Business Studies · May / June 2022 · Paper 12 · Question 3

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CHW manufactures electrical products including cameras. The business is developing new products. The Managing Director knows that the stage of the product life cycle can influence CHW’s marketing 3 decisions about promotion. He is analysing data for one of its products. An extract is shown in Table 3.1. The business would also like to introduce flow production into the factory. Table 3.1 Extract from CHW’s data for one type of camera (2021) 120 Selling price per unit ($) 40 Variable cost per unit ($) 200000 Fixed costs ($) 500 Margin of safety (units)

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3(a)[2]
Identify one benefit and one cost to a business of developing new products. Award 1 mark per benefit/cost (max 1 for each). Benefits might include:
Provides diversification / spreads risk
Increase revenue/sales
Enter new markets / attracts new customers
Allow the business to expand into existing markets / increase market share / improved competitive advantage
Maintain customer loyalty Costs might include:
Costs of carrying out (market) research
Producing trial products
(Cost of) raw materials/labour/equipment
Marketing/advertising costs Other appropriate responses should also be credited. 2 Only award the first response given for each benefit/cost. Do not award answers such as cost on its own.
3(b)[2]
Calculate the break-even level of output for 2021. Show your working. Correct answer: 2500 [2]
Correct method but incorrect answer e.g. 200 000 / 80 [1]
OR 200 000 / (120-40) [1]
OR Total fixed costs / selling price (per unit) – variable cost (per unit) [1]
OR Fixed costs / contribution (per unit) [1]
If correct answer given with no working shown, award 2 marks. Award only 1 mark if 2500 is written as part of the answer but is not given as the final answer. 2 Max 1 where include $ sign as it is not a financial value. Notes
3(c)[4]
Outline two ways CHW could increase its margin of safety. Award 1 mark per way (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
Lower fixed costs [k] from $200 000 for the year [app]
Lower variable costs / variable cost per unit [k] from $40 [app]
Increase price [k] of cameras [app] Other appropriate responses should also be credited. 2 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:
Factory
Cameras/electrical products
500 (margin of safety)
2500 (break even output)
Flow production
200 000 (fixed costs)
$120 (selling price)
$40 (variable cost per unit) Notes
3(d)[6]
Explain two ways in which the stage of the product life cycle might affect CHW’s marketing decisions about promotion. Award 1 mark for identification of each relevant stage and way (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: Must name the stage and why or how much promotion to access the knowledge marks. Introduction:
High level/amount of promotional activity [k] to help raise awareness/inform/ attract/persuade new customers [an] about its cameras [app]
Attract/inform/persuade customers [k] to increase sales/revenue [an]
Establish brand image [k] to make business competitive [an] Growth:
High level/amount of promotion/promotional spending [k] to try to encourage brand loyalty [an] so it can sell 2500 to break even [app]
Attract/inform/persuade customers [k] to increase revenue [an] Maturity:
Likely to be less promotion [k] as product is well known / business wants to use its funds for other purposes [an] such as developing new products [app]
To remind customers about its products [k] so maintain sales/market share [an]
Spending might increase if use an extension strategy [k] to inform people that the product is worth buying again [an] 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:
Cameras/electrical products
500 / margin of safety
Develop new products
2500 (break-even output)
$120 (selling price)
$200 000 (fixed costs)
$40 (variable cost per unit)
Factory Other appropriate examples in context can still be credited. Do not award answers which identify methods of promotion as this does not answer the question. Notes Decline:
Limited promotion/spending [k] to reduce marketing costs [an]
May only use to inform customers of price reductions [k] so no longer selling at $120 [app] to encourage some sales [an]
May decide to stop promotion during this stage [k]
To clear out inventory [k] Other appropriate responses should also be credited. Notes
3(e)[6]
Do you think flow production is the best method of production for a manufacturing 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 flow production is the best method of production for a manufacturing business to use. Points might include:
High output [k] so able to meet demand (on time) [an]
Benefit from economies of scale [k] leading to lower unit costs [an]
More capital intensive [k] leading to lower labour costs [an]
Lower (employee) motivation [k] leading to lower productivity [an]
Can produce 24 hours a day [k]
If one machine breaks down whole production line stops [k] lose output/fewer sales [an]
Requires a large capital investment [k] Batch production [k]
More flexible / produce a variety of products [an] Job production [k]
Unique products so able to charge a higher price [an] Other appropriate responses should also be credited. Justification might include: Materials can be purchased in large amounts / benefit from economies of scale [k] leading to lower unit costs [an]. However, it requires a large capital investment [k] which the business might not be able to afford. [an] It might only be worthwhile if there is a large market for a standardised product [eval] which can cover the high initial costs [eval]. 6 This is a general question so there are no marks for application. Can accept discussion of other methods such as batch production or job production but evaluation must focus on flow production. Advantages of one method could be presented as disadvantages of another method, but do not award the same point twice. Notes

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