Business Studies · Oct / Nov 2022 · Paper 12 · Question 2

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Kemala makes high-quality beauty products. Demand for her best-selling hand cream is price inelastic. She advertises her products in specialist beauty magazines. Kemala is analysing her 2 income statement. An extract is shown in Table 2.1. She said: ‘When I started my business, I did not understand why cash is important’. Table 2.1 Extract from Kemala’s income statement 2021 ($000) 480 Revenue 192 Gross profit 72 Profit for the year

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2(a)[2]
Define ‘revenue’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Money coming in from selling a product over a given period of time [2]
OR Amount of money a business earns from the sale of its products [2]
OR Income of the business from the sale of goods or services [2]
OR Price × quantity sold [2]
Partial definition e.g. income of the business [1]
2(b)[2]
Calculate Kemala’s profit margin. Show your working. Correct answer = 15% [2]
Correct method but incorrect answer e.g. profit / revenue x 100 [1]
OR 72 / 480 × 100 [1]
If correct answer given with no working shown award 2 marks. 2 Award only 1 mark if 15% is written as part of the answer but is not given as the final answer. For both marks answer must include %. Notes
2(c)[4]
Outline two reasons why cash is important for Kemala’s business. Award 1 mark for each relevant reason (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
Pay wages/employees [k] who make the beauty products [app]
Pay suppliers/trade payables [k] to maintain high-quality [app]
Pay expenses/heating/rent/advertising [k] such as in specialist magazines [app]
Repay (short term) debts [k]
For use in an emergency [k] 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:
Beauty products/hand cream
High-quality
$480 000
$192 000
$72 000
Specialist/beauty magazine
Started her business Other appropriate examples in context can still be credited.
2(d)[6]
Explain two possible reasons why demand for Kemala’s best-selling product is price inelastic. Award 1 mark for identification of each relevant point (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:
Unique/no (close) substitutes [k] as its high-quality [app] so an increase in price is likely to result in a lower percentage change in demand [an]
Considered a necessity/need [k] so customers likely to remain brand loyal (even if the price increases) [an] for the hand cream [app]
Low proportion of income spent on product [k] so customers would still buy (if the price increased) [an] increasing revenue above $480 000 [app] 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:
Beauty products/hand cream/skincare
High-quality
$480 000
$72 000 Other appropriate examples in context can still be credited. Notes
2(e)[6]
Do you think advertising in specialist magazines is the best way for a business to promote high-quality products? 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 advertising in specialist magazines is the best way for a business to promote high-quality products. Points might include: Specialist magazines
Attract specific customers/target market [k] increasing sales [an]
Able to use colour/pictures [k] which can help attract attention [an]
Can keep for future reference [k]
Magazines are often only published once a week/month [k]
Not everyone reads/buys specialist magazines [k] Other possible methods include:
Social media/Facebook/Twitter [k] as large potential market / cover wide area / seen by many people [an]
Newspapers [k] not everyone reads them [an] so can restrict target market/ lead to fewer sales [an]
Leaflets [k] but people may throw them away/seen as litter [an] Other appropriate responses should also be credited. Justification might include: A disadvantage of specialist magazines is that it is likely to be seen by a small number of people [k] which can reduce its potential sales [an]. I think social media [k] is a better option as customers can still be targeted but also it allows the business to cover many people [an]. This would allow them to build a bigger customer base [eval] to maximise potential revenue [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. Some points could be awarded for different options, and some could be presented as either [k] or [an] but only award once. Notes

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