Business Studies · May / June 2022 · Paper 12 · Question 1

0450

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AHG is an established business as it has been operating for a long time. It sells garden products including plants and flowers. AHG uses competitive pricing. The business has 4 managers and 30 1 other employees. All AHG’s managers use delegation. The Finance Manager is analysing AHG’s statement of financial position as she is interested in its liquidity. An extract is shown in Table 1.1. Table 1.1 Extract from AHG’s statement of financial position at 30 March 2022 ($000) 800 Non-current assets 660 Current assets 600 Current liabilities

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1(a)[2]
Define ‘current liabilities’. Award 2 marks for a full definition. Award 1 mark for a partial definition. (Short-term) debts owed by a business, to be repaid in less than one year [2]
OR Debts of a business which it expects to pay before the date of the (next) statement of financial position [2]
Partial definition e.g. money owed by a business [1]
1(b)[2]
Identify two examples of non-current assets.
Award 1 mark per example (max 2).
Points might include:
Land/buildings/factory/property/warehouse
Machinery/technology/equipment
Fixtures/fittings
Vehicles or examples such as cars/trucks
Investments/shares in another business
Other appropriate responses should also be credited.
1(c)[4]
Outline two possible reasons why liquidity is important to AHG.
Award 1 mark for each relevant reason (max 2).
Award 1 mark for each relevant reference to this business (max 2).
Points might include:
To make sure the business has access to enough cash/money to pay day-to- day expenses / (short term) liabilities / avoid interest charges / keep its suppliers [k] as shown by the current ratio of 1.1 [app]
To help arrange/apply for finance [k] for this established business [app]
Ensure business survival / allow it to continue trading [k] to sell flowers [app]
To provide for (unforeseen) emergencies [k]
Other appropriate responses should also be credited.
1(d)[6]
Explain two advantages to AHG of its managers using delegation.
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:
Managers cannot do all tasks on own / reduce managers’ workload / managers have time to focus on (important/complex) tasks [k] such as improving liquidity [app] so better/quicker decision making [an]
Can motivate employees [k] as there is less control from its 4 managers [app] increasing productivity [an]
Quality of managers’ work is often improved / managers are less likely to make mistakes [k] leading to a better business reputation [an] of its garden products [app]
Builds trust between managers and employee / better working relations [k] improving loyalty [an] of its 30 employees [app]
Way to develop skills of employees / increase flexibility of workforce [k] leading to new ideas [an]
Other appropriate responses should also be credited.
1(e)[6]
Do you think competitive pricing is the best method for an established business to use? Justify your answer.
Award up to 2 marks for identification of relevant points.
Award up to 2 marks for relevant development of points.
Award up to 2 marks for a justified decision as to whether competitive pricing is the best method for an established business to use.
Points might include:
Price will not discourage customers from buying [k] so maintain customer loyalty [an]
Prevents business losing market share [k] which could result in less revenue [an]
Customer may be prepared to pay more (if it is a popular brand) [k]
Need another way to attract customers [k] which could increase costs [an]
May not cover the costs [k] so may find it difficult to break even [an]
Takes time/money to find out competitor’s prices [k]
Other methods can be discussed such as:
Cost-plus pricing [k]
Know that the costs will be covered [an]
Know their profit margin / can make a profit per item [an]
Easy to calculate/apply [an]
Does not consider what competitors do / prices may be higher than competitors [an]
Does not take account of changes in demand/spending patterns [an] so could lead to fewer sales being made [an]
Little incentive to control costs [an]
Promotional pricing [k]
Help attract sales [an]
Helps to renew interest in a product if sales are falling [an]
Other appropriate responses should also be credited.
Justification might include:
Competitive pricing will not discourage customers from buying [k] so will buy again [an]. However, if you base your prices solely on competitors, you might not be able to cover costs [k] which makes it difficult for a business to break-even [an]. No, as it depends on what they sell – while cannot ignore what other businesses charge – especially if it’s a competitive market – but if the business has a good reputation which an established business might have [eval] it may be able to use other pricing methods that allow it to charge more [eval].

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