Business Studies · Oct / Nov 2023 · Paper 12 · Question 1

0450

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Paolo wants to start up a business making cakes. He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and 1 sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital. Table 1.1 Extract from Paolo’s financial and sales data $6 Average price per cake $4 Average cost per cake 50 Forecast average number of cake sales per day

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1(a)[2]
Define ‘working capital’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Finance needed by a business to pay day-to-day costs [2]
OR The capital needed to finance the day-to-day running costs/expenses [2]
OR Current assets less/minus current liabilities [2]
Partial definition e.g. funds to buy inventory/materials/pay wages [1]
OR finance to pay short-term debts [1]
2 Unless state formula: 1st mark for idea of finance/funds/money/capital to pay costs. For 2nd mark, need reference to day-to- day/daily costs.
1(b)[2]
Calculate the average revenue per day. Show your working. Award 2 marks for a correct answer. Award 1 mark for correct method but incorrect answer. Correct answer: $300 [2]
Method e.g. Price × number of units sold [1]
$6 × 50 [1]
2 Award only 1 mark if $300 is written as part of the answer but not shown as final answer $ sign not required. Notes
1(c)[4]
Outline two reasons why packaging will be important for Paolo’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:
Protect the product/keep product safe/helps ensure quality [k] especially as selling cakes [app]
Promote brand image/differentiate it from other products [k] for this new business [app]
Add value/higher price [k] than $6 [app]
Help advertise/attract customers/increase sales [k]
Ease of storage/display [k] at the wholesaler [app]
Ease of transport [k] for the 50 products [app]
Provide information/meet legal requirements [k]
Make the product easy/convenient to open [k] Other appropriate responses should 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:
Cakes or related words such as ingredients
50 (units per day)
Start-up/new business
$6 (price)
Wholesaler
$300 (revenue) OFR can apply
$4 (cost per cake) Other appropriate examples can be credited. Notes
1(d)[6]
Explain one advantage and one disadvantage to Paolo’s business of using crowdfunding as a source of finance. Award 1 mark for each relevant advantage/disadvantage (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Advantages:
No/low interest [k] so does not increase cash outflows [an] for his start- up [app]
Allows for the public reaction to be tested [k] the cakes [app] which could lead to more customers [an]
No need to repay/permanent [k] so does not add to its liabilities/debt [an]
No collateral needed [k] Disadvantages:
No guarantee can raise full amount / may not raise enough / sufficient funds / must repay everyone if cannot raise full amount [k] so must find another source [an]
Competitors may learn more about your business before launch [k] such as ideas for packaging [app] leading to less revenue [an]
Not a reliable/stable source of finance [k]
A lot of paperwork [k] Other appropriate responses should 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:
Cake or related words such as ingredients
Start-up/new business
Packaging
$300 (revenue) – OFR can apply
$6 (price)
50 (units per day)
$4 (unit cost)
Working capital
Wholesaler Other appropriate examples can be credited. Some points can be [k] or [an] but award only once. Notes
1(e)[6]
Do you think selling to a wholesaler is the best channel of distribution for a start-up 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 selling to a wholesaler is the best channel of distribution for a start-up business. Points might include: Wholesaler:
Likely to buy in large quantities [k] increasing sales [an]
Can hold less inventory [k] less storage space/costs [an]
Only deliver to one location [k] lowering transport costs [an]
No direct contact/feedback with customer [k] so difficult to build customer relationship/loyalty [an]
Price may be higher [k] leading to fewer sales [an]
Lose (some) control over marketing/advertising [k]
Wholesaler takes part of the profit [k] which lowers profit margin [an] 6 This is a general question so there are no marks for application. Points must be from viewpoint of the start- up business. Some point can be written as [k] or [an] but only award once e.g. lower storage costs. Some points can be presented as advantages/ disadvantages of different channels but only award point once. Notes Other channels might include:
Sell direct (to customers)/ecommerce/online [k] so has more control over its marketing/build rapport [an]
Retailers [k] so can reach wider range of customers [an]
Agents [k] as will have local knowledge [an] so higher sales [an] Other appropriate responses should be credited. Justification might include: A wholesaler will help save storage space [k] which reduces storage costs [an]. They could sell online [k] which would increase its access to customers [an]. A wholesaler is the best channel to use because being able to lower costs is important especially as a start-up business will have limited capital [eval]. Whereas selling online is likely to increase delivery costs increasing their total costs [eval]. Notes

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