Business Studies 0450 May / June 2026 Paper 21 Question 3

3(a) Explain two ways the business cycle in country X going into the boom stage is likely to affect YC. Award 1 mark for each way (max 2). Award a maximum of 3 additional marks for each explanation of the way a boom stage is likely to affect YC – one of which must be applied to this context…

Business Studies · May / June 2026 · Paper 21 · Question 3

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3(a)[8]
Explain two ways the business cycle in country X going into the boom stage is likely to affect YC. Award 1 mark for each way (max 2). Award a maximum of 3 additional marks for each explanation of the way a boom stage is likely to affect YC – one of which must be applied to this context. Relevant ways might include:
May lead to higher demand / higher sales / higher revenue for YC’s products – consumer spending is higher – as many people have gained jobs so incomes are high
Makes it harder for YC to recruit new employees – smaller pool of unemployed to choose from – may be fewer skilled/experienced people available for work
May make it harder to resist paying higher wages / pay high wages to new employees as level of unemployment is falling – less competition amongst workers for jobs – so less willing to accept lower wages
Lower priced products sold by YC may see a decrease in demand - as consumers have more income available to spend on luxury high priced items – less likely to buy cheaper substitutes
Ashanti may be more confident when investing in the shop – as future sales may increase for some time – making it more likely she will gain a return on her investment Notes:
This question is about how YC is affected/impacted by country X going into the boom stage of the business cycle.
Increasing interest rates is APP unless linked to the impact of a boom on this business e.g. the government may need to increase interest rates due to economic growth meaning that a loan would become more expensive for the business. For example: A boom makes it harder for YC to recruit new employees (1)
as there will be a smaller pool of unemployed people to choose from (1)
and may be fewer experienced people available to recruit (1)
to work in the clothes shop (app). Application could include: clothes;
clothes shop;
sole trader;
target market aged 16–30;
$20 000;
3/4 employees;
40% are in age group 16–30;
use competitive pricing method;
economic growth predicted to be 4%;
interest rates 2%/5%;
information from Appendix 3.
3(b)[12]
Using Appendix 3 and other information, consider the two product ranges Ashanti could choose to sell. Which product range should Ashanti choose? Justify your answer using break-even calculations.
product range A
product range B Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both product ranges. Well-justified recommendation. Candidates discussing both product ranges, in context and with a well-justified recommendation, including why the alternative product range 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 range. Judgement with some justification / some evaluation of choice made. Candidates discussing both product ranges in detail and applying them 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 product ranges with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the two product ranges in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Product range A
Break even number of items is 1500 in the first year
Margin of safety is 1500 items in the first year
Contribution is $20 per item
Total revenue for 3000 items is $150 000
Total cost for 3000 items is $120 000
Profit for the first year from these items if all sold is $30 000
Fixed costs are the same for both product ranges is
$30 000 in the first year
Gross profit margin is 40%
Profit margin is 20% Product range B
Price for Product range B is $25 per item which is lower than Product range A at $50 per item
Break even number of items is 4285/4286 in the first year
Margin of safety is 5714/5715 items in the first year
Contribution is $7 per item
Total revenue for 10 000 items is $250 000
Total cost for 10 000 items is $210 000
Profit for the first year from this product range is $40 000
Profit is higher by $10 000 in the first year
Gross profit margin is 28%
Profit margin is 16% Recommendation Justification might include:
YC should choose to sell product range A as it has a higher contribution of $20 which may be a good thing in its first year meaning it has to sell fewer clothes to break even. Also, it has a higher gross profit margin by 12% and a higher profit margin by 4%. Product range B has higher total costs by $90 000 which makes it harder to finance in its first year.
YC should choose to sell product range B as it has a higher margin of safety at 5715 and sells at $25 per item which could be more attractive to customers. Notes:
Comparative statements such as lower, higher, more or less, achieve Level 1.
For Level 2 calculations need correct labels e.g. breakeven or profit.
For Level 3 candidates must have Level 2 for both product ranges and discuss breakeven or margin of safety in their recommendation. Product A Breakeven 1500 units L2 Margin of safety 1500 units L2 Contribution $20 L1 Total revenue $150 000 L1 Total costs $120 000 L1 Fixed costs $30 000 Same for both products - only award once L1 Total variable costs $90 000 L1 Gross profit $60 000 L2 Profit / net profit $30 000 L2 GPM 40% L2 Profit margin 20% L2 Product B Breakeven 4285 / 4286 / 4285.7 units L2 Margin of safety 5714/5715 units L2 Contribution $7 L1 Total revenue $250 000 L1 Total costs $210 000 L1 Fixed costs $30 000 Same for both products only award once L1 Total variable costs $180 000 L1 Gross profit $70 000 L2 Profit / net profit $40 000 or higher by £10 000 but only award once L2 GPM 28% L2 Profit margin 16% L2

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