Business Studies · May / June 2017 · Paper 21 · Question 1

Identify and explain two ways in which TT might achieve quality production. Knowledge [2 × 1] – award one mark for each way. Analysis [2 × 1] – award one mark for a relevant explanation for each way. Application [2 × 2] – award two application marks for each way. Award one mark for each way (maximum of two), from this list:

high quality material;

prints designs;

T-shirts imported from country Q, a developing country;

50 different designs;

batches production of various sizes;

personalized T-shirts;

buying new computer controlled equipment for $500 000;

retailers expect high quality products There may be other examples in context that have not been included here.

Consider the advantages and the disadvantages of the two options for expansion. Recommend the best option to choose. Justify your answer. Relevant points might include: Advantages Disadvantages Option A – take over competing company Specialised in different product range – increase sales. Economies of scale possible – reduce management layers – reduce wage costs. Increase efficiency – share good practice - lower unit costs – more competitive – increase profit. High cost to buy out shareholders. No guarantee of success – no expertise in this market. Low staff morale – job insecurity – lack of coordination between the two management structures – diseconomies of scale. Option B – expand own production facilities Increased efficiency from new equipment – increased output – increased sales. Not using a wholesaler – absorb profit margin. Option B is cheaper than Option A. May need joint venture/use an agent – reduce profit margin – lower profit. Lack of knowledge of export market – culture/taste may be different – more difficult to have effective marketing. Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-based mark scheme below. Knowledge / Analysis / Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified recommendation of which option to choose and why not choose the alternative option. 7–8 marks for limited recommendation of which option to choose. Level 2 4–6 marks Detailed discussion of advantages and/or disadvantages of each option. Level 1 1–3 marks Outline of advantages and/or disadvantages of each option. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Economies of scale are possible if they take over another company. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Economies of scale are possible if they take over another company as T-shirts could be purchased in bulk and a discount received. However, it will cost over $10m to buy out the shareholders and they may not be able to finance it. (L2 plus 1 App mark for consideration of the costs of the takeover of a competitor). Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation of which option to choose. Award up to 2 additional marks for relevant application. Possible application marks: private limited company;

set up 15 years ago;

in country P;

buys ready-made plain white T-shirts;

prints designs;

T-shirts imported from country Q, a developing country;

50 different designs;

batches production of various sizes;

sold to small retailers in country P;expect high quality;

share capital $2 m;

increased to $8 m by 2015;

exporting T-shirts;

take over DesOwn;

personalized T-shirts;

sells online;

raise $10 m to buy out the existing shareholders;

buying new computer controlled equipment for $500 000;

sell directly to large retailers;

use an agent or a joint venture;

really unhappy factory workers;

workers want to leave. There may be other examples in context that have not been included here.