Business Studies · May / June 2021 · Paper 11 · Question 2

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PJA make fashion clothing for 16-25 year olds. Many of its competitors are multinational companies. PJA produce new products every 3 weeks. All PJA’s products are made in a local factory because 2 of import quotas. The Managing Director is reviewing PJA’s financial statements using ratio analysis. An extract is shown in Table 2.1. Table 2.1 Extract from PJA’s financial statements for 2020 7400 Revenue ($m) 3330 Gross profit ($m) 1100 Profit ($m) 1.5 Current ratio 8% Return on Capital Employed (ROCE)

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2(a)[2]
Define ‘import quota’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Limit on the number of goods into a country [2]
Partial definition e.g. limit on number of imports [1]
2(b)[2]
Calculate PJA’s gross profit margin. Show your working. Correct answer 45(%) [2]
Correct method but incorrect answer [1]
e.g. gross profit / revenue ×100 OR 3330 / 7400 *100 2 0.45 alone = 0 Notes
2(c)[4]
Outline one benefit and one limitation to PJA of developing new products. Award 1 mark for each relevant benefit/limitation. Award 1 mark for each relevant reference to this business. Points might include: Benefit:
Attract new customers / sales / growth [k] for its clothes [app]
Need to replace products in decline / keep up with changing customer tastes [k] of 16–25-year-olds [app]
Retain customers / to maintain market share [k]
Spread risk / attract new markets / have other products to rely on for sales [k]
Charge a higher price [k]
Improve reputation [k]
Can create a unique selling point [k] Limitations:
No guarantee customers will like the new product [k] as fashion changes [app]
Competitors might introduce rival products / reduce prices [k] as most of competitors are multinational companies [app]
High cost [k]
Production issues, e.g. is there sufficient capacity [k] within factory [app]
Having access to suitable materials [k] as trying to avoid import quotas [app] Other appropriate responses should also be credited. 4 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Correct use of data from table 2.1
Clothes
Fashion
16–25-year-olds / young customers
Local
Factory
Multinational companies
3 weeks / 21 days. Other appropriate examples in context can still be credited. Notes
2(d)[6]
Explain two ways PJA’s managers can use ratio analysis. 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:
Able to see trends over time [k] for its clothing [app] to see where / whether performance has improved or not [an]
See trends between competitors [k] such as whether revenue is higher than $7400m [app] to assess how / whether they are as competitive as they think [an]
Able to measure financial performance / profitability / success [k] as if last year ROCE was lower than 8% [app] profitability has improved [an]
Help make investment/expansion decisions [k] such as developing new products [app]
Check / manage liquidity OR working capital [k] as if last year the current ratio was higher than 1.5 [app] then they know liquidity has got worse [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Correct use of data from table 2.1
Clothes
Fashion
16-25-year-olds / young customers
Local or factory
Multinational companies
Develop new products. Other appropriate examples in context can be credited. Notes
2(e)[6]
Do you think multinational companies always benefit the countries they operate in? 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 multinational companies always benefit the countries, they operate in. Points might include:
Creates jobs / provides income [k] so improving living standards [an]
Technical knowhow increased [k] which could help improve production methods / efficiency / output [an]
Orders for local suppliers [k] increasing local incomes / GDP [an]
Improve international reputation of country [k]
Increased investment / infrastructure development in country [k]
Companies pay taxes [k] which increases government income [an]
Competition for local businesses [k] leading to lower demand / lower prices [an] which could lead to the closure of local businesses [an]
Profits are often repatriated [k] limiting the countries growth [an]
Offer higher wages [k] reducing supply of workers for local business [an]
Use up limited resources [k] so there is less available for other local businesses [an]
Jobs created may be unskilled [k] Other appropriate responses should also be credited. Justification might include: Companies pay taxes [k] which increases government income [an]. However, reduced sales for local businesses [k] may lead to lower revenue [an]. A multinational always benefits a country to some extent, because of the money invested. [eval] The overall impact depends upon the effect on local businesses. [eval] 6 This is a general question so there are no marks for application. Analysis should focus on the impact on the country. Notes

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