Financial
• Managerial
• Technical

2(b) What is meant by ‘redundancy’? 2 For 2 marks must clearly understand idea
that it is the job role that no longer exists
Clear understanding [2] e.g. when an employee is no longer needed because
the job no longer exists Do not credit answers such as fired or
Some understanding [1] e.g. when an employee is no longer needed OR loses dismissed as this is not the same concept
job OR job role has gone
Do not credit reasons why the job may no
longer exist

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Question Answer Marks Notes

2(c) Identify and explain one advantage and one disadvantage to GXC of 4 Application marks may be awarded for
using flow production. appropriate use of the following:
• Car components
Knowledge (2 × 1) – award one mark for each relevant advantage / • 100 employees OR 30% redundant OR
disadvantage (max 1 for each) redundancy
Application (2 × 1) – award one mark for each relevant explanation in context • Economies of scale
of business • Car manufacturers
• Stakeholders
Relevant points may include: • (Invested in) new machinery
• Imports raw materials
Advantage: • Exports to country Y
• High output OR fast production [k] of car components [app]
• Low cost per unit [k] due to economies of scale [app] Do not credit points such as faster OR
• Can produce 24 hours a day OR continuous production [k] cheaper on own
• Allows for specialisation / simple repetitive tasks allows for greater use of
unskilled labour [k]
• Allows for fewer employees [k] so can make 30% redundant [app]

Disadvantage:
• (Boring) system of work leading to low motivation of workers [k] due to use
of new machinery [app]
• If one machine breaks down the whole production line will stop [k] so not
able to meet demand of car manufacturers [app]
• High set up costs [k]
• High cost of storage [k] as will need larger amounts of imported raw
materials [app]
• Inflexible if demand changes [k]

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Question Answer Marks Notes

2(d) Identify and explain two stakeholder groups that could be affected by 6 Application marks may be awarded for
GXC’s decision to invest in new machinery. appropriate use of the following:
• Car components
Knowledge (2 × 1) – award one mark for identification of each relevant • 100 employees redundant OR 30% of
stakeholder (max 2) workforce OR redundancy
Application (2 × 1) – award one mark for each relevant reference made to this • Economies of scale
business • Car manufacturers
Analysis (2 × 1) – award 1 mark for each relevant development • Imported raw materials

Relevant points may include: Do not credit new machinery as application

• Employees [k] as 70% of the workforce may feel less secure in their jobs as stated in question
[app+an] OR as 100 employees [app] would lose their jobs/source of
income [an] Do not credit shareholders as we do not
• Customers [k] as quality may become more consistent [an] of the car know what type of business this is
components [app]
• Government [k] as may need to pay more unemployment benefit [an]
• Suppliers [k] of imported raw materials [app] as business may require
inventory in larger amounts OR different timescales [an]
• Local community [k] as machinery may create a lot of noise pollution [an]
• Banks/lenders [k]
• Owners [k]
• Pressure groups OR trade unions [k]

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Question Answer Marks Notes

2(e) Do you think GXC’s Managing Director should be worried about the 6 Application marks may be awarded for
recent appreciation of the exchange rate of country X’s currency? appropriate use of the following:
• Car components
Knowledge (1) – award one mark for identification of relevant issue(s) (Max 1) • 100 employees redundant OR 30% of
Application (1) – award one mark for a relevant reference made to this workforce
business • Economies of scale
Analysis (2 × 1) – award up to two points for relevant development of points • Car manufacturers
Evaluation (2) – justified decision as to whether GXC should be worried about • Stakeholders
the appreciation • [Imports] raw materials
Relevant points might include: Note: candidate’s final decision can be
• Exporting goods appear more expensive / can result in higher prices [k] either for or against being worried about the
which may decrease demand / sales in country Y [an] for car components appreciation
[app] Question does allow for a one-sided
• Imports become cheaper [k] when buying its raw materials [app] reducing answer.
GXC’s costs [an] so may be able to lower prices [an] so they may be able
to be more competitive / increase sales [an]

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Question Answer Marks Notes

3(a) Calculate the total cost of producing 3 million cricket bats. 2

Clear understanding (2) = $12 200 000 [2]

Some understanding (1) e.g. FC+ VC
OR 200 000 + (4 × 3 million) OR 200 000 + 12 000 000 [1]

3(b) What is meant by ‘variable cost’? 2 Do not accept examples of variable costs
Do not accept the phrase ‘costs that vary’
Clear understanding [2] e.g. costs which change directly with OR in proportion on its own as this is re-wording the question
to the number of items sold or produced.
Some understanding [1] e.g. costs which change OR costs that vary with sales
/ output [1]

3(c) Identify and explain one advantage and one disadvantage to Sachin’s 4 Application marks may be awarded for
business of advertising in a national newspaper. appropriate use of the following:
• Cricket bats
Knowledge (2 × 1) – award one mark for each relevant • Mass market
advantage/disadvantage (max 2) • Demand rapidly increases
Application (2 × 1) – award one mark for each relevant explanation in context • 3 million (per year)
of business • Correct use of relevant data from table
• Every 2 weeks
Relevant points may include:
Do not credit points such as cheaper/more
Advantage: expensive as this is a relative term and we
• A large number of people will see the advert [k] about cricket bats [app] do not have any cost data
• Adverts can be cut out and kept for reference [k]
• A lot of information can be included [k] for the mass market [app]

Disadvantage:
• People may not notice/read/understand the advert [k] so demand may stop
(rapidly) increasing [app]
• Target market may not buy the newspaper [k]
• Will have to pay to advertise [k] every two weeks [app]

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Question Answer Marks Notes

3(d) Identify and explain two advantages to Sachin’s business of selling to the 6 Application marks may be awarded for
mass market. appropriate use of the following:
• Cricket bats
Knowledge (2 × 1) – award one mark for identification of each relevant • Demand rapidly increases
advantage (max 2) • 3 million
Application (2 × 1) – award one mark for each relevant reference made to this • Correct use of relevant data from table
business • Two years ago
Analysis (2 × 1) – award 1 mark for each relevant development of point • (National) newspaper

Relevant points may include:

• High number of sales/may find new customers [k] as demand increasing
rapidly [app] can increase revenue [an]
• Can benefit from economies of scale [k] as selling 3 million products [app]
so able to lower average costs [an]
• No need to develop specialist products [k] such as different cricket bats
[app] lowering development costs [an]
• Increased recognition/status [k] as only started two years ago [app]

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Question Answer Marks Notes

3(e) Do you think Sachin should delegate some tasks to employees? Justify 6 Application marks may be awarded for
your answer. appropriate use of the following:
• Cricket bats
Knowledge (1) – award one mark for identification of relevant issue(s) (Max 1) • Mass market
Application (1) – award one mark for a relevant reference made to this • National newspaper
business • Every two weeks
Analysis (2 × 1) – award up to two points for relevant development of points • Demand rapidly increases
Evaluation (2) – justified decision as to whether Sachin should delegate some • Two years ago
tasks • 3 million
• Correct use of relevant data from table
Relevant points might include:
• Difficult to run the business on his own
• Sachin is less likely to make mistakes [k] which helps protect his reputation
• 30 (employees)
[an]
• Marketing or production decisions
• Sachin cannot do all the jobs on his own/needs to reduce his workload [k]
Note: candidate’s final decision can be
as demand is increasing [app] so can focus on other key/important tasks
either for or against delegating some tasks
[an]
• Employees may feel more motivated/important [k] which could increase Question does allow for a one-sided
productivity/output [an] of cricket bats [app] answer.
• Employees may feel demotivated if they are given more work to do [k]
which may increase labour turnover (an)
• Employees may need training to complete the additional tasks [k] which
may increase costs (an)
• Sachin is still responsible for errors [k]
• Workers may not have the necessary skills/make poor decisions [k] which
could lead to lower demand/less output / damage reputation [an]
• Sachin would lose some control [k]

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Question Answer Marks Notes

4(a) Identify two methods of secondary market research. 2

Knowledge [2 × 1] – award one mark for each relevant method

Relevant methods include:

• Government statistics
• Newspaper OR magazine articles
• Internet OR online sources
• Paying for market research agencies
• Trade associations reports
• Company records

4(b) What is meant by ‘chain of command’? 2 For 2 marks must have idea of ‘orders or
instructions’ and ‘who between’.
Clear understanding [2] e.g. the structure in an organisation which allows
instructions to be passed down from senior management to lower levels
Some understanding [1] e.g. shows who gives orders

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Question Answer Marks Notes

4(c) Identify and explain two advantages to DGC of being a multinational 4 Application marks may be awarded for
company. appropriate use of the following:
• Public limited company
Knowledge (2 × 1) – award one mark for each relevant advantage (max 2) • High quality/branded
Application (2 × 1) – award one mark for each relevant explanation in context • Clothes and/OR shoes
of business • Women
• 10 countries
Advantages may include: • Different social and cultural trends
• Spread risk [k] as operates in 10 countries [app] • Franchises OR shops
• Access to new markets/higher sales/more customers/increase market • Expand (into country Z)
share [k] for their high quality products [app]
• Improve/maintain brand image [k] Do not credit points about production e.g.
• Avoid barriers to trade [k] reduce production costs OR lower labour
costs OR lower health and safety costs OR
• Reduce tax liability/take advantage of favourable tax laws [k] land costs [k] OR easier access to raw
• Reduce transport costs [k] materials as this is a retailer.
• Remain competitive [k] Do not credit answers which focus on
• Access government grants/support [k] advantages of a being large e.g. economies
of scale

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Question Answer Marks Notes

4(d) Identify and explain two factors that DGC should consider when 6 Application marks may be awarded for
choosing a source of finance for expansion. appropriate use of the following:
• Public limited company
Knowledge [2 × 1] – award one mark for identification of each relevant factor • High quality/branded
(max 2) • Clothes and shoes
Application [2 × 1] – award one mark for each relevant reference made to this • 10 countries
business • Multinational company
Analysis [2 × 1] – award 1 marks for each relevant development • Shops OR franchise

Relevant points may include: Do not credit answers which suggest

• Use/purpose of finance [k] as buying shops [app] which needs long term possible sources of finance the business
finance [an] could use
• Legal structure [k] DGC is a public limited company [app] could be seen as
a lower risk [an]
• Level of existing loans [k] of this multinational company [app] which if high
means less likely to be given additional loans [an]
• Interest rates/cost of finance [k]
• Time to repay OR time span [k] as it is a long term project would need to
use a long term source [an]
• Amount needed [k] as may not have enough funds to use internal methods
so would have to borrow [an]
• Security [k] as this may help to guarantee loans [an]
• Credit history OR financial status [k] lenders will want to know if you are
able to repay [an]

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Question Answer Marks Notes

4(e) Do you think DGC should open shops in country Z as a franchise? Justify 6 Application marks may be awarded for
your answer. appropriate use of the following:
• Public limited company
Knowledge (1) – award one mark for identification of relevant issue(s) (Max 1) • High quality/branded
Application (1) – award one mark for a relevant reference made to this • Clothes and shoes
business • Women
Analysis (2 × 1) – award up to two marks for relevant development of points • 10 countries
Evaluation (2) – justified decision as to whether DGC should open shops as a • Expand for first time
franchise. • Different social and cultural trends
• Multinational company
Relevant points might include:
• Franchisee pays a fee to use the brand name [k] so DGC do not have to Note: candidate’s final decision can be
raise as much capital [an] when entering a new market with different either for or against opening shops as a
cultural and social trends [app] franchise
• Expansion is much faster [k] for this public limited company [app] Question does allow for a one-sided
• DGC will receive a share of franchisee’s profits [k] providing an extra answer.
source of revenue [an] Do not credit shop as application as stated
• Franchisees will have local knowledge [k] increasing chance of higher in question.
sales [an] of clothes and shoes [app] Do not credit points about production as this
• Poor management of one franchise could damage whole business is a retailer.
reputation [k] decreasing demand [an] for shoes and clothes [app]
• The franchisee keeps some of the profits from the outlet [k]
• DGC will be expected to offer help and advice [k] which can increase costs
[an]
• Opening own shops will allow DGC to have total control [k]

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 Cambridge Assessment International Education
Cambridge International General Certificate of Secondary Education

BUSINESS STUDIES 0450/22

Paper 2 Case Study March 2019
MARK SCHEME
Maximum Mark: 80

Published

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.

Cambridge International will not enter into discussions about these mark schemes.

Cambridge International is publishing the mark schemes for the March 2019 series for most Cambridge
IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

This syllabus is regulated for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 12 printed pages.

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Generic Marking Principles

These general marking principles must be applied by all examiners when marking candidate answers.
They should be applied alongside the specific content of the mark scheme or generic level descriptors
for a question. Each question paper and mark scheme will also comply with these marking principles.

GENERIC MARKING PRINCIPLE 1:

Marks must be awarded in line with:

• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.

GENERIC MARKING PRINCIPLE 2:

Marks awarded are always whole marks (not half marks, or other fractions).

GENERIC MARKING PRINCIPLE 3:

Marks must be awarded positively:

• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit
is given for valid answers which go beyond the scope of the syllabus and mark scheme,
referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when these
features are specifically assessed by the question as indicated by the mark scheme. The
meaning, however, should be unambiguous.

GENERIC MARKING PRINCIPLE 4:

Rules must be applied consistently e.g. in situations where candidates have not followed
instructions or in the application of generic level descriptors.

GENERIC MARKING PRINCIPLE 5:

Marks should be awarded using the full range of marks defined in the mark scheme for the question
(however; the use of the full mark range may be limited according to the quality of the candidate
responses seen).

GENERIC MARKING PRINCIPLE 6:

Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should
not be awarded with grade thresholds or grade descriptors in mind.

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Question Answer Marks

1(a) Identify and explain two ways a business plan could help Peter when 8
expanding his business.

Knowledge [2 × 1] – award one mark for each way

Analysis [2 × 1] – award one mark for a relevant explanation for each way
Application [2 × 2] – award two application marks for each way

Answers are likely to include:

• To obtain a bank loan – show the bank manager so more likely to be
given the loan
• To plan the strategy for the new business – reduces risk of failure
• To help to set a budget/see if he can afford to expand
• To help identify the best location/premises
• To identify the HR requirements/number of staff needed/skills required
• To set aims/objectives/targets for the business
• To help analyse the market/demand for the new restaurant/marketing
mix for the new business
• Break-even
• Accounting information – cash flow forecast/Income
statement/Statement of financial position
• Sources of finance
• Resources/capital equipment

Award a maximum of three additional marks for each explanation of the way
– 2 of which must be applied to this context.

Indicative response:
Helps to gain a bank loan (k) as Peter can show the manager his business
plan for the new restaurant and takeaway business (ap). This means that it
will be easier to gain a loan as it will show the cash flow forecast and
forecast profits for the new business (an). This will convince the bank
manager that Peter has researched and planned out the new business so it
will be as successful as the other 5 restaurants (ap).

Possible application marks:

restaurant business; 5 restaurants; set up 10 years earlier; takeaway
service; well known for good quality food; $150 000; chefs; delivery drivers;
kitchen assistants; waiters; meals; different target market of low income
groups; to buy buildings; new technology available with Apps on mobile
phones to order food.

There may be other examples in context that have not been included here.

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Question Answer Marks

1(b) Consider the following three ways Peter could use to motivate his 12
employees in the new restaurant. Recommend which way he should
choose. Justify your answer.

Relevant points might include:

Pay a higher • Taylor’s theory suggests that higher pay motivates

wage rate than workers
competing • Earning more at PR than competitors/higher
restaurants income
• It is more expensive for the restaurant – may
charge higher prices to cover the costs

Use job • Makes the job more varied – more interesting

rotation • Increased costs from additional training – may not
be as suited to different jobs so less efficient –
more mistakes made

Offer free food • Little or no cost as food is left over and would be
for the thrown away
employees to • Employees might prefer higher pay as they can
take home then choose how to spend this
each day

Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-

based mark scheme below.
Knowledge/Analysis/Evaluation

Level 3 At least 2× Level 2+

9–10 marks for well justified recommendation as to which is
the best way to motivate workers compared to the other
ways.
7–8 marks for some limited judgement shown in the
recommendation as to which is the best way to motivate
workers.

Level 2 4–6 marks

Detailed discussion of the advantages and/or disadvantages
of each way to motivate workers.

Level 1 1–3 marks

Outline of the advantages and/or
disadvantages of each way to motivate workers.

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Question Answer Marks

1(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Taylor’s
theory on motivation states that workers are motivated by higher pay.

Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be

awarded for each additional L2 explanation (max 6 marks) e.g. Taylor’s
theory on motivation states that workers are motivated by higher pay and so
as pay is higher than many competing restaurants then labour turnover
would be lower. However, this will increase the costs of the business and
therefore profit will be lower or prices higher to compensate. (L2)

Level 3 – For L3 to be awarded there needs to be at least two L2 marks

awarded and then a recommendation as to the best way to choose.

Award up to 2 additional marks for relevant application.

Possible application marks: 5 restaurants; set up 10 years earlier and has

been successful; chefs; kitchen staff; takeaway service; new technology
available with Apps on mobile phones to order food.

There may be other examples in context that have not been included here.

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Question Answer Marks

2(a) Identify and explain two ways in which the results from the questions 8
in Appendix 1 might affect Peter’s decisions about the new service.

Knowledge [2 × 1] – award one mark for each way

Analysis [2 × 1] – award one mark for how each way would affect decisions
Application [2 × 2] – award two application marks for how each way the
questionnaire results would affect decisions

Examples might include:

The way the questionnaire results might affect decisions:
• pricing decisions e.g. a result of 3 was given to the question about the
importance of price so they should try to keep prices low so that they
remain competitive
• types of meals sold – so Peter will need to think carefully about the
menu available as types of meals scored 4 and is seen as important
• spending money on decorating the takeaway part of the restaurant only
scored 1 and will not affect whether customers use the restaurant or
not.
• whether to offer a delivery service as customers are very interested in
the delivery service and so this is something Peter should promote as it
may attract more sales
• what times the restaurant should be open needs to be considered so it
is convenient for customers to help increase sales.

Award a maximum of three additional marks for each explanation of how

each question result would affect decisions – 2 of which must be applied
to this context.

Indicative response:
The results will affect the decision about the opening times so the business
is open when customers want to use it (k) and if the restaurant is not open
when they want a takeaway then sales will be lost (ap). Knowing when there
is customer demand will help to increase sales and profit for Peter (an).
Although in this questionnaire customers see opening times as only quite
important with a score of 3 (ap).

Possible application marks: use of results from Appendix 1; restaurant

business; 5 restaurants; set up 10 years earlier; expand the business by
opening another restaurant; takeaway service; different target market of low
income groups; delivery service.

There may be other examples in context that have not been included here.

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Question Answer Marks

2(b) Consider how the following three economies of scale might benefit 12
Peter’s business. Which economy of scale is likely to have the biggest
effect on profits? Justify your answer.

Relevant points might include:

• Raw materials can be purchased in bulk –
Purchasing
discounts received – lower unit costs

• Can use improvements in technology – such as

using business apps for ordering food – quicker
Technical production of meal orders – possibly lower labour
costs – increased efficiency of equipment – lower
unit costs

• Less risk as larger business

Financial • lower interest rates charged on loans and
overdrafts – lower interest costs – lower unit costs

Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-

based mark scheme below.
Knowledge/Analysis/Evaluation

Level 3 At least 2 × Level 2 +

9–10 marks for well justified recommendation of which
economy of scale is likely to have the biggest effect on profits
rather than the other two.
7–8 marks for limited recommendation of which economy of
scale is likely to have the biggest effect on profits.

Level 2 4–6 marks

Detailed discussion of each economy of scale and why it
would lead to lower unit costs.

Level 1 1–3 marks

Outline of each economy of scale.

Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. To buy raw
materials in bulk.

Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be

awarded for each additional L2 explanation (max 6 marks) e.g. To buy raw
materials in bulk so discounts will be given. This makes the food ingredients
cost less than might otherwise have been so the unit cost for each meal will
be lower (L2 plus application for reference to food ingredients and meals).

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Question Answer Marks

2(b) Level 3 – For L3 to be awarded there needs to be at least two L2 marks

awarded and then a conclusion of which economy of scale is likely to have
the biggest effect on profits.

Award up to 2 additional marks for relevant application.

Possible application marks: restaurant business; 5 restaurants; opening
another restaurant; ingredients; delivery service; takeaway service; new
technology available with Apps on mobile phones to order food; considering
bank loan or retained profit to fund the expansion.
There may be other examples in context that have not been included here.

Question Answer Marks

3(a) Identify and explain two methods of sales promotion Peter could use 8
for the new service.

Knowledge [2 × 1] – award one mark for each relevant method

Analysis [2 × 1] – award one mark for a relevant explanation for each
method
Application [2 × 2] – award two application marks for each method

Award one mark for each relevant method (max 2), such as:
• Price reductions
• Money-off coupons
• Gifts
• BOGOF
• Competitions
• Demonstrations
• Free samples
• Free delivery
Note: Do not accept methods of advertising

Award a maximum of three additional marks for each explanation of the

method – 2 of which must be applied to this context.

Indicative response:
Money-off coupons (k) means meals will be cheaper and so attract
customers (ap). If customers like the service they will return to the
restaurant, (ap) it will gain loyal customers and lead to an increase in sales
(an).

Possible application marks: restaurant business; 5 restaurants; opening

another restaurant; food; meals; takeaway service; different target market of
low income groups; new technology available with Apps on mobile phones
to order food.
There may be other examples in context that have not been included here.

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Question Answer Marks

3(b) Consider the two options for the location of the new business. 12
Recommend which option Peter should choose. Justify your answer.

Relevant points might include:

Advantages Disadvantages

Option 1 • (Near a railway station) • (1 year to convert it) is a

so a lot of passing trade long time to convert it
• (Busy area) so many into a restaurant – no
potential customers pass revenue whilst
by converting it
• (Large area) as it is a • ($150 000) worse cash
warehouse at the flow as cash out will be
moment and plenty of large without any cash in
scope to change it from revenue for 1 year

Option 2 • (6 months to convert it) • (Located on a quiet road)

quicker to convert as so may not be much
already a restaurant – passing trade
revenue starts to flow in • (Much smaller) than
quicker Option 1 so may limit
• (Already well known as a future growth
restaurant in the area) –
may attract more local
people
• (Owner retiring) suggests
the restaurant has
already been successful
in that location – may
retain existing customers
of previous owner

Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-

based mark scheme below.

Knowledge/Analysis/ Evaluation

Level 3 At least 2 × Level 2 +

9–10 marks for well justified recommendation as to which
option to choose and why not the alternative option.
7–8 marks for some limited judgement shown in the
recommendation as to which option to choose.

Level 2 4–6 marks

Detailed discussion of the advantages and/or disadvantages
of each option.

Level 1 1–3 marks

Outline of the advantages and/or disadvantages of each
option.

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Question Answer Marks

3(b) Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. As it is near a
railway station there will be a lot of passing trade so may attract many
customers.

Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be

awarded for each additional L2 explanation (max 6 marks) e.g. As it is near
a railway station there will be a lot of passing trade so may attract many
customers. This should ensure high revenue and high profits. However, it
will take a long time to convert into a restaurant so cash flow may be a
problem as cash out will be higher than cash in for a long time and there
may be insufficient working capital. (L2)

Level 3 – For L3 to be awarded there needs to be at least two L2 marks

awarded and then a recommendation of which option to choose.

Award up to 2 additional marks for relevant application.

Possible application marks: Near a railway station; busy area; large area; 1
year to convert it; $150 000; 6 months to convert it; already well known as a
restaurant in the area; owner retiring; restaurant business; located on a
quiet road; much smaller; 5 restaurants; expand the business by opening
another restaurant; takeaway service; different target market of low income
groups; considering bank loan or retained profit to fund the expansion.
There may be other examples in context that have not been included here.

Question Answer Marks

4(a) Identify and explain how the following four changes might affect the 8
success of the new business.

Award one mark for an effect of each change (max 4) plus one additional
mark for an explanation of how this impacts the business.

• The economic cycle in country Z moves from boom into recession –

Lower incomes – as unemployment increases – less demand for
restaurants and takeaway food
• Government in country Z lowers income tax – increased disposable
income – increased demand for restaurant
• New legal controls so all packaging for takeaways must be able to be
recycled – increased costs – higher prices – changes in packaging may
affect food
• New legal controls that all menus must contain full information on the
ingredients used – increased costs – reprint menus – increased
demand if healthy food ingredients listed

Indicative response:
As country Z has moved into recession it will result in an increase in
unemployment as there is less demand in the economy (1) this will reduce
the demand for takeaway food and sales will fall (1).

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Question Answer Marks

4(b) Consider the advantages and disadvantages of the three sources of 12

finance outlined in Appendix 3 for the new business. Recommend
which source of finance Peter should choose. Justify your choice
using cost comparisons for each source.

Relevant points might include:

Advantages Disadvantages

1 year • Repaid after a short time • Highest rate of interest at

bank of only 1 year (L1) 5% (L1)
loan • Only affects cash • High repayments each
outflows for 1 year (L1) month (L1)
• Total interest paid is • High cash outflows and
lowest at $7500 (L2) the new business may
take some time to get
established so more
difficult to repay (L2)
• High monthly
repayments of $13 125
for one year (L2)
• Total payment =
$157 500 (L2)

3 year • Lowest rate of interest at • Higher total interest

bank 3% (L1) payment (L1)
loan • Interest paid is $4500 • Total payment of
per year (L2) $163 500 (L2)
• Low repayments each • Total interest paid is
month $13 500 over three years
• helps cash outflows (L1) (L2)
• Low monthly repayments
at $4 542 (L2)

Retained • No interest to pay so • Loss of 4% interest from

profit cheaper than the other the bank savings
two alternatives (L1) account (L1)
• Loses $6000 interest per
year if $150 000
available as retained
profit (L2)
• May not have sufficient
cash in retained profit
(L1)

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Question Answer Marks

4(b) Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-

based mark scheme below.

Knowledge/Analysis/ Evaluation

Level 3 At least 2 × Level 2 correct interest cost calculations

9–10 marks for well justified recommendation of which source
of finance to use and rather than the alternatives.
7–8 marks for some limited judgement shown in the
recommendation of which source of finance to use.

Level 2 4–6 marks

Detailed discussion of the advantages and/or disadvantages
of each source and/or interest cost calculations

Level 1 1–3 marks

Outline of the advantages and/or disadvantages of each
source.

Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Retained

profit does not have any interest payable on it.

Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be

awarded for each additional L2 explanation (max 6 marks) e.g. Retained
profit does not have any interest payable on it and so it is cheaper than
taking out a bank loan. However, if the money was saved it would gain more
return in interest than is being paid out on the loan. (L2)

Level 3 – For L3 to be awarded there needs to be at least two correct L2

interest cost calculations and then a recommendation of which source of
finance to use.

Award up to 2 additional marks for relevant application.

Possible application marks: 3% interest over 3 years; 5% interest over 1

year; 4% on savings account; restaurant business; 5 restaurants; expand by
opening another restaurant; new restaurant will have a takeaway service.
There may be other examples in context that have not been included here.

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