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Business Studies · Oct / Nov 2021 · Paper 22 · Question 1

0450

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  • 1(a)[8]

    Explain two reasons why PPE may remain small. Award 1 mark for a suitable reason (maximum of 2 marks). Award a maximum of 3 additional marks for each explanation of why PPE may remain small – one of which must be applied to this context. Suitable reasons might include:

    The product is specialised – produced using job production / not suitable to be produced on a large scale – customer preference would be lost / designed to needs of customer
    Market size - doesn’t have a large market / sales are low - output therefore on a small scale
    Owner’s objectives / owner’s preference / owner wants the business to remain small – to keep a work life balance
    Easier to manage / control - may not want the stress / does not have the personal skills to manage a larger business - keeps closer links with employees and customers
    Lack of finance / fewer finance options for a sole trader For example: The product is specialised and not produced on a large scale (1)

    as each piece of playground equipment is made to order (app) so cannot be mass-produced. (1)

    Therefore, the business is likely to remain small as it will produce a limited number of pieces of play equipment when they are ordered. (1)

    Application could include: wooden playground equipment;

    children’s playgrounds;

    sole trader;

    job production;

    individually designed playground equipment;

    3 skilled workers;

    crowd-funding;

    cost-plus pricing;

    fully tested to meet legal safety standards;

    parents want to have playground equipment at home;

    wants to spend time with her children;

    2 children;

    high-quality equipment. Question Answer

  • 1(b)[12]

    Consider the advantages and disadvantages of two suitable types of business organisation for PPE. Which do you think is the best one if PPE grows? Justify your answer. Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both types of business organisation. Well-justified conclusion. Candidates discussing both types of business organisation in detail, in context and with a well-justified recommendation including why the alternative type of business organisation 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 type of business organisation. Judgement with some justification / some evaluation of choices made. Candidates discussing at least one type of business organisation 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 the types of business organisation with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining both types of business organisation in context should be rewarded with the top marks in the band. 1–4 No creditable response. Question Answer Relevant points might include: Advantages Disadvantages Sole trader

    Few legal regulations
    Kaari will be her own boss and she wants the business to remain small
    Freedom to choose own hours/holidays etc.
    Close contact with retailers and government customers
    Keeps all the profits
    Financial information kept private
    No one else to discuss business decisions with
    Does not have limited liability
    Lacks capital to expand and needs $20 000 for new equipment
    No one to help if she is ill – so no one to tell the 3 workers what to do
    No continuity Partnership
    More capital to invest and will need $20 000 for new equipment
    Responsibility of running the business is now shared and Kaari is performing all the management roles which may be difficult for her
    Losses will be shared
    Each partner may have different skills
    Share risks
    Does not have limited liability
    Partners can disagree
    No continuity
    No legal formalities
    Share profit Private limited company
    Limited liability
    Shares can be sold to raise capital – may not need to borrow the $20 000 for new equipment
    Can control who buys shares
    Legal formalities to set up and run
    Finances may not be private
    Can only sell shares to family and friends – limits amount of capital that can be raised Question Answer Recommendation
    Sole trader as individually designed playground equipment has a limited market and therefore Kaari is likely to keep the business small. She can be her own boss and keep all the profit without having to share with any other owners unlike a partnership. A limited company takes more time and expense to set up and certain legal formalities will need to be followed to run the business which Kaari may not want to follow.
    Partnership as Kaari is carrying out all the management roles and this may be too much for just one person. So, she prefers to add another person who has different skills to help her manage the business as it grows.
    A larger business may build up more debts and therefore Kaari might want the benefit of limited liability to protect her personal assets and ensure her family of two children are secure. Question Answer
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