Business Studies · Oct / Nov 2021 · Paper 12 · Question 2

0450

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Tom started ALB 5 years ago making trainers (sneakers) out of sustainable materials such as wool. One of ALB’s objectives is to protect the environment. As part of his research, Tom calculated some 2 costs which he could use in his break-even analysis. An extract is shown in Figure 2.1. ALB uses retailers to distribute its products. Tom thinks a successful entrepreneur has to be a good manager. retailers’ costs manufacturers’ profit fixed costs variable costs 0 10 20 30 40 50 60 percent 50% 5% 15% 30% 5% 15% Fig. 2.1

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2(a)[2]
Define ‘variable costs’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Costs that change with the level of output produced / sales made [2]
Costs which vary directly with the number of items sold or produced [2]
Costs that change in direct proportion to output [2]
Partial definition e.g. costs that change [1]
2 Do not accept examples.
2(b)[2]
Identify two limitations of break-even analysis. Award 1 mark per limitation. Two from:
Assumes all costs can remain constant / be represented with straight lines
Not easy to separate some costs into fixed or variable.
Assumes all output is sold / does not allow for inventory being held
Assumes selling price will remain same for all products sold
Assumes only one type of product is sold Other appropriate responses should also be credited. 2 Only award the first two responses given. Notes
2(c)[4]
Outline two possible advantages to ALB of using retailers to distribute its products. Award 1 mark for each relevant advantage. Award 1 mark for each relevant reference to this business. Points might include:
Access to many customers / able to attract people passing by / high footfall / wide distribution is possible [k] which can help increase revenue for its trainers [app]
Lower storage costs / does not need large storage space / cost of holding inventories is paid (in part) by retailer [k] so has more space / funds for its wool [app]
Can act as promotion / retailer will pay for advertising and other promotion [k] which could help raise awareness about protecting the environment [app]
Can sell in large quantities to retailers [k] 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 may be appropriate for this question:
Trainers/sneakers
Wool / sustainable materials or related words
Protecting the environment
50% (retailers costs) Other appropriate examples in context can still be credited. Notes
2(d)[6]
Explain one advantage and one disadvantage to ALB of trying to protect the environment. Award 1 mark for identification of each relevant advantage / disadvantage (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2). Advantages might include:
Better brand image / reputation [k] leading to higher sales [an] of its trainers/sneakers [app]
Can help attract customers [k] which may be important as does use retailers [app] could lead to an increase in revenue / increase market share [an]
May be able to set higher price [k]
Less likely for pressure group action / no consumer boycott / support from pressure groups [k] maintain sales [an] Disadvantages might include:
Higher / increase in costs [k] leading to lower profit margin / higher prices [an]
High variable costs [k] as suppliers who protect environment may charge higher prices [an]
Can be difficult to find materials [k] such as wool [app] leading to lower output [an]
Higher fixed costs [k] as may need to buy specialist equipment which produces less emissions [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 may be appropriate for this question:
Trainers/sneakers or related words
Wool / sustainable materials or related words
5% profit margin
Retailers (for distribution)
30% (variable costs)
15% (fixed costs) Other appropriate examples in context can still be credited. Notes
2(e)[6]
Do you think a successful entrepreneur has to be a good manager? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether a successful entrepreneur has to be a good manager. Points might include: Entrepreneur:
Must be creative / innovate / provide new / unique ideas [k] to help gain sales / attract customers [an]
Need to be willing to take risks [k] to benefit from the reward / profit generated from the business [an]
Perseverance / determination [k] as will need to be prepared to keep going when faced with problems / issues that any new business is likely to have [an]
Can hire someone to manage the business (if you don’t possess these skills) [k] but this will cost money [an] Manager:
Need to be able to organise operations [k] so able to get supplies / deliver on time to get repeat orders [an]
Must be able to plan [k] so production runs efficiently [an]
Ability to control employees [k] so they are all on task [an]
Help motivate employees [k] to maintain efficiency / reduce absenteeism / ensure retain employees [an]
Activities must be coordinated [k] so time is not wasted [an]
An ineffective manager can make the wrong decisions [k] which will cost money / damage reputation [an] Other appropriate responses should also be credited. 6 This is a general question so there are no marks for application. Notes Justification might include: An entrepreneur is someone willing to take risks [k] to benefit from the profit made by the business. [an] Being a good manager is important as planning is needed [k] so that production runs efficiently [an]. However, I think a successful entrepreneur does not have to be a good manager because they can always recruit someone if they cannot do this role [eval], and without taking the initial risk there is no business to manage. [eval] Notes

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