· CIE is publishing the mark schemes for the May/June 2010 question papers for most IGCSE, ... communication and co-ordination problems ... - Limited response

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

GCE Advanced Subsidiary Level and GCE Advanced Level

MARK SCHEME for the May/June 2010 question paper

for the guidance of teachers

9707 BUSINESS STUDIES

9707/11 Paper 11 (Short Answer/Essay), maximum raw mark 40

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers.

Mark schemes must be read in conjunction with the question papers and the report on the examination.

• CIE will not enter into discussions or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the May/June 2010 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

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Page 2 Mark Scheme: Teachers’ version Syllabus Paper

GCE AS/A LEVEL – May/June 2010 9707 11

© UCLES 2010

Section A (Short Answer) 1 (a) Functions might include: workforce planning, recruitment and selection, training and

development, appraisal, welfare, consultation and negotiation. One relevant function. (1) Two relevant functions. (2)

(b) Reasons might include: bargaining power with fellow workers, protect interests, education,

other benefits. Some limited/vague comment on the role of a Trade Union. (1) Limited/partial explanation of one relevant reason. (2) Full explanation of one relevant reason. (3)

2 (a) The ability of a business to find cash for short-term financial needs – the ease with which an

asset can be changed into cash. Partial definition of liquidity. (1) Full definition of liquidity. (2)

(b) Financial accounting – the collection/calculation, analysis and publication of figures relating

to business performance and profitability that must be made available under the provisions of the Companies Act. They are a record of a company’s dealings/performance rather than the predictions involved in management accounting. Management accounting involves the internal financial information made available to managers (as opposed to that which must be published by law). This information is used for forward planning, reviewing and analysing the performance of a business – costs and revenues – budgets. Partial explanation of either term. (1) Full explanation of either term. (2) Accurate explanation of both terms. (3)

3 Well-defined objectives help a business to be clear about what it wants to achieve – gives a

sense of direction – provides a measure of how the business performance matches its achievement aims – reference may be made to specific objectives, e.g. survival, growth, market penetration, profitability etc. Some understanding of business objectives. (1) Sound understanding of business objectives with specific examples and possibly implicit reference to ‘importance’. (2–4) As above, with explicit reference to the ‘importance’ of business objectives. (5)

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4 (a) Stakeholder groups might include shareholders, employees, suppliers, customers, owners, community, government. One relevant stakeholder group identified. (1) Two relevant stakeholder groups identified. (2)

(b) Explanation might include the following: business performance affects the ways in which the

business can impact on stakeholders in terms of profit share (dividends), salaries and wages and business continuity/survival, investment repayment/or opportunities for further investment/growth, ability to pay taxes, ability to assist community environment and satisfy customer demands. Limited/vague reference to how stakeholder groups’ interests are influenced. (1) Sound understanding of link between business performance and ONE stakeholder interest. (2) Sound understanding of the link between business performance and stakeholder interests with ONE DEVELOPED example. (3)

5 (a) Answers could refer to the significance of production control through the identification and

scrapping of unsuitable output – the need to establish and maintain high quality standards, particularly in flow-line production – the need to meet customer expectations – the need to reduce costs of scrapping materials, of wasted labour time and of rectifying poor workmanship – to prevent defective products. Sound analysis of importance of quality control issues in context. (7–8) Sound understanding and some analysis of quality control issues in context of a manufacturing business. (5–6) Shows good understanding of quality control in a business context. (3–4) Shows limited awareness of quality control issues. (1–2)

(b) Discussion might include reference to methods/approaches that aim to prevent problems,

detect problems, correct problems, improve quality performance e.g. quality control inspectors, quality control charts, statistical process control, random inspection. Credit responses that recognise that there has been a change in focus to methods of prevention (before poor quality develops) and that such preventative approaches include the following: TQM, Kaizen, Zero Defects, Quality Circles, Benchmarking. Evaluative comment on the relative strengths/advantages of different methods/approaches in a manufacturing context. (11–12) Analysis of methods/approaches to achieve a high level of quality control. (8–10) Shows good understanding of methods/approaches to quality control achievement (but descriptive not analytical). (3–7) Shows some understanding of quality control methods/approaches. (1–2)

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6 Answers could refer to the increasing requirement for businesses to take into account ethical issues. Reference could be made to general business ethics such as the philosophy of a business (shareholder v stakeholder) or corporate social responsibility or to specific business ethics such as: accounting information – creative accounting, insider trading; HRM – treatment of employees; sales and marketing – price fixing – disinformation; production – pollution and carbon emission; intellectual property – patent infringement; international use of child labour etc. Some evaluative comment, e.g. a recognition that ethical business activity might not be a constraint but rather a source of competitive advantage. (17–20) Analysis of ethical issues and business activities (with examples of contraints). (14–16) Good understanding of ethical issues in business activity. (11–13) Descriptive comment on ethical issues and business activities. (5–10) Limited understanding of ethics and implication for business activities. (1–4)

7 (a) Answers could refer to an accepted definition of the marketing function – a process involved

in identifying/anticipating and satisfying customer requirements profitably – the concept of market-led rather than production-led operations – connection between the marketing function and the general and specific activities of a business organisation…the particular relevance to a service business. Explicit reference to the importance of the marketing function (in the context of a service business). (7–8) Sound understanding and some analysis of the marketing function (possibly with examples of marketing activity and some reference to the service context). (5–6) Good understanding of the marketing function (probably quite descriptive). (3–4) Shows limited awareness of the marketing function. (1–2)

(b) Answers could initially define the concept – a business aiming a product or service at a

particular, often tiny, segment of the market – and then discuss the advantages and disadvantages.

Advantages, e.g. small firms able to sell and exploit niche markets, avoid competition; better

focus on customer needs and gain on competitive advantage – could be very profitable. Disadvantages, e.g. profitable niche markets attract competition, large businesses may join

in and enjoy economies of scale – many niche businesses have very few products – risk increased – may be subject to big and more frequent swings in consumer spending. Evaluative comment – such as an attempt to contextualise and assess the balance of advantage or disadvantage of niche marketing. (11–12) Analysis of the advantages and disadvantages of niche marketing. (8–10) Shows good (descriptive) understanding of niche marketing advantages and disadvantages (maximum of 4 marks if only one of advantages or disadvantages discussed). (3–7) Shows limited understanding of niche marketing. (1–2)

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Section A 1 (a) Definitions such as ‘the number of staff/subordinates directly answerable to a manager/

supervisor’ or ‘the number of staff that a manager/supervisor has authority over.’

- A definition that indicates some understanding. [1] - A definition that indicates full understanding. [2]

(b) Problems might include: communication and co-ordination problems might become more

complex – limited opportunity for close consultation with staff – possible morale issues – increased stress and workload for managers/supervisors – time constraints might encourage more autocratic management.

- One problem identified with limited explanation. [1] - One problem identified with good explanation. [2] - Two problems identified with limited explanation. [2] - Two problems identified with good explanation. [3]

2 (a) Definitions such as: the collection (collation and analysis) of data from existing and potential

customers regarding market conditions for the products and services of a business.

- A definition that indicates some understanding. [1] - A definition that indicates full understanding. [2]

(b) Explanation such as: primary research collects original data – data not collected before – may be called ‘field’ research – speaking to consumers in their natural habitat – home, work or shopping.

Secondary research is using information that is already published and available – termed desk research – cheaper and more quickly obtained.

- Partial explanation of either term. [1] - Full explanation of either term or partial explanation of both. [2] - Accurate explanation of both terms that clearly differentiates the two types of research. [3]

3 Explanation might initially include a definition of economies of scale – an increase in output lending to a less than proportionate increase in costs – and discuss the generic categories such as financial, technical, risk-bearing, marketing, managerial. Specific economies in the context of this question might include: – financial – bulk purchasing of supplies (food, linen, etc); technical – increased use of computers for stock control, reservations; marketing – reduced cost of advertising – specialist management roles for the larger company.

- Limited response – definition/generic categories only – a list. [1] - Identification and explanation of one appropriate economy of scale. [2–3] - Identification and explanation of two appropriate economies of scale. [4–5

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4 (a) A pie chart is a graphical means of representing numerical data and consists of a circle where the components of the data are indicated by segments in the circle. Each segment represents the size of a particular part relative to the total (360◦). This gives an immediate impression of the relative importance of each data component.

- Partial outline of main features. [1] - Full outline of main features. [2] - (Accept accurate diagrams).

(b) Advantages might include: simple and commonly understood – shows results very clearly –

trends and changes over time explicitly represented – allows the reader to interpret data more easily and quickly (a diagram might illustrate simplicity and ease of understanding) – comparison might be made with alternative methods.

- Limited attempt to explain advantage(s). [1] - Limited explanation of at least 2 advantages/full explanation of one. [2] - Full explanation of at least 2 advantages. [3]

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Section B 5 (a) Explanation might initially define a cash flow forecast – a prediction of all expected receipts

and expenses of a business over a future time period, which shows the expected cash balance at the end of each month. It indicates the likely future liquidity of a business, enabling appropriate action to be taken if a cash shortfall is expected – while profit is often seen as being more important in the long term, cash flow is a key factor in the short term survival of a business. It is important to control and monitor cash flow and plan ahead. Specific reasons/advantages include: identifies the timing of cash shortages and surpluses – supports applications for funding – enhances the planning process – enables cash flow monitoring with comparison of predicted figures and actual figures – provides a recognition that retail businesses do have particular cash flow problems e.g. outlay on stock – time gap before products are sold.

- Sound analysis of reasons for the preparation of a cash flow forecast and a reference to

retail business. [7–8] - Good explanation of reasons for the preparation of a cash flow forecast (possibly with

reference to retail). [5–6] - Limited explanation of reasons for the preparation of a cash flow forecast. [3–4] - Attempt to explain cash flow forecasts. [1–2]

(b) Discussion might identify potential causes of cash flow problems e.g. delayed debtor

repayments – cash receipts slowed down – liquidity reduced – creditors paid too early – more cash tied up in stock than is necessary. Ways to improve might include: – factor debts (quick cash – but does not receive full debt) – lengthen the credit period taken from supplies – leasing, sale and lease back.

- Comprehensive set of improvement options identified and analysed with some attempt to

assess likely success. [11–12] - Analysis of some specific ways. [8–10] - Sound understanding of some specific ways (at least 2). [3–7] - Shows limited understanding of cash flow problems. [1–2]

6 Discussion might initially define stakeholders – those influenced by or influencing an organisation

and its decisions. The essence of the scenario is a successful business. Stakeholders might be in conflict in any business – successful or not – e.g. shareholders’ interests at the expense of other stakeholders. In this example there may be specific conflicts of interest e.g. – shareholders want high dividends and not long term investment – managers and workers want immediate salary increases (versus long term security) – consumers want lower prices (vs innovation and high quality) – environment groups want more investment in the reduction of waste and pollution, etc. A range of potential conflicts exist with regard to the distribution of profits. The relative power and influence of stakeholders is important – and more stakeholders might be in agreement than in conflict.

- Evaluative comment that recognises the significance of a profitable business in creating

conflict and/or comments on the power/influence of respective stakeholders. [17–20] - Analysis of different stakeholder group objectives and expectations in a business. [14–16] - Good understanding of stakeholder conflict possibilities. [11–13] - Shows good understanding of stakeholder groups and their objectives in a business. [5–10] - Shows some understanding of stakeholder groups and their objectives. [0–4]

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7 (a) Explanation might refer to why initially, i.e. an assumption that money is the most important motivating factor – but the question seeks examples of how financial rewards might be used e.g. a variety of payment schemes might be explained: time rates – wages and salaries – piece rates – payment by results – commission – fees – fringe benefits – medical insurance – incentive schemes – sales targets – bonus payments – productivity schemes – share ownership.

- Sound analysis of a range of relevant financial rewards. [7–8] - Some analysis of relevant financial rewards. [5–6] - Sound description of relevant financial rewards. [3–4] - Shows limited awareness of financial rewards. [1–2]

(b) Discussion could refer to the different assumptions underpinning the use of non-financial

rewards – e.g. the Theory Y view that workers are motivated by a variety of factors and non-financial rewards might be very significant – e.g. team work as well as pay – sense of involvement as well as high productivity. This question is about why non-financial rewards are used.

- May be a more efficient motivator. - Recognition of worker needs and impact of motivation theory/theorists e.g. Mayo,

McGregor, Maslow, Herzberg, etc. - The deficiencies and difficulties of using financial rewards.

Confident answers will likely use motivation theory/theorists to explain the use of job enrichment/enlargement, job rotation, team work, empowerment, etc. as alternatives or additions to financial methods.

- Some evaluative comment on why non-financial rewards might be used (or used in

tandem with financial rewards) – the context – the type of worker, etc. [11–12] - Analysis of reasons why non-financial rewards might be used (expect effective use of

motivation theory for higher mark in this level). [8–10] - Shows good understanding of why non-financial rewards might be used. [3–7] - Shows some understanding of non-financial rewards. [1–2]

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Section A 1 (a) A definition might refer to a set of techniques/methods which ensures that a business

provides goods/services that meet the needs/wants/expectations of the customers/ consumers – a standard has been set and met and the product/service is fit for purpose.

- Partial understanding of the term. [1] - Full understanding of the term. [2]

(b) The explanation could refer to such issues as – the importance of preventing and detecting

faults – correcting and improving the quality of a good or service. Remove defects – ensure consistency of quality standard – preserve reputation of business –

ensure good workmanship – maintain competitive advantage.

- One or two relevant reasons stated. [1] - Full explanation of ONE reason or TWO partially explained. [2] - Two relevant reasons explained with reference to importance for a business. [3]

2 (a) A definition might refer to primary research as the collection of new information/data – not

collected before – may describe it as field research – collecting from customers in shops/work or home. - Partial understanding of term. [1] - Full understanding of term. [2]

(b) The distinction might be explained as follows: Random sampling – each member of the

population has an equal chance of being sampled – often difficult, slow and expensive to achieve – and only likely to be representative if the sample size is large. Quota sampling is where the population is defined by segments showing similar characteristics – e.g. if population is 52% female – then 52% of the quota sample should be female.

- Partial explanation of either Random or Quota sampling. [1] - Full explanation of ONE term or partial explanation of both. [2] - Full explanation of BOTH terms that makes distinction clear. [3]

3 The explanation could include reference to the role of HRM involved in manpower planning –

labour shortfalls – employee skills – employee potential; recruitment and selection/to appoint suitably qualified employees; training and development – induction – develop skills; appraisal – control and development; welfare – deal with employee needs; consultation and negotiation – motivate employees – communicate key phrases – anticipate employee concerns.

In generic terms HRM is using staff as a key resource to improve business performance – more than just personnel – emphasis is on reviewing staff needs, skills and training in order to meet business objectives. Can be a line management and/or a specific specialist function. - One or two functions stated. [1] - Three functions stated. [2] - Explanation of one HRM function. [3] - Explanation of two HRM functions. [4] - Explanation of three HRM functions. [5]

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4 (a) A definition could refer to current assets – current liabilities – the finance available for day to day operations in a business, e.g. paying wages, utility costs, components, etc. – relatively liquid assets that can easily be turned into cash. - Partial understanding of term. [1] - Full understanding of term. [2]

(b) The explanation might refer to working capital management being necessary to avoid specific

problems e.g. to avoid cash flow problems – to meet immediate debts – to meet the time lags in the working capital cycle i.e. time lags between payments made and receipts made. References may be made to methods of management, such as reduce production time, reduce stockholding time, speed up late payments due. BUT the question is why and any how examples must be firmly within an explanation of WHY. - Some understanding of the importance of working capital. [1] - Partial understanding of why working capital needs to be managed. [2] - Full understanding of why working capital needs to be managed. [3]

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Section B 5 (a) The explanation might refer to the statutory requirement for a PLC to publish these accounts.

The purpose(s) of a balance sheet, which is a summary and valuation of all assets, capital, and liabilities of a business, could include: used to analyse the asset and liability structure and capital structure – look at the value of working capital – a guide to the overall value of a company – a snapshot of the financial position of a company. Candidates might unpack a balance sheet e.g. fixed and current assets, current and long term liabilities; they might distinguish between internal and external purposes. The purposes of a profit and loss account might refer to the account showing how well a company has performed at the end of a trading year – a summary of all business transactions showing the flow of expenditure and income in a trading period – allows the public to see the position and performance of the company, which helps them to decide whether to buy shares and enables existing shareholders to assess performance. A P & L account will include statements of gross profit – operating profit – net profit – turnover – cost of sales – fixed and variable costs.

- Sound analysis of the purposes of both accounts. [7–8 - Some analysis and understanding of purposes of both accounts. [5–6] - Sound understanding of both accounts. [3–4] - Limited understanding of either or both accounts. [1–2]

(b) The discussion might define depreciation and the need to make provision for depreciation – fixed assets lose value over time and provision needs to be made in the accounts each year – depreciation provision made each year against profits so that each year of profits bears its share of the ‘write down’ – an annual charge against gross profits in P and L account and in the Balance Sheet the book value is reduced each year. ‘Straight line method’ (equal instalment method) is:

life estimated

(resale) value residual - asset of cost original

– so the established depreciation cost is allocated equally to each year of the life of a fixed

asset. E.g. Cost of fixed asset = £16.000 – estimated life of 5 years and a resale value of £6.000 –an annual depreciation provision of £2.000 will be made.

- Explicit reference to the why and how of depreciation provision, including

evaluation of the ‘straight line method’. [11–12] - Analysis of depreciation and the ‘straight line method’ with some discussion

of how and why. [8–10] - Good understanding of depreciation with some attempt to explain the

‘straight line method’. [3–7] - Shows some understanding of depreciation. [1–2]

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6 The discussion could attempt to give some context to the question – suggests that objectives might be to increase sales – to supplement or replace existing sales methods. Perhaps the answer will give a description of what the internet offers in terms of a sales facility, which would then lead into a discussion of potential benefits and potential difficulties/disadvantages. Benefits could include – potential exposure to more people/customers on the internet – a more global reach – easier to place orders – quick up-date of web-pages to reflect market conditions – ability to be pro-active in pricing and production – an agility and flexibility not available in. say, a catalogue. Potential disadvantages might include – inability to target customers so precisely as with a catalogue mailing list – high cost of designing and maintaining a website – possibility of technology failure – cost of setting up a secure system of payment – building up confidence and trust in the internet facility – does the company have the experience to embark upon internet selling? Context is important – size of business, nature of products etc. – local/national/ international reach sought?

- Evaluative comment that recognises the importance of context that might

influence the factors identified – i.e. nature and size of business – experience and expertise of internet selling. [17–20]

- Analysis of factors that need to be considered. [14–16] - Good understanding of factors that need to be considered. [11–13] - Understanding of factors that need to be considered. [5–10] - Some awareness of a limited number of factors/or of the internet. [1–4]

7 (a) The explanation could refer to the advantages claimed for a motivated workforce such as:

getting full potential from workers – increased productivity – increased commitment – synergy – rich organisation culture. A motivated work force will reduce – absenteeism, industrial disputes, falling productivity, falling profits, managerial stress, etc. and meet worker needs. - Analysis of reasons why it is important for a business to a have a motivated

force. [7–8] - Some analysis of the advantages to a business of a motivated work force. [5–6] - Sound understanding of the advantages to a business of a motivated work

force. [3–4] - Limited explanation of a motivated work force. [1–2]

(b) The discussion could include an initial context review of the appropriateness of various

motivational theories and factors that might influence a factory workforce, e.g. how receptive might factory workers be to some theoretical approach; what is likely to motivate factory workers? Taylor and the classical school theorists might be suggested as appropriate – with emphasis on pay/money/incentives – rather than Maslow and Herzberg, etc. Do higher order needs exist, are motivators likely to work, etc.? Examples might be suggested, such as team work and quality circles, or piece rate systems. Strong answers will recognise that not all factory workers respond in the same way – “different strokes for different folks”.

- Some evaluative comment on the complexity of motivating workers and the

dangers of over simplification and generalisation in context. [11–12] - Analysis of a range of factors supported by some motivational theory or

theorist view. [8–10] - Good understanding of some different possible factors supported by

motivational theory or theorist view. [3–7] - Shows some understanding of motivational factors or theories. [1–2]

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9707/21 Paper 21 (Data Response), maximum raw mark 60




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1 Taylor’s Tables (a) Explain the following terms: (i) product life cycle [3] Content: Concept that may help identify patterns for sales of products.

Various stages: introduction, growth, maturity, decline. Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (ii) economies of scale. [3] Content: Average costs decrease as scale of production increases. NOT average cost

decreases as more units produced. Internal and External. Examples needed. Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (b) (i) Calculate the Return on Capital Employed (ROCE) for TT in 2010. [3] Net Profit = 12 – 7 = 5 ROCE = Net profit/capital employed × 100 = 5/150 × 100 = 3.3% Correct answer: 3 marks Right method with mistakes: 2 marks Attempt: 1 mark (ii) The ROCE for 2008 was 12% and for 2009 was 10%. Using your answer to part (i)

briefly comment on the trend in ROCE. [3] Rapidly falling to unacceptable levels. Constant sales, increasing costs, injection of new

capital. OFR, ARA

Knowledge and Application

Level 2: Shows understanding of ROCE in context (2–3 marks)

Level 1: Simple statement about ROCE (1 mark)

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(c) Analyse the possible impact on training at TT of a change from job to batch production. [8]

Training needed for:

• New (extra) staff • Existing staff transfer to jobs requiring fewer skills • New systems, roles • Management of change

Difficulties arise with existing staff who will resist change. Need to try to preserve best of old

(loyalty, family atmosphere). ARA

Knowledge and Application Analysis

Level 2: Shows understanding of a training in context of the business (3–4 marks)

Level 2: Good analysis of impact on training in context (3–4 marks)

Level 1: Shows understanding of job/batch/ training (1–2 marks)

Level 1: Analysis of impact on training (1–2 marks)

(d) Apart from the need for training, discuss the difficulties that TT should consider if it

decided to produce furniture for schools. [10] Content: Could include: Need for finance Management of change/resistance to change Stock control and other systems Organising production Disruption from changes Choosing batch sizes ARA Evaluation likely to come through prioritising difficulties

Knowledge and Application Analysis and Evaluation

Level 2: Shows understanding of difficulties/ changing in context of the business (3–4 marks)

Level 2: Evaluation of difficulties in context (3–6 marks)

Level 1: Shows knowledge of difficulties/ changing to new market (1–2 marks)

Level 1: Analysis of the difficulties of changing market/product (1–2 marks)

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2 Fruity Surprises (a) Explain the following terms: (i) partnership [3] Legal structure of a business owned by 2 or more people. Usually unlimited liability but

there are types of limited partnership. Often professional organisations e.g. lawyers, accountants.

Level 2: Good understanding (2–3 marks) Level 1: Partial understanding (1 mark) (ii) market share. [3] Content: The percentage share of one business in a whole market. Difficult to measure.

Sales? Volume? How useful? Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (b) (i) Calculate the annual depreciation of the new machinery using the straight line

method. [3] Cost = $500k, residual value = $100k so total depreciation = $400k Over 5 years = $80k Correct answer: 3 marks Correct method but simple mistakes: 2 marks Formula or identifies all the data but flawed calculation: 1 mark (ii) Explain how depreciation will affect the accounts of SFF. [3] In Balance Sheet, Assets will increase as a result of new equipment, but will decrease

each year through depreciation. Owners’ capital will reduce because retained profit will be smaller (from P&L account

where depreciation is an expense).


Level 2: Shows understanding of depreciation in accounts in the context of the business (2–3 marks)

Level 1: Simple statements about depreciation (1 mark)

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(c) Analyse the advantages and disadvantages to SFF of changing to a private limited company. [8]

Can be answered either from point of view of staying as they are or from the point of view of

changing to a private limited company. Disadvantages Seems to work at the moment Partnerships are often how farms are run Each have useful skills Possibility of new partners e.g. with marketing skills Advantages Finance – limited if stay as partnership Management – much bigger organisation Limited liability might be an advantage More scope for disagreement as scale increases ARA


Level 2: Shows understanding of private limited company in the context of the business (3–4 marks)

Level 2: Good analysis in context (3–4 marks)

Level 1: Shows understanding of private limited company (1–2 marks)

Level 1: Analysis of change to private limited company (1–2 marks)

(d) Discuss the factors that SFF would need to consider in promoting Fruity Surprises. [10] The message that SFF are trying to convey Competitors’ brands– existing brand name is Fruity Surprises Customers’ tastes and perceptions: quality, additives, organic Marketing budget Other aspects of the mix – must be consistent; need for market research ARA


Level 2: Shows understanding of promotion/ factors in the context of the business (3–4 marks)

Level 2: Evaluation of factors in context (3–6 marks)

Level 1: Shows understanding of promotion/ factors (1–2 marks)

Level 1: Limited analysis of factors involved in promotion (1–2 marks)

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1 Sassy Suits (a) Explain the following terms: (i) batch production [3] Content: Production system in which the system is set up for one type of product and

once a batch is made, switches to another type of product. Suitable for businesses such as bakeries or fashion manufacturers. More efficient than job production and usually more flexible than flow production.

Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (ii) quality control [3] Content: processes that try to ensure that products are of the standards acceptable to

customers. Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (b) (i) Calculate the net profit margin for SS in 2010. [3] Gross profit = 100 Net profit 100 – 60 = 40 NPM = 40/160 × 100 = 25% Correct answer: 3 marks Right method with right data: 2 marks Attempt: 1 mark (ii) The net profit margin for SS in 2008 was 50% and for 2009 was 33%. Using Table 1

and your answer to part (i), briefly comment on the trend in net profit margin for SS. [3]

Steadily falling. Falling sales, Expenses constant, COGS not falling as much as sales. ARA, OFR


Level 2: Shows understanding of NPM in context (2–3 marks) Level 1: Simple statement about NPM (1 mark)

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(c) Analyse the possible impact on SS’s workforce of a change from job to batch production. [8]

• New (extra) staff • Existing staff transfer to jobs requiring fewer skills • New systems, roles

Difficulties arise with existing staff who will resist change. Will best of old (loyalty, family atmosphere) be maintained?

ARA


Level 2: Shows understanding of impact on workforce in context of the business (3–4 marks)


Level 1: Shows understanding of impact on workforce of job/batch (1–2 marks)

Level 1: Analysis of impact (1–2 marks)

(d) Discuss the marketing issues that SS might consider if they decide to produce ready-

made suits. [10] Content could include: Marketing budget Price: what would shops be prepared to pay for wholesale prices? What would the final customer be prepared to pay? Costs? Product: What designs? What sizes? Promotion: Brand name? How to promote to shops? Do consumers need to be targeted? Place: Wholesaler or direct to shops? NB Place is not location! Evaluation is likely to come through prioritising issues.


Level 2: Shows understanding of marketing in context of the business (3–4 marks)

Level 2: Evaluation of issues in context (3–6 marks)

Level 1: Shows understanding of marketing (1–2 marks)

Level 1: Analysis of the marketing issues (1–2 marks)

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2 Sheep Stew (a) Explain the following terms: (i) shareholders [3] Content: Shareholders are owners. They can vote. People/institutions that have invested

in a business by means of buying shares. They expect dividends in return for investments.

Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (ii) primary sector [3] Content: That sector of the economy involved with the extraction or development of

natural resources: mining, fishing, farming etc. Level 2: Good understanding (2–3 marks) Level 1: Partial understanding (1 mark) (b) (i) Calculate the payback period for the new packaging machinery. [3] Original investment $10k Net inflow $3k per year Payback after 10/3 years = 3.33 years = 3 years 4 months = 40 months Correct answer: 3 marks Correct method but simple mistakes: 2 marks Formula or identifies all the data but flawed calculation: 1 mark (ii) Explain the limitations to BFC of payback as an investment appraisal technique.

[3]

• They are a small business, so other factors may be important. e.g. need to find $10k

• Difficult to relate to interest rate (opportunity cost) • Time value of money • Accuracy of the data – how did David estimate? • Doesn’t show overall profitability of project.


Level 2: Shows understanding of limitations of payback in the context of the business (2–3 marks) Level 1: Simple statement about payback (1 mark)

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(c) Analyse the advantages and disadvantages to BFC of changing to a public limited company [8]

Can be answered either from the point of view of staying as a partnership or from the point of

view of changing to a public limited company.

Disadvantages • Ltd seems to work at the moment • Ltd is often how farms are run • More privacy in limited, more difficult to take over • Less divorce between management and ownership

Advantages

• Finance – limited finance if they stay as ltd – Can they afford $10000? • Management/ownership – may be benefits of widening

ARA


Level 2: Shows understanding of plc in the context of the business (3–4 marks)


Level 1: Shows understanding of plc (1–2 marks)

Level 1: Analysis of changing to plc (1–2 marks)

(d) Discuss the factors that BFC will need to consider when negotiating a price with TS

for the contract. [10]

• Typical current levels of income they need • Costs • Factors influencing what TS might pay: cheap imports • Can they negotiate a premium for their high quality, ethical product? Would this be

something that interests TS’s customers and therefore TS? ARA


Level 2: Shows understanding of pricing in the context of the business (3–4 marks)


Level 1: Shows understanding of pricing (1–2 marks)

Level 1: Limited analysis of factors involved in pricing decisions (1–2 marks)

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1 Classy Clocks (a) Explain the following terms: (i) flow production [3] Content: Production system that is continuous. Suitable for high volume, homogeneous

products e.g. soft drinks. High capital investment, low labour, tedious, used to be low flexibility.

Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (ii) quality assurance. [3] Content: Standards set for products/services and work systems designed so that those

standards are achieved. Reassures customers as quality standard is specified. Link between quality and customer needs is minimum 1 mark

Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (b) (i) Calculate the gross profit margin for CC in 2010. [3] Gross profit = 50 – 40 $k Turnover = $50k GPM = 10

/ 50 × 100 = 20% Correct answer: 3 marks Right method with right data: 2 marks Attempt: 1 mark (ii) The gross profit margin for CC in 2008 was 40% and for 2009 was 30%. Using

your answer to part (i) and Table 1 briefly comment on the trend in gross profit margin for CC. [3]

Steadily falling to unacceptable levels. Large fall in sales, COGS not falling as much as

sales. ARA/OFR


Level 2: Shows understanding of GPM in context (2–3 marks)

Level 1: Simple statement about GPM (1 mark)

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(c) Analyse the purpose of Human Resource Management if CC were to change from batch to flow production. [8]

Management of change needed for:

• New (extra) staff: Recruitment, selection, training • Existing staff transfer to jobs requiring fewer skills • Redundancies? • New systems, roles • Negotiating with unions?

Difficulties arise with existing staff who will resist change. Need to try to preserve best of old (loyalty, family atmosphere).

ARA


Level 2: Shows understanding of a batch/ flow/HRM in context of the business (3–4 marks)

Level 2: Good analysis of HRM in context (3–4 marks)

Level 1: Shows understanding of batch/ flow/HRM (1–2 marks)

Level 1: Analysis of HRM (1–2 marks)

(d) Apart from HRM discuss the factors that CC should consider in changing its target

market to schools. [10] Content could include:

• Need for finance • Stock control and other systems • Organising production • Disruption from changes • Choosing batch sizes

ARA Evaluation likely to come through prioritising factors.


Level 2: Shows understanding of a range of factors/changes in context of the business (3–4 marks)

Level 2: Evaluation of factors (3–6 marks)

Level 1: Shows understanding of factors/ changes in target market (1–2 marks)

Level 1: Analysis of the factors of changing target market (1–2 marks)

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2 Vegetable Soup (a) Explain the following terms: (i) secondary sector [3] Content: Manufacturing in contrast with Primary and Tertiary. May produce for other

businesses or final consumers. Example helpful. Level 2: Good explanation (2–3 marks) Level 1: Partial explanation/understanding (1 mark) (ii) private limited company. [3] Legal structure of a business with limited liability. Ownership of shares limited often to

family and friends. May be small but doesn’t need to be. Level 2: Good understanding (2–3 marks) Level 1: Partial understanding (1 mark) (b) (i) Calculate the accounting rate of return (ARR) for the new packing machinery. [3] Total net income £1500 × 5= $7500 Investment = $5000 ARR (7500 – 5000) / 5000 percent = 50

% Candidates might assume that “net income” has already deducted the investment cost.

Max 2 marks (30%). Correct answer: 3 marks Correct method but simple mistakes: 2 marks Formula or identifies all the data but flawed calculation: 1 mark (ii) Explain the limitations to SF of ARR as an investment appraisal technique. [3] Small business, other factors may be important. If borrowing, payback may be more relevant. Time value of money. Accuracy of the data – how did Brian estimate?


Level 2: Shows understanding of limitations of ARR in the context of the business (2–3 marks)

Level 1: Simple statements about ARR (1 mark)

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(c) Analyse the advantages and disadvantages to Brian and Jenny of continuing to operate as a partnership. [8]

Can be answered either from point of view of features of staying as they are or features

resulting from change.

Advantages: • Seems to work at the moment • Partnerships are often how farms are run • Both Brian and Jenny have useful skills • Possibility of new partners e.g. with marketing skills • No divorce between management and ownership Disadvantages: • Finance – limited if stay as partnership – do they have $5000? • Management/ownership – may be benefits of widening • No limited liability might be a disadvantage • Scope for family disagreement

ARA


Level 2: Shows understanding of partnerships in the context of the business (3–4 marks)


Level 1: Shows understanding of partnerships (1–2 marks)

Level 1: Analysis of suitability of partnerships (1–2marks)

(d) Discuss the factors that SF would need to consider in marketing Seasonal Choice. [10]

Price: highly competitive market, high income customers, organic, high quality – all point to a premium price

Product: Box design? Choice of vegetables, quality control?

Place: Distribution already decided

Promotion: Done by Jenny’s sister (the retailer) or would more be needed? Packaging may be an important part of promotion.

Other factors, e.g. the need for market research, budgets etc. could be routes to answering this question.

ARA


Level 2: Shows understanding of marketing/ factors in the context of the business (3–4 marks)


Level 1: Shows understanding of marketing/ factors (1–2 marks)

Level 1: Limited analysis of factors involved in marketing (1–2marks)

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GCE Advanced Level




9707/31 Paper 31 (Case Study), maximum raw mark 100




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Page 2 Mark Scheme: Teachers’ version Syllabus Paper GCE A LEVEL – May/June 2010 9707 31

© UCLES 2010

1 Analyse two limitations of the market research Ahmed conducted before setting up the business. [8]

Knowledge Application Analysis

Level 2 2 marks Two limitations or one plus definition

2 marks Both applied to case

4–3 marks Both limitations explained

Level 1 1 mark Definition or one limitation

1 mark One limitation application

2–1 marks One limitation explained

Definition: Research into market needs, trends, competitors. Limitations: • Questionnaire – poor response rate which reduces accuracy. • Only two schools – sample may have been biased. • No details of sampling given but if just handed out “at random” this would not necessarily

lead to a representative sample. • Only a few questions asked – other information might have been useful too such as which

magazines do you buy and why? This would have helped him to assess the articles to include etc.

• No qualitative data – this would have helped to explain why consumers buy what they do. • Alternative methods can only be credited if they are used to illustrate limitations of method(s)

used.

2 Discuss which of the two approaches to managing the workforce in the printing factory should be adopted by the company in response to the problems explained on lines 64–71 [16]

Knowledge Application Analysis Evaluation

Level 2 3–2 marks Good understanding shown of HR management

3–2 marks Well applied to case

4–3 marks Good use of BST theory or logical reasoning

6–4 marks Judgement shown within answer and conclusion

Level 1 1 mark Some understanding of HRM shown

1 mark Some application

2–1 marks Some use of theory or logical reasoning

3–1 marks Some judgement shown

Examiners note: L1 Analysis and Evaluation for no specific use of Table 1. • Candidates may define HRM even though this term is not in the question. • Application marks may be awarded by making reference to the problems referred to in lines

64–71 but without any further contextual points. • Ahmed – “hard” approach with the aim of minimising costs. • Piecework – may help to increase productivity – BUT quality is important to the printed

magazine too. • Taylor approach – may lead to the “best way” being used BUT how motivated will the

workers be? • Clear instruction given – avoids confusion BUT suggests a lack of 2-way communication and

a lack of job enrichment. • Malika – “soft” approach with the aim of realising the full potential of the workforce. • Salary and bonuses – may help to reduce “them and us” culture BUT need to consider the

cost of this approach. and will retained profits rise or fall as a consequence? • Job enrichment and quality circles – should prove to be “motivating” factors BUT the

management attitude may need to change and staff training may be needed. • Overall: As there seem to be a number of changes taking place and the industry seems to be

becoming more technologically based, perhaps Malika’s approach is preferred – the company will want well motivated and flexible staff to be retained in the business.

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3 Evaluate the pricing methods that the company could use if the magazine for 20–35 years olds is launched. [14]


Level 2 3–2 marks Good understanding of pricing methods shown




Level 1 1 mark Some understanding of pricing method(s) shown




• Pricing decisions are important – need to cover costs, they can influence the quality image of

the product, they need to consider competitors’ prices etc. • Penetration or skimming pricing. Magazine for older people has less competition – skimming

might be appropriate. This age range does have more disposable income. Penetration could be used if the economic data suggests that disposable incomes might fall in future.

• Full cost pricing – average total cost of new magazine plus profit margin. Ensures that profit is made on every magazine sold (assuming break-even is reached) BUT the case suggests that there are more magazines aimed at this segment than for older readers. Will this price be uncompetitive though?

• Contribution pricing – based on average variable costs plus a contribution. Fixed costs are not allocated directly to the product. Allows more flexibility of pricing in a competitive market, BUT if the fixed costs of setting up the new magazine (more salaried staff and machinery?) are high will this pricing method cover these costs?

• Allow other pricing methods/strategies to be considered too if discussed in context. • Overall: The final pricing method may depend on the objectives the business has for this new

product and the degree of competition in this market segment. Candidates may make some assumptions about these factors to support their recommendation.

4 (a) Using the data in Appendix C, calculate: (i) Acid test ratio [3]

Acid test ratio = 0.58 = 3 marks Correct data but mathematical error = 2 marks Liquid assets/current liabilities = 1 mark

(ii) Gearing ratio. [3]

Gearing ratio = 49% = 3 marks Correct data but mathematical error = 2 marks Long term liabilities/capital employed x 100 = 1 mark Accept other versions of gearing ratio: LTL/Share capital = 77/80 = 96.25% LTL/Share capital + Ret. Profits = 77/90 = 85.5%

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© UCLES 2010

(b) Using your results to (a) and other data, recommend which sources of capital the company should use to finance the $30000 set up costs of the magazine for 56–70 year olds. [10]


2 marks Good understanding of results or other data shown

2 marks Well applied to case

3 marks Good use of BST theory or logical reasoning

3 marks Judgement shown within answer and conclusion

1 mark Some understanding of results/data shown




• Long-term capital likely to be needed as these seem to be long-term projects. • Acid test is acceptable but it suggests that there are no liquid assets available in the

business to finance this project – BUT cash figure is not given. • Gearing is high – BUT whether this is a risk or not depends on interest rates and the

company’s profit prospects. If all capital was raised from debt then gearing ratio becomes 54.3% (107/197). If the new magazine quickly earns profits the debt could be repaid, reducing gearing and interest costs. Accept re-working of other gearing ratios.

• Issue of shares – but A and M may not want to lose more control – if Novak put more in then they would effectively lose control.

• Other long-term methods could be discussed. • Overall: Debt may be a viable option unless A and M can purchase more share capital

themselves which might be the better option. Other conclusions possible.

5 (a) Use the decision tree (Appendix B) to calculate the expected monetary values of the

two options. [10] Ready Reckoner:

Result $000 Mark Explanation

60 and 56 10 Correct answers for both options

60 or 56 9 One correct answer

40 and 33.6 8 Not included results from nodes 2 and 3

40 or 33.6 7 Only 1 result obtained by not including results from nodes 2 and 3

80 and 61.6 8 Adding the results of the two separate decisions together

80 or 61.6 7 Only 1 result obtained by adding results together

40 and 28.6 6 Only calculating up to nodes 2 and 3

40 or 28.6 5 Only calculating up to either node 2 or 3

Weak understanding shown (e.g. some use made of probabilities x payoffs) = 4–3 marks. Some understanding shown = 2–1 marks

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© UCLES 2010

(b) For which age range would you recommend TeenPrint to launch the new magazine?

Use your results to (a) and any other information to support your recommendation. [16]


Level 2 3–2 marks Good understanding shown of issues shown


4–3 marks Good use of BSt theory or logical reasoning


Level 1 1 mark Some understanding of issues shown




• Use of results in a) BUT how reliable is this technique? So many assumptions and

forecasts are required. Have the results been biased in any way? Have other techniques been used e.g. investment appraisal?

• Writers seem to be closer in age to 20–35 year segment – this could make it easier to decide what articles to include BUT there seems to be less competition in the older age market segment.

• Data in Appendix A – this appears to be more favourable for the age 56–70 market BUT inflation is forecast to rise (App D) and this could reduce pensioners’ real income. Much of this data is forecast – how reliable is it?

• Other data would have been useful: number of other magazines in these segments; prices charged, market share of them etc.

• Overall: Candidates can decide on either but for L2 evaluation there must be a clear recommendation. Perhaps more research should be undertaken – quantitative and qualitative – before such a major decision is taken?

$56 ($20)

$80 ($4) $76

$100 ($10) $90 $60

F .2 ($20)

S .8 $40

F .5 ($20)

S .5 $100

($30)

Internet

Internet

S .8 $72

F 0.5 ($20)

S 0.5 $160

F .2 ($20)

1

3

2

$0

$0

$40

32 (4) 28

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© UCLES 2010

Both question 6 and 7 should be marked according to this grid:


Level 3 10–7 marks Good judgement shown in answer and conclusion

Level 2 3–2 marks Good understanding of issues shown



6–4 marks Good judgement shown either within answer or conclusion





6 Evaluate the extent to which external economic change will be the major factor

determining future profits of the TeenPrint company? Refer to Appendix D and other information in your answer. [20]

• Profits are earned after deducting all costs from revenue. • Retained profits will also depend on corporation tax – no data on this. Economic factors could include: • Impact on demand e.g. GDP changes – is this likely to be an income elastic product? • Inflation – will costs rise for the business and will they be able to increase prices at the same

rate – depends on PED? BUT what about cost inflation for this particular business – might be different from data given.

• Interest rate forecast to rise – could raise business costs, especially if they use debt for either option.

• Exchange rate – is paper imported? If so, this forecast depreciation will raise import costs. • Candidates could prioritise this data and suggest which is likely to be the most important.

How reliable are the forecasts? • BUT – other factors will be important too. How the production/people problems are managed.

The management skills of A and M as the business expands. Technological changes that might develop quicker than the company’s ability to benefit from them. Any other reasonable answer.

• Overall: Economic factors important – but by no means the only or the most important factors affecting future profits. Overall conclusion is needed for L3 evaluation.

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© UCLES 2010

7 Would you advise the company to adopt lean production methods for the printed magazines? Justify your answer. [20]

• Explanation of lean production: The operations philosophy that aims to minimise waste of all

operational resources in the production process. • JIT, kaizen, TQM, simultaneous engineering – other similar approaches may be suggested. • Candidates need to analyse how these approaches – or some of them – might benefit

TeenPrint with the problems that it has. The analysis might examine the impact on profit of the reduced waste/improved quality/quicker response times etc.

• The benefits to this company could be: • Lower stock levels with JIT – BUT how reliable are paper and other suppliers? • Quicker new product development times and more flexible production systems – BUT

does the business have the capital and the management experience to manage the introduction of the equipment and processes needed?

• Better motivated staff as they will be involved more in waste reduction and quality improvements – scope for their suggestions. BUT will they be involved in the change process and will they be trained in the new processes and practices?

• Overall: How committed is this business to printed magazine production? Could the company justify the capital and the time needed to be invested in adopting these approaches? How able are A and M to manage this process? Overall recommendation is needed for L3 evaluation.

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GCE Advanced Level








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© UCLES 2010

1 Analyse two limitations of the market research Ahmed conducted before setting up the business. [8]

Knowledge Application Analysis

Level 2 2 marks Two limitations or one plus definition

2 marks Both applied to case

4–3 marks Both limitations explained

Level 1 1 mark Definition or one limitation

1 mark One limitation application

2–1 marks One limitation explained

Definition: Research into market needs, trends, competitors. Limitations: • Questionnaire – poor response rate which reduces accuracy. • Only two schools – sample may have been biased. • No details of sampling given but if just handed out “at random” this would not necessarily

lead to a representative sample. • Only a few questions asked – other information might have been useful too such as which

magazines do you buy and why? This would have helped him to assess the articles to include etc.

• No qualitative data – this would have helped to explain why consumers buy what they do. • Alternative methods can only be credited if they are used to illustrate limitations of method(s)

used.

2 Discuss which of the two approaches to managing the workforce in the printing factory should be adopted by the company in response to the problems explained on lines 64–71 [16]


Level 2 3–2 marks Good understanding shown of HR management




Level 1 1 mark Some understanding of HRM shown




Examiners note: L1 Analysis and Evaluation for no specific use of Table 1. • Candidates may define HRM even though this term is not in the question. • Application marks may be awarded by making reference to the problems referred to in lines

64–71 but without any further contextual points. • Ahmed – “hard” approach with the aim of minimising costs. • Piecework – may help to increase productivity – BUT quality is important to the printed

magazine too. • Taylor approach – may lead to the “best way” being used BUT how motivated will the

workers be? • Clear instruction given – avoids confusion BUT suggests a lack of 2-way communication and

a lack of job enrichment. • Malika – “soft” approach with the aim of realising the full potential of the workforce. • Salary and bonuses – may help to reduce “them and us” culture BUT need to consider the

cost of this approach. and will retained profits rise or fall as a consequence? • Job enrichment and quality circles – should prove to be “motivating” factors BUT the

management attitude may need to change and staff training may be needed. • Overall: As there seem to be a number of changes taking place and the industry seems to be

becoming more technologically based, perhaps Malka’s approach is preferred – the company will want well motivated and flexible staff to be retained in the business.

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© UCLES 2010

3 Evaluate the pricing methods that the company could use if the magazine for 20–35 years olds is launched. [14]


Level 2 3–2 marks Good understanding of pricing methods shown




Level 1 1 mark Some understanding of pricing method(s) shown




• Pricing decisions are important – need to cover costs, they can influence the quality image of

the product, they need to consider competitors’ prices etc. • Penetration or skimming pricing. Magazine for older people has less competition – skimming

might be appropriate. This age range does have more disposable income. Penetration could be used if the economic data suggests that disposable incomes might fall in future.

• Full cost pricing – average total cost of new magazine plus profit margin. Ensures that profit is made on every magazine sold (assuming break-even is reached) BUT the case suggests that there are more magazines aimed at this segment than for older readers. Will this price be uncompetitive though?

• Contribution pricing – based on average variable costs plus a contribution. Fixed costs are not allocated directly to the product. Allows more flexibility of pricing in a competitive market, BUT if the fixed costs of setting up the new magazine (more salaried staff and machinery?) are high will this pricing method cover these costs?

• Allow other pricing methods/strategies to be considered too if discussed in context. • Overall: The final pricing method may depend on the objectives the business has for this new

product and the degree of competition in this market segment. Candidates may make some assumptions about these factors to support their recommendation.

4 (a) Using the data in Appendix C, calculate: (i) Acid test ratio [3]

Acid test ratio = 0.58 = 3 marks Correct data but mathematical error = 2 marks Liquid assets/current liabilities = 1 mark

(ii) Gearing ratio. [3]

Gearing ratio = 49% = 3 marks Correct data but mathematical error = 2 marks Long term liabilities/capital employed x 100 = 1 mark Accept other versions of gearing ratio: LTL/Share capital = 77/80 = 96.25% LTL/Share capital + Ret. Profits = 77/90 = 85.5%

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© UCLES 2010

(b) Using your results to (a) and other data, recommend which sources of capital the company should use to finance the $30000 set up costs of the magazine for 56–70 year olds. [10]


2 marks Good understanding of results or other data shown


3 marks Good use of BST theory or logical reasoning

3 marks Judgement shown within answer and conclusion

1 mark Some understanding of results/data shown




• Long-term capital likely to be needed as these seem to be long-term projects. • Acid test is acceptable but it suggests that there are no liquid assets available in the

business to finance this project – BUT cash figure is not given. • Gearing is high – BUT whether this is a risk or not depends on interest rates and the

company’s profit prospects. If all capital was raised from debt then gearing ratio becomes 54.3% (107/197). If the new magazine quickly earns profits the debt could be repaid, reducing gearing and interest costs. Accept re-working of other gearing ratios.

• Issue of shares – but A and M may not want to lose more control – if Novak put more in then they would effectively lose control.

• Other long-term methods could be discussed. • Overall: Debt may be a viable option unless A and M can purchase more share capital

themselves which might be the better option. Other conclusions possible.

5 (a) Use the decision tree (Appendix B) to calculate the expected monetary values of the

two options. [10] Ready Reckoner:

Result $000 Mark Explanation

60 and 56 10 Correct answers for both options

60 or 56 9 One correct answer

40 and 33.6 8 Not included results from nodes 2 and 3

40 or 33.6 7 Only 1 result obtained by not including results from nodes 2 and 3

80 and 61.6 8 Adding the results of the two separate decisions together

80 or 61.6 7 Only 1 result obtained by adding results together

40 and 28.6 6 Only calculating up to nodes 2 and 3

40 or 28.6 5 Only calculating up to either node 2 or 3

Weak understanding shown (e.g. some use made of probabilities x payoffs) = 4–3 marks. Some understanding shown = 2–1 marks

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© UCLES 2010

(b) For which age range would you recommend TeenPrint to launch the new magazine?

Use your results to (a) and any other information to support your recommendation. [16]


Level 2 3–2 marks Good understanding shown of issues shown


4–3 marks Good use of BSt theory or logical reasoning






• Use of results in a) BUT how reliable is this technique? So many assumptions and

forecasts are required. Have the results been biased in any way? Have other techniques been used e.g. investment appraisal?

• Writers seem to be closer in age to 20–35 year segment – this could make it easier to decide what articles to include BUT there seems to be less competition in the older age market segment.

• Data in Appendix A – this appears to be more favourable for the age 56–70 market BUT inflation is forecast to rise (App D) and this could reduce pensioners’ real income. Much of this data is forecast – how reliable is it?

• Other data would have been useful: number of other magazines in these segments; prices charged, market share of them etc.

• Overall: Candidates can decide on either but for L2 evaluation there must be a clear recommendation. Perhaps more research should be undertaken – quantitative and qualitative – before such a major decision is taken?

$56 ($20)

$80 ($4) $76

$100 ($10) $90 $60

F .2 ($20)

S .8 $40

F .5 ($20)

S .5 $100

($30)

Internet

Internet

S .8 $72

F 0.5 ($20)

S 0.5 $160

F .2 ($20)

1

3

2

$0

$0

$40

32 (4) 28

www.maxpapers.com


© UCLES 2010

Both question 6 and 7 should be marked according to this grid:


Level 3 10–7 marks Good judgement shown in answer and conclusion

Level 2 3–2 marks Good understanding of issues shown



6–4 marks Good judgement shown either within answer or conclusion





6 Evaluate the extent to which external economic change will be the major factor

determining future profits of the TeenPrint company? Refer to Appendix D and other information in your answer. [20]

• Profits are earned after deducting all costs from revenue. • Retained profits will also depend on corporation tax – no data on this. • Economic factors could include: • Impact on demand e.g. GDP changes – is this likely to be an income elastic product? • Inflation – will costs rise for the business and will they be able to increase prices at the same

rate – depends on PED? BUT what about cost inflation for this particular business – might be different from data given.

• Interest rate forecast to rise – could raise business costs, especially if they use debt for either option.

• Exchange rate – is paper imported? If so, this forecast depreciation will raise import costs. • Candidates could prioritise this data and suggest which is likely to be the most important.

How reliable are the forecasts? • BUT – other factors will be important too. How the production/people problems are managed.

The management skills of A and M as the business expands. Technological changes that might develop quicker than the company’s ability to benefit from them. Any other reasonable answer.

• Overall: Economic factors important – but by no means the only or the most important factors affecting future profits. Overall conclusion is needed for L3 evaluation.

www.maxpapers.com


© UCLES 2010

7 Would you advise the company to adopt lean production methods for the printed magazines? Justify your answer. [20]

• Explanation of lean production: The operations philosophy that aims to minimise waste of all

operational resources in the production process. • JIT, kaizen, TQM, simultaneous engineering – other similar approaches may be suggested. • Candidates need to analyse how these approaches – or some of them – might benefit

TeenPrint with the problems that it has. The analysis might examine the impact on profit of the reduced waste/improved quality/quicker response times etc.

• The benefits to this company could be: • Lower stock levels with JIT – BUT how reliable are paper and other suppliers? • Quicker new product development times and more flexible production systems – BUT

does the business have the capital and the management experience to manage the introduction of the equipment and processes needed?

• Better motivated staff as they will be involved more in waste reduction and quality improvements – scope for their suggestions. BUT will they be involved in the change process and will they be trained in the new processes and practices?

• Overall: How committed is this business to printed magazine production? Could the company justify the capital and the time needed to be invested in adopting these approaches? How able are A and M to manage this process? Overall recommendation is needed for L3 evaluation.

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GCE Advanced Level






Mark schemes must be read in conjunction with the question papers and the report on the examination. • CIE will not enter into discussions or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the May/June 2010 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

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GCE A LEVEL – May/June 2010 9707 33

© UCLES 2010

1 (a) Using data in Appendix A, calculate for both financial years 2009 and 2010: (i) The return on capital employed [3] RoCE = NP/CE × 100 = 1 mark

2009 = 20% (200 ÷ 1 000 × 100) 2010 = 15.15% (150 ÷ 990 × 100) 2 marks for 1 correct ratio, 3 marks for both

(ii) The dividend yield. [3]

Dividend yield = Div per share/share price × 100 = 1 mark 2009 = 10% (0.5 ÷ 5 × 100) 2010 = 12.3% (0.43 ÷ 3.5 × 100) 2 marks for 1 correct ratio, 3 marks for both

(b) Would you advise Manuel to reduce the level of dividends more than proposed?

Justify your answer. [10]


Level 2 2 marks Good understanding shown


4–3 marks Good use of theory or reasoned argument

2 marks Supported recommendation clearly given

Level 1 1 mark Some knowledge shown

1 mark Some application to case

2–1 marks Limited use of theory or reasoning

1 mark Limited judgement shown

• Dividend yield up because of fall in share price – this is not necessarily a good sign! Will

share price fall further if dividends are further reduced? • RoCE suggests that performance of business has declined – do Directors want to reflect

this in dividends or do they want to keep shareholder happy in short term hoping that performance will soon improve?

• Increasing retained profits and liquidity of the business by reducing dividends further could be a real benefit to the business BUT will it be wisely invested?

• If dividend yield remained at 10% i.e. $0.35 then SF would retain an extra $11.2m. • Overall judgement may depend on how important it is to stop shareholders taking drastic

action at the next AGM – how likely is this?

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2 Assuming Option A is chosen, evaluate the importance of effective planning and management of human resources to the success of this option. [16]


Level 2 3–2 marks Good understanding shown



6–4 marks Supported recommendation clearly given




3–1 marks Limited judgement shown

• Candidates may define HRM. • Award marks for any relevant references to HRM in the context of this Option. • Making shop workers redundant and replacing them with Internet staff (will this need

specialist IT staff as well as warehouse staff to send orders out?). Shop staff cannot be re-employed in these capacities if the e-commerce operations are abroad.

• Telephone sales staff – largely unskilled work? However, in many countries it is graduates with language skills that work in this role. Flexible contracts if the demand is likely to be seasonal? How many staff will be needed?

• How should staff be recruited and selected? • These factors will have a significant effect on the success of Option A as the staff costs must

be lower than in the current shops AND a good customer service must be offered. • BUT other factors will determine success too: Promotion of the new strategy – how will

customers find out about it? Pricing might be significant – will lower costs allow prices to be cut? Crucially, will customers in the targeted market segment be prepared to “give up” high street shopping and use e-commerce/telephone sales instead?

3 Do you agree with Manuel that the most important factor affecting the success of Option B will be the size of the marketing budget? Justify your answer. [15]










Examiner note: L1 Analysis and Evaluation if no direct ref. to marketing budget.

• Definition of marketing budget: Finance available for promotional expenditure. • Need for advertising and other forms of promotion – new market segments must be informed of

the new strategy and products. They must be “persuaded” that the quality “remains unchanged”. • It is unlikely that Option B will be successful without adequate AND well targeted promotional

activities. BUT high budget does not mean it is well spent – promotion used could be ineffective. • BUT marketing budget will not be the only factor. Non-marketing factors important too. • Risk of misleading customers over quality – this could lead to poor publicity. • How popular will the new clothing ranges be? They have never sold to men and children

before – do they have the design and manufacturing skills needed? • Pricing level will be an important factor. • How long will the recession last? Could this new strategy be adjusted to deal with a period of

economic growth too?

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4 Evaluate whether Manuel’s lean production proposals are likely to increase operational efficiency without reducing customer service. [14]




5-3 marks Good use of theory or reasoned argument






• Definition of lean production – or any of the components of it: Philosophy of operations that

aims to reduce waste of all resources. • Operational efficiency – reducing unit costs. Customer service – making goods available at

the right time and right place (in this context). • Lean production should reduce stock holding costs BUT will this be at the cost of reduced

styles/sizes in shops, thus reducing customer service? • Making sure new designs are available with very short lead times BUT how can the supply

chain be managed to achieve this? Will more computerised systems be needed to achieve greater flexibility?

• TQM and quality assurance – should improve chance of meeting quality standards BUT training needed and new cultural approach amongst the workforce.

• Accept discussion of cheaper dyes – BUT will these reduce quality of the product and will customers be concerned about the environment?

• Overall: Fashion industry is moving towards lean production with “fast fashion” and SF will need to change – but it depends on how it is managed and the preparedness of the managers and workers to accept these changes.

5 (a) Draw a decision tree based on the data provided in Appendix B [4]

$12m

1 mark = nodes 1 mark = capital lost 1 mark = structure 1 mark = probability/pay-offs

$10m

($2m)

($1m)

$0

S .7

S .5

F .3

F .5

Do nothing

($3m) Option B

($5m) Option A

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(b) Calculate the expected values of both Option A and Option B. [4]

Can be done without the decision tree. Option A: 0.70 × $12m = $8.4 – 0.30 × $2m = $7.8m – $5m = $2.8m (2) Option B: 0.5 × $10m = $5m – 0.5 × $1m = $4.5m – $3m = $1.5m (2)

(c) Which option would you recommend Sam to choose? Use information in the case and

your results to (b) to support your recommendation. [10]





2 marks Supported recommendation clearly given




1 mark Limited judgement shown

Examiner note: L1 for Analysis and Evaluation if no direct ref. to results or Appendix B • Option A appears to be more profitable BUT: • Can business finance the higher cost? • Is the risk of making a higher loss acceptable to management? • How reliable are these forecasts? What experience are they based on? Have they been

“biased” by management preferences? • Other factors: Is the company wise to move away from its long established market sector

and damage its reputation with the original customers? • How competitive is the Internet selling option? Is this likely to become very much more

competitive – possibly reducing returns in the future? • How long is recession forecast to last? • Overall: A clear supported recommendation needed for L2 evaluation.

Both question 6 and 7 should be marked using this grid:


Level 3

10–7 marks Very good judgement shown in answer and conclusion

Level 2 3–2 marks Good understanding shown



6–4 marks Good judgement shown in answer or conclusion





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6 Evaluate the extent to which a business such as Sam’s Fashions should operate ethically. [20]

• Ethical business behaviour: Decision making based on a moral code of conduct. • Examples: Not taking bribes; observing all laws; being open and honest in dealings with

customers and workers; protecting the environment. • Application: Is Manuel right to seek to employ cheap labour in foreign countries? Is he right

to try to convince customers that quality is the same when materials are cheaper? Is he right to want to cut costs at risk of the environment?

• Short term: Being ethical can be expensive and can reduce short term profits. • Long term: Being ethical avoids legal action, gives confidence to customers and staff and

can lead to increased sales and more loyal and productive workforce. • Overall: What should be more important to SF – and why?

7 Manuel is proposing significant organisational changes. Discuss how managers such as

Manuel can minimise workforce resistance during a period of change. [20]

• Organisational change can lead to resistance. Potential loss of jobs; loss of status and salary; new roles and responsibilities.

• Application to the case – middle management redundancies likely, some workers will not gain the jobs they apply for, spans of control will widen.

• Manuel and other managers need to lead and manage change. • Explain reasons for change. Encourage workforce involvement in change. Keep good two-

way communication at all times. Be aware of human needs at work and try to meet them even though change can be destabilising.

• Overall: Is Manuel the sort of leader who can do this effectively? Will he just push through the changes anyway? Sometimes change is so rapid and important that keeping staff resistance low is very difficult. Is this such an example?

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Documents

· CIE is publishing the mark schemes for the May/June 2010 question papers for most IGCSE, ... communication and co-ordination problems ... - Limited response