Business Studies · May / June 2021 · Paper 11 · Question 1

0450

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BKH is a large public limited company. It has 2000 employees across 18 locations. BKH sells a range of insurance products including house and car insurance. BKH’s shareholders want the 1 business to increase profit. The Managing Director knows increasing profit can conflict with the objectives of other stakeholder groups. She said: ‘Private sector businesses have different objectives to public sector organisations.’ BKH is also planning to expand by taking over another insurance company.

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1(a)[2]
Define ‘public sector’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Government or state-owned businesses/organisations [2]
OR Part of the economy controlled by state/government [2]
Partial definition e.g. not owned by individuals [1]
OR Provided/run by government [1]
1(b)[2]
Define ‘profit’
Award 2 marks for a full definition. Award 1 mark for a partial definition. Amount of money left after all costs have been subtracted from revenue. [2] OR Surplus after total costs deducted from sales revenue [2]
OR (Total) revenue – total cost [2]
OR Gross profit minus expenses [2]
Partial definition e.g. revenue minus costs [1]
1(c)[4]
Identify four ways to measure the size of a business
Award 1 mark per way.
Points could include:
Sales value / value of output / revenue
Volume of output / amount of services / amount of sales / number of customers
(Value of) capital employed / value of statement of financial position / market capitalisation
Market share
Number of employees
Number of outlets
Other appropriate responses should also be credited.
1(d)[6]
Explain one way each stakeholder’s objectives might conflict with BKH’s objective to increase profit.
Award 1 mark for identification of each relevant way (max 2).
Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2).
Points might include:
Customers
May want low prices / value for money [k] when buying insurance [app] which could reduce revenue [an]
Desire high-quality customer service [k] which requires more than 2000 staff [app] increasing costs/expenses [an]
May want offices in more locations [k] than 18 [app] which could increase costs [an]
Employees
May want high/regular pay [k] for its 2000 employees [app] which could lead to higher costs [an]
May require job security / contract [k] after the takeover [app]
Job satisfaction / motivation / training / promotion [k]
Other appropriate responses should also be credited.
1(e)[6]
Do you think economies of scale are the most important reason for taking over another business? Justify your answer.
Award up to 2 marks for identification of relevant issues.
Award up to 2 marks for relevant development of points.
Award up to 2 marks for justified decision as to whether economies of scale are the most important reason for taking over another business.
Points might include:
Possible purchasing economies of scale / bulk buying [k] leading to lower average costs [an] which could allow for lower prices [an]
Reduces competition [k] which could increase market share / sales [an] and therefore increase revenue [an]
Economies of scale may not be possible to achieve [k]
A business can become too large and may experience diseconomies of scale [k]
Other appropriate responses should also be credited.
Justification might include:
Possible purchasing economies of scale / bulk buying [k] leading to lower costs [an] which could allow for lower prices [an]. Removing a competitor maybe an alternative reason for the takeover [k]. It depends on the business’ objectives [eval] if it is a direct competitor increased market share maybe more important than possible economies of scale. [eval]

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