Business Studies · May / June 2022 · Paper 11 · Question 2

0450

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CTF is a public limited company. It manufactures beds using batch production. The Operations Director is using break-even analysis to calculate the margin of safety for children’s beds. An extract 2 from CTF’s output data is shown in Table 2.1. The Operations Director wants to know how an increase in inflation might affect CTF. She knows there are many environmental pressures that a manufacturing business could respond to. Table 2.1 Extract from CTF’s output data (children’s beds per month) 14000 Break-even output 18000 Current level of output 25000 Maximum factory output

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2(a)[2]
Define ‘public limited company’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Businesses owned by shareholders, but they can sell shares to the public and their shares are tradeable on the stock exchange [2]
OR Often a large company, owned by shareholders who have limited liability. The company can sell its shares to the general public [2]
OR A company that sells its shares to the general public through a stock exchange (because the company can sell shares to anyone, it can raise massive amounts of money) [2]
OR A business whose shares can be freely bought and sold to the general public [2]
Partial definition e.g. a business that can sell shares [1]
2(b)[2]
Calculate the margin of safety for CTF’s children’s beds. Show your working. Correct answer: 4000 [2]
Correct method but incorrect answer e.g. Current output−break-even output [1]
OR 18 000 – 14 000 [1]
= 4000 [1]
If correct answer given with no working shown, award 2 marks. Award only 1 mark if 4000 is written as part of the answer but is not given as the final answer. Notes
2(c)[4]
Outline two ways an increase in inflation might affect CTF. Award 1 mark for each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
Employees might ask for pay rise [k] reducing its margin of safety [app]
Increase in raw material costs[k] for manufacturing (beds) [app]
Prices may have to increase [k]
Fewer sales / customers cannot afford to buy [k] the beds [app] Other appropriate responses should also be credited. 4 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:
Public limited company (PLC)
(children’s) Beds
Factory/manufacturer
Margin of safety / 4000
Batch production
Environmental pressures
14 000 (break-even output)
18 000 (current output)
25 000 (capacity) Other appropriate examples in context can still be credited. Notes
2(d)[6]
Explain two possible advantages to CTF of using batch production. Award 1 mark for identification of each relevant advantage (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2) Points might include:
Flexible [k] easy to change the type of beds [app] to adapt to customer demands [an]
Economies of scale / materials can be bought in bulk [k] which can help reduce average costs [an] improving the margin of safety [app]
Production may not be affected to any great extent if machinery breaks down [k] so some output made [an] so help reach its break-even output of 14 000 [app]
Variety of products [k] which could lead to increased sales [an]
Variety of tasks can motivate workers [k] leading to less absenteeism / lower labour turnover [an] at the factory [app]
Spread risk (as can make more than one type of product) [k] Other appropriate responses should also be credited. 6 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:
Public limited company (PLC)
(children’s) Beds
Factory/manufacturer
Margin of safety / 4000
Environmental pressures
14 000 (break-even output)
18 000 (current output)
25 000 (capacity) Other appropriate examples in context can still be credited. Advantages should focus on advantages to the business not employees. Answers such as variety of work on own are too vague [tv]. Notes
2(e)[6]
Do you think manufacturing businesses should always respond to environmental pressures? 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 a justified decision as to whether manufacturing businesses should always respond to environmental pressures. Points might include:
Reduces the risk of a customer boycott [k]
Enhance brand image / reputation [k] leading to more potential customers / revenue [an]
Help recruit / retain employees [k]
Help attract investors [k] so raise more capital [an]
Reduces risk of legal action/fines [k] avoiding bad publicity[an]
May need to buy new equipment [k] which increases costs [an] leading to higher prices [an]
Reduce productivity [k] which could lower profit margin [an]
May need to find new suppliers of raw materials [k] leading to higher unit costs [an] Other appropriate responses should also be credited. Justification might include: Yes, although this could mean the business has to find new suppliers of raw materials [k] increasing unit costs [an]. However, responding to environmental pressures can improve the reputation of the business [k] leading to an increase in revenue [an]. The additional revenue gained could offset the costs of responding to environmental pressures. So, if they can find the resources they need at a competitive price, they should. [eval] [eval] 6 This is a general question so there are no marks for application. For evaluation to be awarded justification will usually follow on from relevant analysis of points. Notes

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