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Business Studies · May / June 2021 · Paper 22 · Question 2

0450

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  • 2(a)[8]

    Explain one likely advantage and one likely disadvantage for Tandeep if he decides to import the pushchairs (strollers) he sells. Award 1 mark for each relevant advantage/disadvantage (max of 2). Award a maximum of 3 additional marks for each explanation of the advantage/disadvantage for Tandeep if he decides to import the pushchairs he sells – one of which must be applied to this context. Relevant advantages might include:

    Have a wider range of pushchairs in the shop / better quality – meet the needs of more customers – sell more pushchairs – higher revenue
    Fill a gap in the market for foreign branded products – satisfy those customer needs – higher-income customers may prefer these brands
    May be purchased at lower cost price – lower selling price in the shop – increase demand/sales
    These pushchairs may not be manufactured locally Relevant disadvantages might include:
    May have to pay higher prices if tariffs are imposed – raises the cost of inventory for TT – may lead to higher prices in the shop
    May have quotas that limit the quantity imported – restricts the supply/availability of products in the shop – may lead to higher prices as a result of the shortages
    Increased costs of finding foreign suppliers – have to contact many suppliers in other countries to order inventory – takes Tandeep time to do this when he could be doing other tasks
    Increased delivery time – as the inventory has further to travel than if produced in country Z – may delay goods ordered by customers
    Imported pushchairs may not meet the same standards as locally produced pushchairs – may lead to pushchairs breaking – leading to a poor reputation for TT – lose customers to competitors
    Possibly more damaged goods – higher costs as have to replace damaged goods – reduces profit
    Risk of exchange rate fluctuations affecting cost price of inventories – lower exchange rate will lead to higher import costs For example: This may mean Tandeep will have a wider range of pushchairs in the shop (1)

    and this may appeal to high income customers who are their target market (app) meaning Tandeep will have higher sales (1). Meeting these customer needs should ensure the business makes a profit and is successful in the future (1). Application might include: toys, nursery, toy shop, toy manufacturer, shop manager, 5 sales assistants, administration tasks;

    higher income groups, babies, accessories. ‘Pushchairs (strollers)’ is included in the question and therefore cannot be rewarded as application.

  • 2(b)[12]

    Refer to Appendix 2 and other information. Consider the advantages and disadvantages of TT purchasing toy cars either from a wholesaler or manufacturer. Which channel of distribution should TT choose? Justify your answer. Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both channels of distribution. Well-justified recommendation. Candidates discussing both channels of distribution in detail, in context and with a well-justified recommendation including why the alternative channel was rejected should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one channel of distribution. Judgement with some justification / some evaluation of choices made. Candidates discussing of at least one channel of distribution in detail and applying it to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss channels of distribution with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both channels of distribution in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Advantages Disadvantages Wholesaler in country Z

    Can buy toy cars in smaller quantities of 10 units
    Reduced need for storage – reduced warehouse/storage costs
    Less working capital tied up in inventory
    Quicker to respond to changing customer demand
    Provides advice on which toy cars sell well
    Higher cost price of $15 each as wholesaler mark-up added to the price of each toy car – may have to charge a higher price than competitors – lower sales
    Full range of toy cars may not be available
    No direct link to toy manufacturers – less advice / after sales service Manufacturer in country Z
    Cheaper cost price at $5 each – so lower costs
    Long time period for trade credit given at 3 months – so may improve cash flow position
    Must buy in larger quantities of at least 1000 units
    May not have the storage space
    Longer delivery time of 4 weeks
    May not be able to respond to customer demand quickly Recommendation
    Buy from the wholesaler as this means that a large order of 1000 units does not have to be made if he bought from the manufacturer. TT may not be able to sell such a large quantity of a particular toy car. Hence this does not tie up working capital in inventory which does not sell quickly. Also, the wholesaler can give advice on which toy cars are selling well making it more likely that the TT shop will satisfy customer demand.
    Buy from manufacturer as the unit cost is only $5 which is $10 cheaper and so Tandeep can keep down the price of toy cars sold in his shop leading to much higher sales.
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