Business Studies · Oct / Nov 2019 · Paper 11 · Question 3

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Keila owns a successful small bakery shop. Keila would like to expand her business. She could open a café selling cakes and drinks in a popular tourist location. Keila plans to give out free samples as her main method of promotion. She has prepared some customer and cost information as shown in Table 1. Keila used primary market research to find out some of the information. Table 1: Forecast customer and cost information for the new café Average amount spent per customer $4 Average number of customers per week 325 Variable costs per customer $2 Fixed costs per week $500

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3(a)[2]
What is meant by ‘fixed costs’? Clear understanding [2]
e.g. costs that do not change [1]
as the level of activity / output / sales changes [1]
Costs which have to be paid whether the business produces any products or not Some understanding [1]: e.g. costs that stay the same 2 Do not award examples as this does not explain the term.
3(b)[2]
Calculate the forecast revenue per week for the new café. Good application [2]: $1300 Some application [1]: 325 × 4 OR number of customers × average spend (price) 2 $ sign not needed to award full marks Notes
3(c)[4]
Identify and explain two advantages to Keila’s business of using free samples as a method of promotion. Knowledge [2 × 1] – award 1 mark for each advantage identified Application [2 × 1] – award 1 mark for each explanation in context Points might include:
Increases awareness of her products [k] with tourists [app]
Encourages customers to try her products [k] and visit the café [app]
Tempt customer to buy more [k] helping her remain successful [app]
Way to get feedback [k] so she improves her cakes [app]
Can test out new product ideas [k] identified from research [app]
Customers understand the quality of the product [k]
3(d)[6]
Identify and explain one advantage and one disadvantage to Keila’s business of using primary market research. Knowledge [2 × 1] – award 1 mark for a relevant advantage / disadvantage
Application [2 × 1] – award 1 mark for each relevant reference made to this business
Analysis [2 × 1] – award 1 mark for each relevant explanation Relevant points might include:
Advantages:
Up-to-date [k] so able to make more accurate decisions [an] such as whether to open the café [app]
Specific to her purpose [k]
Information is not available to other competitors [k] so may provide a competitive advantage [an] for this small shop [app] Disadvantages:
High cost [k] to find out views on her bakery [app] which will increase her expenses [an]
Takes long time to collect [k]
Can be bias in questions or how questions are asked [k] leading her to make the wrong decisions [an]
3(e)[6]
Do you think Keila should open the new café? Justify your answer using the information in Table 1.
Knowledge [1] – award 1 mark for identification of relevant point(s) Application [1] – award 1 mark for a relevant reference made to this business
Analysis [2] – award up to 2 marks for relevant development of point(s)
Evaluation [2] – justified decision made as to whether Keila should open the new café
Points might include:
She expects to attract enough customers to cover her fixed costs [k] as she predicts 325 [app]
TR – TC [k] $1300 [app] – $1150 [an] leaving a profit of £150 [an]
TVC = VC x Output [k] $2 × 325 [app] = $650 [an + an]
TC = TFC + TVC [k] $500 + $650 [app + an] = $1150 [an + an]
Has relevant business experience [k] as runs a successful bakery [app]
Spreads risk [k]
Cost of shop and labour to run the café [k]
How reliable is the data gathered [k] from her primary research [app]
Does she have time / finance to run both businesses [k]

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