Business Activity

Business Organisation

Marketing

Production

People and work

Finance

External Influence

P2 1
 Business Activity

1) Recently, a business friend of Kim’s made an offer to buy the business from her. What
factors should Kim consider before making a decision as to whether to sell? Explain the
importance of these factors.

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2. Business Organisations ( 3, 9, 10, 12)

(b) Jennifer has clear objectives of business growth for Lopez. What are the advantages
of
having clear business objectives?
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(c) Outline the management responsibilities of Miguel as Lopez’s Marketing Manager.

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P2 2
(b) Jennifer has clear objectives of business growth for Lopez. What are the
advantages of having clear business objectives? [4]

Content: Plans are made to meet these objectives;

clear focus for employees of the business;
facilitates budgets as part of planning

(c) Outline the management responsibilities of Miguel as Lopez’s Marketing Manager.

[6]
Content: Marketing manager is responsible for market research, planning of new
products, deciding on the marketing mix, evaluating sales data.

Linked to the case - develop new sweets,

market research in new country,
research the competition in other market,
develop a marketing mix for the new products.

P2 3
6 The bank manager had told Dwight that many new business start-ups fail. What steps
could
Dwight take to reduce the chances of his business failing?
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(b) What factors should the management of Bennetti Carbone Ltd consider in deciding on
the sources of finance to use for such capital investment?

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(c) Refer to Fig. 2. Identify two possible communication barriers within EKZ.
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(d) Discuss how EKZ could improve its internal communication.

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P2 4
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(c) Outline what is meant by ‘spans of control will widen and the chain of command will
lengthen’ (line 27).
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(c) Refer to Fig. 2. Identify two possible communication barriers with EKZ. [2]

Content: examples might include - too many people to pass on the message,
receiver does not listen,
unclear message,
technical breakdown,
wide span of control,
chain of command is long.

(d) Discuss how EKZ could improve its internal communication. [8]

Content: Examples might include - sender ensures message contains appropriate

language, sender ensures right person receives the message,
feedback should be given,
the appropriate channel should be selected,
the shortest possible channel should be used,
make sure the right channel is used,
importance of the message should be emphasised,
direct communication should be used where possible.

For example: By insisting on feedback this allows the sender to check that the right
person received the message. However, the type of feedback will not always tell the
sender that the message has been understood. So this is a good way to improve
internal communication if there is a way of checking that the information has also
been understood as well as just saying that it had been received.

P2 5
 (c) Outline what is meant by 'spans of control will widen and the chain of
command will lengthen' (line 27). (4)

Content: Span of control - the number of subordinates working directly under

a manger will increase.

Chain of command - a structure within an organisation which allows

instructions to be passed down from senior management to the lower levels
of management will increase in terms of the number of levels messages
have to pass through.

3. Marketing ( 16-22)

P2 6
(b) Abdul has carried out market research for the car repair business and a summary of
the
results are in Appendix 3. How would this information help Abdul when deciding on the
marketing for this business?
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(b) Content:
Pricing strategy; Location/place; product/quality of service; advertising/promotion;
demand/market.

Example: People usually pay $21-30 for servicing their car (1 Application mark) this means
that Adbul will need to keep his prices down to around this amount (Level 1

Analysis/Evaluation). Abdul should use competitive pricing and charge prices at the same
level as ABC Cars or slightly less so that he will attract new customers (Level 2
Analysis/Evaluation).

2 (a) How do you think NP researched the market to estimate the number of copies
likely to
be sold of each type of magazine? [8]

Primary research; questionnaires, interviews; consumer panels; testing.

Secondary research; company reports; newspapers; government data.

(b) Advise NP on which one of the three magazines to publish. Use the information in
the
case and appendices 1 and 2 to support your answer. [12]

Content: Health Magazine Revenue = $500,000 Costs = $200,000

Profit = $300,000 + Advertising revenue = $60,000
Or $3 profit per magazine. Overall profit = $360 000
Fashion magazine Revenue = $800,000 Costs = $200,000
Profit = $600,000 + Advertising revenue = $120,000
Or $3 profit per magazine. Overall profit = $720 000
Fashion and Beauty magazine Revenue = $1,000,000
Costs = $450,000 Profit = $550,000 + Advertising revenue = $100,000
P2 7
(accept $150,000 and accept 60/90,000). Overall profit = $650 000 or $700 000 or
more if advertising revenue of beauty product companies also added. $3.66 profit per
magazine.

Credit discussion of the different age groups for the different magazines.
Evaluation – accept any magazine as long as the answer is justified.
Level 3 – 9–12 marks.
Fully justified answer including Level 2 calculations plus discussion comparing the three
different magazines.
Level 2 – 5–8 marks.

Limited justification including calculations of total costs, profit and/or advertising revenue for
any of the magazines.
6 max if only advertising revenue calculated.
6 max if correct method used but incorrect calculation.
Limited justification including statements about the figures in the appendices e.g. revenue
higher for Fashion and Beauty magazine than other two; Fashion magazine sells more
copies than other two; Fashion and Beauty magazine sells to a wider age group than other two.

2 (a) How do you think NP researched the market to estimate the number of copies likely
to
be sold of each type of magazine?

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P2 8
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(b) Advise NP on which one of the three magazines to publish. Use the information in the
case and appendices 1 and 2 to support your answer.

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(b) Why would you expect EE to use a different pricing strategy for video recorders to the
pricing strategy used for new large screen television sets?
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P2 9
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(b) Bettabuild ( construction company ) are planning to diversify into building blocks of
apartments.
How would you advise Bettabuild on the most effective methods to research the market
for low cost
apartments?
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(b) Why would you expect EE to use a different pricing strategy for video recorders to the
pricing
strategy used for new large screen television sets? [8]

Content: Because the products are at different stages of the product life cycle.
Prices need to stimulate sales so the pricing strategy for video recorders could be ‘promotional pricing’ for
the declining product.
As large screen TVs are new then ‘skimming’ might be suitable as sales would be rising and customers
may be willing
to pay a high price to be one of the first to buy this new product.

2 (a) Complete the advertising poster for Bettabuild in the box below. Use the information
in the case study to help you decide on the advertising messages to use to sell their
existing high quality houses. [8]

Content: High quality emphasised by quality materials used or modern design;

families emphasised for example by large kitchen,
family bathroom or large garden.

P2 10
Other information could be: name of business; price; contact details; experience of the business;
security/alarm; guarantee; high quality product; lead time; skilled workers/quality raw materials; location.

1 mark for each relevant point in the advertisement. 1 additional mark if the point is related to the case.
Up to a maximum of 8 marks.

(b) Bettabuild are planning to diversify into building blocks of apartments. How would
you advise Bettabuild on the most effective methods to research the market for low
cost apartments? [12]

Primary research could include questionnaires, interviews, and consumer panels. These methods
provide detailed qualitative information on what people want and it allows their opinions to be recorded.
However, it can take a lot of time and expense to gather this information.

Secondary research could include government reports and statistics, newspapers, trade and
employer journals, special reports into housing problems. These methods are a cheap way
of gathering information and are on the market in general.

2 Miguel, the Marketing Manager, wants to develop a new range of sweets. These would
be
sold in other countries as well as in Country A.

(a) (i) Explain why Miguel should carry out market research before developing a new
range of sweets.
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(ii) Advise Miguel on how to carry out market research.

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P2 11
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(b) Discuss three factors that could influence the marketing for the new range of sweets.

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2 Miguel, the Marketing Manager, wants to develop a new range of sweets. These
would
be sold in other countries as well as in Country A.
(a) (i) Explain why Miguel should carry out market research before developing a
new range of sweets. [5]

To find out the potential market so that they can develop an appropriate marketing mix.
To identify if there is sufficient demand to be worth selling in the other country.
To indicate the target market so that suitable advertising can be developed that will reach these
potential customers.

P2 12
(ii) Advise Miguel on how to carry out market research. [6]

Need to design a questionnaire,

set a budget to carry out the research,
select the type of sample and sample size,
decide where to carry out the
research and when,
collate the results.

Evaluation might be - the sample size needs to be as large as possible to make

the results more accurate; the research needs to be carried out at a place and
time so that the target market will be available to answer the questions; the cost
of the research needs to be considered in relation to the accuracy of the
information collected.

(b) Discuss three factors that could influence the marketing for the new range of
sweets. [9]

Factors affecting the marketing mix: the target market, laws, culture of the
country, competition, production costs, advertising budget, disposable income.

Evaluation of how they could affect it - the target market would influence where the
sweets were advertised and how they were promoted.

Culture - would affect the type of products which could be developed and the style of
advertising that was used. Also the type of outlets used and the channel of distribution
would be affected by the culture and characteristics of the country.

Competition - would affect the advertising used, pricing policy and where they sold their
products in order to compete and be successful.

N.B. Level 1 can be awarded if the candidate only discusses the 4 P’s.

(c) Outline two ways small food shops could compete with large supermarkets.
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P2 13
2 (a) Why do you think small food retailers buy from EKZ rather than importing the
products
themselves?
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(b) Explain a suitable marketing mix that Nife could use to sell these high quality football
shirts to customers.
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2 (a) If the large order is accepted from Nife, 75% of output will be for just one
multinational
customer. Do you think it would it be wise for the company to depend on one customer
so much? Explain your answer.
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(c) Outline two ways small food shops could compete with large supermarkets. [4]
Content: By giving customer service, advice, credit, delivery.

2 (a) Why do you think small food retailers buy from EKZ rather than importing the
products themselves? [8]

P2 14
 They do not want to buy in large quantities;
expensive to import small amounts;
can get advice from wholesaler;
do not have to search out supplier from overseas.

For example: Small food retailers would not have the time or experienced staff to
know where to buy food from in other countries. They would not know where the
best prices were and therefore may pay more to overseas suppliers. Also, buying
small amounts of food would be more expensive to transport from abroad than large
amounts and so buying from EKZ may still be cheaper than buying the food
themselves.

(b) Explain a suitable marketing mix that Nife could use to sell these high quality
football shirts to customers. [10]

All four elements of the marketing mix applied to the case study.
Choice of element clearly justified e.g.

place sold in football club shops or expensive sports shops or

could be sold on the Internet;
price high price to indicate quality;
promotion emphasizes high quality and advertisements in football magazines;
product is high quality and genuine article.

2 (a) If the large order is accepted from Nife, 75% of output will be for just one
multinational customer. Do you think it would it be wise for the company to depend
on one customer so much? Explain your answer. [10]

Advantages – bulk order;

lower administration costs;
stable customer which is not likely to go bankrupt.

Disadvantages – dictated to by large supplier;

if order is lost then major difficulties for business;
large customer may be slow to pay leading to cash-flow problems.

Strategy suggested.
New product launch implies need for advertising (build on
brand name); distribution (where?); pricing – high (why?);
product (features); promotions (what?) [10-8 marks

P2 15
(ii) Justify your choice of questions.
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P2 16
4. Production ( 23-24, 6)
(b) A suitable location will be needed if Abdul decides to open the furniture shop.
Discuss
the most important factors that will affect this decision of where to locate his furniture
shop.
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(b) How useful would break-even analysis be to Abdul in helping him choose between the
two business options? Explain your answer.
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(b) Advise NP on what factors will be most important when deciding where in Country X
to
locate the new printing factory.
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P2 17
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(b) Availability of suitable vacant shop.

What other shops are nearby – competitors/other shops which attract customers/busy retail
area.
Availability of customer parking nearby.
Security of the area and shop.
Rent paid and other local charges.
Access for delivery vehicles.

(b) It would help Abdul estimate how many sales each business would need to make to cover all
the costs.
He can compare the break-even point with the predicted sales for each business.
Help to estimate how much profit each business might make.
Help him to estimate how long it would take for the business to break even after starting up.

5 (a) NP will use flow production in its new printing factory. Outline two benefits of
using
this method of production. [8]

Unit costs are kept low and therefore prices are also lower;
capital-intensive methods of production can be used reducing labour costs and increasing
efficiency;
possibly less skilled labour required;
high output;
continuous production;
standardised product;
advantages of division of labour/specialisation.

(b) Advise NP on what factors will be most important when deciding where in Country
X
to locate the new printing factory. [12]

Market; Power;
Government influence (regulations or grants);
Personal preferences of NP managers;
Availability of labour;
Transport communications;
Raw material sources;
Near to port;
External economies of scale;

P2 18
Climate.

Evaluation – Justification of why particular location factors might be important to a printing

works. E.g. the availability of skilled workers will be important, as the printing factory will
require a large number of employees to work on the printing machines.

3 (a) Calculate:

(i) the average price charged per customer,

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(ii) the wages per employee,

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(iii) the forecasted gross profit in the first year.

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P2 19
(ii) State the weekly break even point from your chart.
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(iii) Why would this break even figure be of use to Dwight?

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P2 20
P2 21
3 (a) Using the data given in Table 1 calculate:

(i) the unit selling price

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(ii) the unit variable cost.
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P2 22
(ii) Use your graph to calculate the break even number of units.
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(b) See Appendix 1. Both EE and Budget Deals have shops in New City. Recommend
which
shop EE should close if it takes over Budget Deals. Justify your choice.
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P2 23
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(b) Why do you think that quality control is important to a company such as Lopez?
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6 (a) Explain why Bennetti Carbone Ltd might sometimes hold large stocks of finished
clothes.
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(b) What problems does stock holding cause for a business like Bennetti Carbone Ltd?
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(b) See Appendix 1. There are two shops in New City. Recommend which shop EE
should
close if they take over Budget Deals. Justify your choice. [12]

Budget Deals shop EE shop

Low rent High rent
No electrical shops nearby Lots of electrical shops nearby
Cheap parking available Parking restricted and expensive
Out of town City centre
On side road On main road

Evaluation – closure of either shop is acceptable as long as it is fully justified.

(b) Why do you think that quality control is important to a company such as Lopez?
[8]
P2 24
Evaluation: To reduce wastage and defects as this will cost the business
money.
To check that products meet minimum standards to comply with the law so that the business
does not face prosecution.
To ensure products are not faulty because if faulty products are sold it will give a bad
impression to customers and the business will get a bad reputation.
This will probably result in lost sales.

4 (a) Why do you think that Bennetti Carbone Ltd needs to invest in new computerised
methods in clothing design and production?
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P2 25
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(b) EKZ plan to open a new wholesale outlet. Discuss the factors that might affect this
location decision.
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3 (a) Nife are only interested in purchasing high quality football shirts. How would you
advise
Patel Fashions on how they could make sure that its football shirts are of high quality?
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P2 26
(b) EKZ plan to open a new wholesale outlet. Discuss the factors that might affect
this location decision. [12]

Factors affecting location decisions such as

nearness to - ports,
small retail shops;
transport and communication;
availability of power;
government influence
(regulations or grants).

For example: The wholesaler needs to be near small food shops or transporting
goods could be more expensive. Small shop owners may not travel far to buy their
goods so if the wholesaler is not nearby then they would not make many sales. This
factor is therefore very important when making a location decision.

3 (a) Nife are only interested in purchasing high quality football shirts. How would
you
advise Patel Fashions on how they could make sure that its football shirts are of
high quality? [10]

Quality control involves checking garments at the end of the process (or part way
through) to make sure that there are no defects. If there are defects then the production
can be stopped and the fault corrected.

Quality assurance (e.g. TQM) is where all employees are engaged in the checking of garments
to make sure each stage of the process has no faults. Any errors can be corrected immediately
before the garments are
finished.

P2 27
1 (a) Using the cost information in Appendix 1:

(i) calculate the 2005 gross profit for one sports shirt
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(ii) calculate the 2005 gross profit margin for football shirts
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(b) Using the information in appendices 1 and 2, what is the difference in labour costs
per
item between using labour-intensive and capital-intensive methods of production for
football shirts?
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(c) Patel Fashions are thinking about changing from labour-intensive to capital-intensive
methods of production.
Do you think Patel Fashions should introduce capital-intensive methods of production?
Explain your answer.
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P2 28
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1 (a) Using the cost information in Appendix 1:

(i) calculate the 2005 gross profit for one sports shirt [1]

1 mark for correct answer: Sports shirts = $8

(ii) calculate the 2005 gross profit margin for football shirts [3]
1 mark for gross profit = $12, 1 mark for correct formula,
1 mark for correct answer = 48%.

(b) Using the information in Appendices 1 and 2, what is the difference in labour costs
per item between using labour-intensive and capital-intensive methods of
production for football shirts? [6]

Labour intensive method – $5 1 mark

Capital intensive method – 100/10 workers = 10 shirts per worker so $5/10 = $0.50
3 marks
Difference $5 – $0.50 = $4.50 2 marks (minus 1 mark for arithmetic error but correct
method used).

(c) Patel Fashions are thinking about changing from labour-intensive to

capital-intensive methods of production.
Do you think Patel Fashions should introduce capital-intensive methods of
production? Explain your answer. [10]

Advantages of capital-intensive –
increased productivity;
greater output;
improved quality;
lower cost per unit.

Disadvantages – cost of equipment;

cost of making workers redundant;
increased training costs;
more skilled workers required;
may be reduced morale.

P2 29
5. People and Work ( 11, 13,14)
(b) Explain why it is important for Generation Elect to recruit skilled construction
workers.
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4 (a) Appendix 2 outlines the possible need to reduce the number of employees following
the
take-over. Discuss the factors that will be most important to EE when deciding which
employees will be made redundant.
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...................................................................................................................................[12]

3 (a) Explain the problems that Bettabuild might experience from a high number of
skilled
workers leaving each year.
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.................................................................................................................................. [10]

(b) Explain why is it important for Generation Elect to recruit skilled construction
workers. [6]

Dam should be built correctly (quality product),

maintains good reputation of Generation Elect (reputation),
dam built quickly (efficiency).

Application e.g. dam; electricity; generators; city; building materials. Do not reward
‘construction workers’ as this is in the question.

4 (a) Appendix 2 outlines the possible need to reduce the number of employees
following the takeover.
Discuss the factors that will be most important to EE when deciding which employees
will be made redundant. [12]

Length of employment;
Age;
Experience;
Skills/qualifications;
Behaviour/
conduct;
Effectiveness in job;
Attendance/punctuality.

Evaluation can be any factors as most important as long as the factors are justified.

E.g. The employees to be made redundant first will be those who are the least
experienced as these employees will be less valuable to EE. More experienced
employees will be more productive to EE and should be able to make the greatest
contribution to sales and profits.

3 (a) Explain the problem that Bettabuild might experience from a high level of skilled
labour leaving each year. [10]

: Cost of advertising for new employees;

cost of training new employees;
production problems if staff leave suddenly;
morale low for existing employees.

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6. Business Finance and Accounting ( 7,8)

(ii) Explain the possible financial problems that might arise for Generation Elect if the
actual costs of the hire of power boats or fishing equipment were higher than the
estimated costs shown in Appendix 3.
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..............................................................................................................................[6]

(b) On the basis of the cost and revenue information in Appendix 3, would you advise
Generation Elect to provide power boats or fishing equipment for hire? Give reasons for

P2 32
your choice.
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...................................................................................................................................[10]

(ii) Break even point may be at a higher level of output –

problem of increasing sales.
If costs are higher then profits may be lower – problem of unhappy shareholders/ less retained
profit.
To keep profits the same they may have to increase price – problem of reduced sales if prices are
increased.
Lower profits may mean it is harder to raise more share capital – problem of finding alternative,
possibly more expensive, ways of raising capital.
If costs are higher than expected then may become overdrawn – difficulty of
financing cash flow problem.

(b) On the basis of the cost and revenue information in Appendix 3, would you
advise Generation Elect to provide power boats or fishing equipment for hire?
Give reasons for your choice. [10]

Content: Level 2 response –

Break even Boating – 750/50 = 15 boats per week (L2 = 8)

Fishing – 650/15 = 43 fishing rods per week (plus L2 = 8)
50% demand
Net profit Boating Fishing
Revenue 8400 (L2) 8750 (L2)
Expenses (VC) 4200 (L2) 3500 (L2)
Fixed costs 750 650
Total cost 3450 per week 4600 per week
Net profit 3450 per week(L2= 8) 4600 per week (L2 =8)
Net profit/Sales revenue × 100 = net profit ratio
Net profit ratio 41% (L2 =8) 52.57%(53%) (plus L2 = 8)

Attempt to calculate net profit using correct method but incorrect figures used = 5
marks.
Allow daily costs and revenue: Boating = $1200 (L2) and
Fishing = $1250 (L2)
E.g. of incorrect calculation (100% and not 50% demand used for calculation) but
correct method Revenue – $17,500, $16,800,
Costs – $9,150, $7,650 and this can be given some credit for the correct method in L2
P2 33
– maximum of 6 marks.
OFR applies
However, any other incorrect calculations do not gain credit e.g. $2400 and $2500 –
incorrect cost calculation and not used 50% demand.
Level 1 statements e.g.

The expenses are higher for boating.

The costs of running the activities are higher for boating.
The sales revenue is similar for both activities.
The price is lower for fishing.

3 (a) Abdul has to decide which business to open. Using the financial information in
Appendices 1 and 2, compare the profitability of the two businesses and advise Abdul
which one to open. Give reasons for your choice.
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5 (a) Using the information in Appendix 3, calculate Bettabuild’s gross profit made on:
(i) building one house
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(ii) building one shopping centre.

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

3 (a) Content:
Level 2 response –

Car repair business net profit ratio is 10% (10,000/100,000 x 100)

Gross profit ratio is 90% (90,000/100,000 x 100)
ROCE is 67% (10,000/15,000 x 100)
Furniture business net profit ratio is 20% (40,000/200,000 x 100)
Gross profit ratio is 50% (100,000/200,000 x 100)
ROCE is 42% (40,000/95,000 x 100)

Level 1 statements –

The net profit is higher for the furniture shop.

The gross profit is higher for the furniture shop.
The sales revenue is higher for the furniture shop.
Only $15,000 is needed to invest in the car repair business whereas $95,000 is needed for
the furniture business.

5 (a) Using the information in Appendix 3, calculate Bettabuild’s gross profit made on:
(i) building one house

P2 35
(ii) one shopping centre [8]

One house - selling price = $50,000

Labour cost $80 x 10 x 35 = $28,000 [1]
Materials cost $28,000 x 50% = $14,000 [1]
Total cost = $42,000 [1]

Gross profit $50,000 - $42,000 = $8,000 [1]

One shopping centre - selling price = $3,500,000

Labour cost $80 x 100 x 230 = $1,840,000 [1]

Materials cost $1,840,000 x 50% = $920,000 [1]

Total cost = $2,760,000 [1]

Gross profit $3,500,000 - $2,760,000 = $740,000 [1]

4 marks for correct calculation of gross profit for one house.

4 marks for correct calculation of gross profit for one shopping centre.
3 marks if correct total cost is given without any working out of labour and material
costs shown.

(b) (i) Refer to Table 2 and Table 3. Explain what Jennifer meant when she said cash flow
is still a problem for the business.
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3 Refer to the data in Figs 1 and 2.
(a) Identify the main changes in the performance of the business between 1996 and
2000.
Use the data to help illustrate your answer.
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(b) Calculate the change in profits made from clothing between 1996 and 2000.
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(b) (i) Refer to Table 2 and Table 3. Explain what Jennifer meant when she said
cash flow is still a problem for the business. [6]

Cash flowing out of the bank account and not flowing back in quickly enough.
This leads to a lack of cash for the business.

Evaluative comments might include –

runs out of cash and cannot pay creditors therefore they cannot produce any more products if
creditors will not supply them with raw materials.
They may need an overdraft and then they will be charged interest.
This will
increase costs which could lead to lower profits.

(ii) Advise Jennifer on how she could improve the company’s cash flow. [10]

Delay payments to creditors and try to speed up debtor payments.

P2 37
Increase sales revenue to increase the inflows of cash.
Lease rather than purchase when buying new capital to spread the payments.

(c) Using the information in the case study and Fig. 3 discuss the financial position of
EKZ
using at least two ratios.
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(b) Interpret the performance of the business using the summary accounts provided.
Include calculations to justify your conclusion.
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(c) Using the information in the case study and Fig.3. Discuss the financial
position of EKZ Partners, using at least two ratios. [12]

Content: 2004 2003

Gross profit ratio gone down 33% 50%

Net profit ratio decreased 4% 17%
ROCE fallen 5% 20%

Absolute changes = Sales same; cost of sales increased (33%); gross profit gone
down; expenses gone down; net profit fallen.

For example: The business seems to be doing worse as the ratios are worsening.
Net profit fell from 17% to 4%. This seems to be because the cost of sales has
increased with the same value of sales so it would suggest raw material prices have
increased. However, expenses have gone down but not enough to improve new
P2 39
profit.

(b) Interpret the performance of the business using the summary accounts
provided. Include calculations to justify your conclusion. (12)

Content: 2003 2002

Net profit ratio - 20% 15%
Gross profit ratio - 80% 80%
ROCE - 30% 15%
Gross profit ratio the same
Net profit ratio increased
ROCE increased
Sales increased 50%
Cost of sales increased 50%
Expenses increased 38%
Evaluation - business seems to be doing better as controlling expenses and
ratios improving.

2 (a) Increase in sales = $110m [1 mark]; % increase = 37.9% [1 mark]

(b) (i) Calculation of value of total market (6% growth) = $424m [2 marks]
Attempt to predict, i.e. present market plus 6% [1 mark]

(ii) Calculation of value of jeans market segment (12.5%) [1 mark]

Value of jean sales = $53m [2 marks in total]

(iii) Target is a 5% share of jean market = $2.65m [2 marks]

Gross Profit margin = 30%
Thus gross profits = $0.795m [2 marks]
Method marks and O.F.R. apply.

Forecasted growth 6% for clothing

2 (a) Calculate the % increase in total clothing sales between 1992–2002.

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(b) If the clothing market grows by the expected amount in 2003 and Garfred gains a 5%
share of jean sales, calculate:

(i) the forecasted value of total clothing sales in 2003

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...............................................................................................................................2]

(ii) the value of total jean sales in 2003

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(iii) the gross profit made by Garfred if he reaches his 5% target.

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...............................................................................................................................4]

7 . External Influences

3 (a) Refer to Appendix 3. Do you think this is a good time to launch a new magazine in
Country X?
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2 (a) If several new coal mines open, what might happen to the price of coal on
international markets?
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(b) Do you think the economic data in Appendix 2 is favourable or not favourable for
Bettabuild ( Construction company )? Explain your answer.
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3 (a) Refer to Appendix 3. Do you think this is a good time to launch a new magazine
in
Country X? [8]

Consideration of rising interest rates leading to higher costs of borrowed funds and
consumers paying more money on loans
/mortgage may lead to less spending on magazines.
Reduced growth may mean less income for consumers and therefore reduced spending on
magazines.

Evaluation – Yes or No acceptable as long as the answer is justified.

E.g. Rising interest rates will lead to higher mortgage repayments therefore there is less
P2 42
money left over for luxuries like magazines.

2 (a) If several new coal mines open, what might happen to the price of coal on
international markets? (6)

New mines opening means increased supply on world markets leading to lower prices.
The extent of the price fall depends on the price elasticity of demand for coal.
Demand likely to be inelastic as there will be few alternatives to coal and therefore the price fall
will be by a
greater percentage then the increase in supply

(b) Do you think the economic data in Appendix 2 is favourable or not favourable for
Bettabuild? Explain your answer. [12]

Consumer spending increasing and so may mean that more houses are being sold.
Interest rates are rising which may mean people are less willing to borrow money and buy houses.
Unemployment is falling which means people have more money and again this may be spent on buying
houses.
Economic growth is rising which should mean people have more money to spend.

Evaluation Three out of the four indicators would seem to be good for Bettabuild because they
may lead to increased sales of their houses, particularly their high quality houses.
More money being spent in the economy may also mean more shopping centres are
built.

5 (a) See Appendix 3. Do you think EE should change their main supplier? Explain your
answer.
[10]
Exchange rate appreciation;
quality and reliability of products;
delivery dates.

Evaluation – the exchange rate has appreciated against most currencies which makes
the imports from these countries cheaper but the same price from Country Z.
The quality of imports are higher from Country Z but the other countries have
products which are improving in quality. It takes longer to get imports from other
countries than from Country Z.

(b) Should the government in Country B control business activity? Give

reasons for your answer. (12)

• responsibilities of employers – working conditions, Health and

Safety – protection for the mineworkers
• responsibilities to the natural environment – pollution – try to stop
the destruction of areas of natural beauty and the habitat for wildlife
• location decisions – influence where businesses choose to locate –
not particularly applicable in this case but they might stop mines
being opened.

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5 (a) See Appendix 3. Do you think EE should change its main supplier? Explain your
answer.
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4 (a) Explain, using examples of social costs and social benefits, how the Government
could
use Cost Benefit Analysis (CBA) to help it decide whether to allow a new shopping
centre to be built.
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(b) Should the Government in Country B control business activity? Give reasons for your
answer.
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5 (a) Refer to Table 1. The exchange rate changed between 2003 and 2004. Explain what
effect this might have had on EKZ. ( Exports to US from Europe)
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(c) Discuss how EKZ might be affected by government controls on business activity.
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(b) Explain why the trade unions might be against the changes in employment laws
proposed by the government in country Y. (See Appendix 3)
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P2 45
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5 (a) The exchange rate has changed between 2003 and 2004. Explain what effect
might this have had on EKZ. [6]

2004 2003
$1:3Euros $1:2 Euros

For example: The currency appreciated which means import prices are cheaper and
export prices will be more expensive abroad. EKZ will be able to buy their food from
abroad at a cheaper price. They could then sell this food for a cheaper price to their
customers making them more competitive or they could keep prices the same and
increase their profit

(b) The government often controls business activity. Give two examples of how
the government controls business activity. [2]

Content: Examples might include - Employment laws, Consumer protection laws,

Location regulations (planning controls).

(c) Discuss how EKZ might be affected by government controls on business

activity. [12]

Content: possible reasons for government controls on business:

Protection of employees - working conditions, H and S, minimum wage.

Location decisions - influence where businesses choose to locate, planning controls.
To protect consumers - goods should be safe to use, goods should be accurately
described in advertising.

For example: Government controls the sale of food to ensure consumers are
protected from the sale of contaminated food which could cause illness. This means
EKZ must check their food to ensure that it is kept at the correct temperature. This is
so food does not go bad. EKZ will need to employ people to check the temperatures
of the fridges and freezers and keep the equipment in good working order, which
may be expensive

P2 46
(b) Explain why the trade unions might be against the changes in employment laws
proposed by the government in country Y. (See Appendix 3) [8]

Content: Make conditions of employment worse for employees;

wages may be lowered;
easier to sack workers;
Health and Safety may be worse;
workers have less protection.

P2 47