Business Studies · Oct / Nov 2023 · Paper 11 · Question 2

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LCT manufactures cooking pots. It has 16 employees. As a small business LCT uses social media as its method of advertising. The owner, Carole, knows having a good brand image is important. 2 She is analysing LCT’s break-even chart. This is shown in Fig. 2.1. Carole is considering possible ways to lower LCT’s break-even level of output. Break-even chart for LCT 12 000 10 000 8000 6000 4000 2000 0 100 200 300 400 500 units total revenue total costs fixed costs costs / revenue ($) 600 700 800 9001000 Fig. 2.1

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2(a)[2]
Identify two limitations of break-even analysis. Award 1 mark per limitation (max 2). Points might include:
Assumes that all costs can be represented by straight lines
It is not easy to separate costs into fixed and variable
Assumes that all output is sold/does not allow for inventory (stock) holding costs
Assumes only one type of product sold
Assumes selling price remains unchanged for all products sold
Concentrates on break-even point/ignores other aspects of operations such as how to reduce wastage/increase sales
It is a prediction/forecast/does not include unexpected costs. Other appropriate responses should also be credited. 2 Only award the first two responses given.
2(b)[2]
Calculate LCT’s profit if it sells 800 units. Show your working. Award 2 marks for a correct answer. Award 1 mark for a correct method but incorrect answer. Correct answer e.g. $2000 [2]
Correct method but incorrect answer e.g. Profit = total revenue – total cost [1]
OR 8000 – 6000 [1]
Award only 1 mark if 2000 is written as part of the answer but is not given as the final answer. 2 $ sign is not required. Notes
2(c)[4]
Outline two possible benefits to LCT of having a good brand image. Award 1 mark for each relevant benefit (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
Encourage/maintain (customer) loyalty [k] for this small business [app]
Can help increase sales/customers/market share [k] of cooking pots [app]
Aids recognition/awareness/advertising [k] on social media [app]
May be able to charge high price (than for unbranded products) [k] which can help lower its break-even output [app]
Helps differentiate product from competitors [k] so may be able to sell more than 800 units [app]
Helps launch new products in the market (as customers already know and trust the brand) [k]
May attract investors [k]
Helps with employee recruitment [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:
(Cooking) pots
Manufactures/production
16 (employees)
Small business
Social media (for advertising)
(Lower) break-even output
400 units (break-even output)
$10 (price per unit)
800 units
Total revenue $10 000
Total costs $7000 Other appropriate examples can be credited. Notes
2(d)[6]
Explain two ways LCT might lower its break-even level of output. Award 1 mark for identification of each relevant 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:
Increase price [k] higher than $10 [app] which would increase revenue [an]
Lower rent or other example [k] below $2000 [app] so lowering fixed costs/expenses [an] OR lower fixed costs [k] lead to lower total costs (TC) [an]
Buy cheaper raw materials or other example [k] for its cooking pots [app] reducing variable cost [an] OR lower variable costs [k] lead to lower total costs (TC) [an] 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:
(Cooking) pots
Manufactures/production
16 (employees)
Small business
Good brand image
$2000 (fixed costs)
$10 (price)
$5 (variable costs per pot)
400 (break-even output)
Social media
$10 000
$7000 Other appropriate examples can be credited. Some points can be awarded as [k] or [an] but do not award the same point twice e.g. lower rent [k] so lower costs [an] Only allow one example of fixed costs and one example of variable costs. For this question, candidates can use the same point of analysis e.g. increase contribution per unit. Notes
2(e)[6]
Do you think social media is the best method of advertising for a small 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 social media is the best method of advertising for a small business to use. Points might include: Social media:
Cover wide area/seen by many people [k] leading to an increase in sales[an] more revenue [an]
Low-cost method of advertising [k] so fewer cash outflows [an]
Easy/quick to update [k] so can spend time on other tasks [an]
Can target specific groups [k] could encourage brand loyalty [an]
Way to build relationship/communicate with customers/gain direct customer feedback [k]
Risk of hacking/fraud/virus [k]
Bad reviews can be seen by everyone [k] could lead to a bad reputation [an]
No internet access/not everyone uses social media/easy to lose message among many messages on social media [k]
Takes time to continually post/monitor messages [k] Other methods might include:
Newspapers [k] can contain lot of information [an] but fewer people read newspapers these days [an]
Leaflets [k] can be kept for future reference [an] but may not be read/thrown away (as seen as junk) [an] 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. Candidates do not need to discuss other methods to gain full marks. Do not award examples of sales promotion as these are excluded by the question. Advantages of one method can be presented as disadvantages of the other method but do not award the same point twice as mirror answers are not accepted. Allow only one reference to costs e.g. this method is cheap and this one is expensive. Notes
Posters/billboards [k] can be seen by anyone when passing [an] but cannot include detailed information [an]
Website [k] more information can be added [an]
Pop-up adverts [k] can be expensive [an]
Television [k] can be high cost [an]
Radio [k] Other appropriate responses should also be credited. Justification might include: Social media is low-cost [k] reducing cash outflow [an]. Another method is leaflets [k] which may only reach a limited number of people [an]. Social media is the best way, for a small business, because it is unlikely to have a large marketing budget [eval]. Therefore the cost is likely to be important as it allows the business to have funds available for other purposes [eval]. Notes

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