Business Studies · Oct / Nov 2024 · Paper 12 · Question 1

0450

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Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. 1 Avtar’s business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business.

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1(a)[2]
Identify two features of a private sector business. Award 1 mark per feature (max 2). Points might include:
Owned by individuals / not owned by government
Profit motive/objective
Financed by banks/individuals Other appropriate responses should be credited. 2 Only award the first two responses given.
1(b)[2]
Identify two reasons why a business might remain small. Award 1 mark per reason (max 2). Points might include:
Owner’s objectives
Limited access to finance/capital
Market size
Market domination / a few large businesses control the market
Lack of knowledge/skills/experience
Wants to maintain close relationship with its customers
To remain flexible / able to respond quickly to changes in consumer tastes
Type/nature of industry/market/product/service Other appropriate responses should be credited. 2 Only award the first two responses given. Notes
1(c)[4]
Outline one reason why Avtar might need each of the following types of finance: Award 1 mark for each relevant reason for needing short- term/long-term finance (max 1 for each). Award 1 mark for each relevant reference to this business (max 1 for each). Points might include: Short-term finance:
Pay day-to-day expenses/provide working capital [k] for this private sector business [app]
Pay wages/salary [k] of his 2 employees [app]
Purchase inventory [k]
To prevent cash-flow problem/improve the cash position [k] Long-term finance:
Purchase non-current assets or examples [k] for the repair business [app]
Fund expansion/growth [k] in case he decides not to keep the business small [app]
Fund takeover of another business [k]
Develop new products/services [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:
(Car) repair / garage or examples
2 workers
Full-time (employees)
Private sector business
Economic recession
Small business
Added value Other appropriate examples can be credited. Notes
1(d)[6]
Explain two ways an economic recession might affect Avtar’s business. 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:
Less/lower demand/sales [k] for car repairs [app] reducing revenue / need to make redundancies [an]
Less/lower competition (as other businesses fail) [k] which could increase potential customer base [an]
Widen pool of potential employees [k] if he wants more than 2 employees [app] which may lower recruitment costs [an]
Reduce number of employees [k] so lower break-even / cash outflows / lower costs [an] so does not need finance [app]
May lower prices [k] which reduces added value [app] increase demand [an]
Material costs may be lower [k] which may increase profit margin/lower variable costs [an]
May delay any expansion plans [k] as not able to afford it [an] so business must remain small [app]
Hard to survive / may close down / objective may switch to survival [k] so may lose his investment/difficult to attract investment [an]
May have cash flow problems [k] so need overdraft/loan/cannot repay loans/day-to-day costs [an]
Customers may delay payment / more bad debts [k]
More difficult to raise finance/banks may not lend [k] 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:
(Car) repair / garage or examples
2 workers
Full-time (employees)
Private sector business
Small business
Added value
Short-term/long-term finance/needs finance (for many reasons) Other appropriate examples can be credited. Some points such as lower costs can be [k] or [an] but only award once. Points about repay loans/interest/need to borrow from bank is [an] only. Notes
1(e)[6]
Explain two ways a business can increase added value. Which is likely to be the best way for a 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 which is the best way for a business to increase added value. Points might include: Ways to increase price:
(Improve) quality of product/service [k] so customers may be prepared to pay higher prices [an]
(Build a) brand image/marketing/packaging [k] so customers think the product is worth more [an]
(Improve) product features / change/create a unique design [k] making the product more desirable than similar products so willing to pay more [an]
Convenience [k] customers may pay more for a product they can have straightaway [an] Ways to lower (input/raw material) costs:
Buy cheaper raw materials / find cheaper suppliers [k] reduces material/input costs [an] widening the gap between cost and price [an]
Reduce the number of materials used [k] Other appropriate responses should also be credited. Justification might include: One way is improving the quality [k] as customers may be willing to pay a higher price [an]. It could buy cheaper raw materials [k] which may reduce material costs [an]. Improving quality is better because cheaper materials could damage the reputation leading to fewer sales [eval] while improving quality could even help attract new customers [eval]. 6 This is a general question so there are no marks for application. To access [eval], must discuss two valid ways. The second [eval] mark must be awarded for a comparison between two valid ways. Some points could be [k] or [an] but do not award the same point twice. Some analysis can be used for more than one point, but only award once. Analysis can be awarded for explaining:
The reason why price /cost may be higher/lower
How way increases added value Notes

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