Note AcademyNote Academy
Start

Business Studies · May / June 2024 · Paper 22 · Question 1

0450

As printed in the paper

Show the answer and mark scheme

  • 1(a)[8]

    Explain two reasons why setting business objectives is important to JJ. Award 1 mark for each reason (max 2). Award a maximum of 3 additional marks for each explanation of the reason why setting business objectives is important – one of which must be applied to this context. Relevant reasons might include:

    A clear target/aim/purpose/goal to work towards – guides the business in the right direction – avoids loss of focus
    Decision-making will be focused on the objectives – meaning better decisions are taken – the business may be more efficient
    Helps motivate employees – objectives will help focus the employees and management to increase efficiency – making it more likely to be achieved
    Comparison of performance – so business managers can compare how each department has performed against their objectives - to see whether or not it has been successful
    Allows measurement of success – can judge performance or progress
    Helps the business to produce a plan or strategy for the business to achieve these objectives For example: To give a clear target for employees and managers to work towards (1)

    so they all know what is expected of them (1)

    when producing different items of jewellery (app). Therefore, this means the target is more likely to be achieved (1). Application could include: jewellery;

    set up 25 years ago;

    public limited company;

    objective to increase profit every year;

    to expand the business;

    sold directly to customers in other countries;

    30% sold using ecommerce;

    70% sold in jewellery shops;

    raw materials purchased locally;

    60 full-time employees;

    25 part-time employees;

    bracelets;

    rings;

    earrings.

  • 1(b)[12]

    Using Appendix 1 and other information, consider the two new products JJ could produce. Which product should JJ choose? Justify your answer using break-even calculations.

    Product A
    Product B Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both products. Well-justified recommendation. Candidates discussing both products in detail, in context and with a well-justified recommendation, including why the alternative product was rejected, should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one product. Judgement with some justification/some evaluation of choice made. Candidates discussing at least one product in detail and applying it to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the products with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining both products in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Product A
    The price is much lower than for Product B, leading to more sales of bracelets needed to break-even
    Forecast sales are higher at 2500 per week than Product B which may make it easier to meet demand if it is high
    The break-even output is 2000 units per week – which is much higher than Product B – may be more difficult to achieve
    The margin of safety is much higher at 500 than Product B making it a safer product to produce assuming all output is sold
    The variable cost is lower by $15 than for each ring Product B
    The price of rings is much higher than bracelets by $70
    Break-even is 625 rings per week
    The margin of safety is 125 per week if forecast sales are accurate – which is much lower than for Product A at 500 per week – increasing risk of not covering costs if sales are lower than forecast
    The profit is much lower for Product B if all forecast sales are made – at $10 000 rather than $12 500 for Product A
    Forecast sales each week is much lower at 750 rings, 1750 fewer items to produce each week
    May be easier to promote and sell fewer items each week making it easier to achieve maximum sales Recommendation
    JJ should choose to produce Product A, bracelets, as the margin of safety is higher than for Product B and may be less risk of not breaking-even if not all the forecast sales are made each week. Rings are more expensive to produce and if not sold then the variable cost of each ring is $40 so more will have been spent on variable cost per product than producing bracelets at $25 each.
    JJ should choose to make Product B, rings, as the break-even output is much lower at 625 than the 2000 needed for bracelets and therefore may be easier to achieve.
Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.