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Business Studies · Oct / Nov 2021 · Paper 22 · Question 2

0450

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  • 2(a)[8]

    Explain two advantages and two disadvantages of using job production. Award 1 mark for an advantage/disadvantage (maximum of four marks). Award a maximum of 1 additional mark for each explanation of the advantage/disadvantage of using job production. Advantages might include:

    Suitable for individually designed products / specialised products or services - will meet the exact requirements of the customer
    The workers may have more varied tasks - labour force more flexible and can move between tasks when required
    Higher employee motivation from more interesting work - lower labour turnover
    A high price can often be charged - due to possibly high-quality goods Disadvantages might include:
    Often requires skilled labour – higher wages
    Usually labour intensive – higher unit costs
    Takes longer to make the product - may delay the delivery of finished items to customers making them unhappy
    If errors are made, they are expensive to repair - increased costs
    Small quantities of specific raw materials are required – raises variable costs
    Small output (relative to batch or flow) – raises unit costs / lack of economies of scale For example: The workers have more varied tasks (1)

    which makes their jobs more interesting and they are less likely to leave to find another job. (1)

    There are no application marks on this question. Question Answer

  • 2(b)[12]

    Consider the advantages and disadvantages to PPE of using the following three sources of finance to obtain new machinery. Which source should PPE choose? Justify your answer.

    Crowd-funding
    Bank loan
    Leasing Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more sources. Well-justified recommendation. Candidates discussing all three sources in detail, in context and with a well-justified recommendation including why the alternative sources were 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 source. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more sources in detail and applying them 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 sources with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining all three sources 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 Crowd-funding
    No initial fees are payable to the crowd- funding platform
    Allow the reaction of the public to be tested before launching new playground equipment
    Used by entrepreneurs when other sources have turned them down
    Not a debt so does not have to be repaid / no interest to pay
    Platform charges a percentage fee if finance raised
    If total amount of $20 000 is not raised, then all money paid will have to be returned
    It publicises the idea and this may allow competitors to steal the idea for new playground equipment Bank loan
    Time to repay – the $20 000
    Can organise whole amount in a single transaction
    Quick to arrange
    Interest payable
    As PPE is a sole trader the rate of interest is likely to be high
    Security/collateral may be required
    May need to produce business plan/documents Leasing
    Does not have to find the large amount of capital of $20 000
    Maintenance paid for by leasing company
    Repayments may be higher than if the asset was purchased straight away – over time it may be the most expensive way
    Equipment to make playground toys may have to be returned at the end of the lease Question Answer Recommendation
    Crowd-funding may have to be chosen if the other sources are not available to such a small sole trader business. Kaari may have no other option. Interest on the bank loan may be high making it expensive to repay and leasing will not allow PPE to keep the asset at the end of the lease and it can be a more expensive way to obtain the asset.
    Bank loan is the best source of finance to use. It is repayable over several years which can make it easier to make repayments each month as revenue from the sale of playground equipment comes into the business.
    As the business is a sole trader then Kaari is not able to make a large outlay of cash so choosing leasing is the best option as this just requires a repayment each month. Also, maintenance does not have to be paid by Kaari keeping these costs down. Question Answer
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