Unit 2 – Human Resource Management

Intro to HRM
Marks & Spencer Group PLC (M&S)
Answers
a. Define the term multinational company. [2 marks]
A multinational company (MNC) is a business that has operations in more than one country. As
M&S has operations in 62 international markets and employs more than 78,000 workers in these
markets, it is considered to be a MNC.
Award [1 mark] for a definition that shows some understanding of the term multinational
company.
Award [2 marks] for a definition that shows good understanding of the term multinational
company, similar to the example above.

b. In the context of M&S, outline the meaning of the recruitment and selection process.
[2 marks]
The recruitment and selection process refers to the different stages in which a business hires
suitable workers to fulfil its human resource needs. By delivering each stage of the recruitment
and selection process (such as shortlisting job applications, conducting interviews, and seeking
references about the applicant's employment history), M&S is better able to attract and employ
suitable workers.
Award [1 mark] for an answer that shows some understanding of the demands of the question.
Award [2 marks] for an answer that shows good understanding of the demands of the question,
clearly outlining the recruitment and selection process, similar to the example above.

c. Explain two reasons why M&S may need to recruit new workers. [4 marks]
Possible reasons could include an explanation of:

 Vacancies are created when existing M&S employees leave the company, perhaps to pursue
new job opportunities, to tak a career break, to study full-time at university, or to retire.
 Growth of the business, be it locally, nationally, and/or globally (M&S has 1,519 stores across the
globe). M&S opening new branches or offices would mean a need for additional staff.
 Changing job roles, e.g. internal promotions, such as a cashier being promoted to assistant
supervisor, would create new openings in the company.
 Systems change, e.g. due to the rise in e-commerce, M&S faces new/higher demand for
specialist job roles, such as full stack engineers, technicians and software engineers. In other
words, the company requires new and additional roles in order to maintain and to improve its
overall online customer experience at M&S.
 New vacancies may also be created due to new product development at M&S.
 There could also be seasonal factors causing fluctuations in demand and leading to the
requirement for temporary staff (such as during the busy Christmas trading period).
Mark as a 2 + 2
 Award [1 mark] for a valid reason, and [1 mark] for explaining this in the context of M&S, up to
the maximum of [4 marks].

d. Explain how improvements in technology can impact human resource planning at

M&S. [4 marks]
Improvements in technology can provide both advantages and disadvantages to M&S. For
example, the increase in online shopping following the COVID-19 pandemic may require more
employees to work in this division of the business. With a workforce of 78,000 people worldwide,
M&S will need to rely on technology for effective human resource planning, such as databases of
employee personal data, payment systems (for remunerating employees), and training (such as
facilitating cashless self-checkouts) In contrast, M&S will more likely to rely on technology than
human resources for its banking division, such as online banking facilities.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question, but lacks clarity in areas and application of the stimulus material.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question, with appropriate explanations and clear application of the stimulus material.

European studies

Answers
(a) Define the term workforce planning. [2 marks]
Workforce planning is the continual process of assessing the current and future needs and
priorities of an organization’s personnel requirements. It involves recruitment, training, appraisals
and the three R’s (redundancy, retention and redeployment). Workforce planning must align with
the organization’s overall aims and objectives.
Award [1 mark] for a basic definition that shows partial knowledge and understanding of
workforce planning.
Award [2 marks] for a full, clear definition that shows knowledge and understanding similar to the
answer above.

(b) Examine the advantages to businesses that encourage teamworking. [6 marks]

Advantages to a business that encourages teamworking include:

 Group dynamics – a greater range of skills, experiences and knowledge to solve problems.
 The benefits of division of labour (e.g. the spreading of workloads and increased output) and
synergy in decision making.
 Motivational – teamworking can be a form of non-financial motivation for workers (as it addresses
their social needs and promotes a sense of belonging).
 Improved employee morale can also result in increased productivity, lower absenteeism and
higher staff retention rates.
 Improved communications – teamworking encourages communication between people in the
workplace (an increasingly sought after ‘soft’ skill being demanded by businesses).
 Accept any other relevant benefit that is explained in the context of the question.

Award [1 – 2 marks] for a response that is generalized and tends to be descriptive and/or lacks
detail.
Award [3 – 4 marks] for an answer with a good examination of the benefits to businesses that
encourage teamworking, but the answer may lack detail or substance in certain areas.
Award [5 – 6 marks] for an answer that shows a thorough examination of the benefits to
businesses that encourage teamworking. Appropriate business management terminology has
been used throughout the answer, with relevant use of example.

(c) To what extent do non-financial motivators increase the productivity of a workforce?

[10 marks]
Non-financial motivators can, to some extent, help to improve employee motivation and hence
productivity. For example:

 Herzberg suggested that pay (financial motivation) is a hygiene factor and whilst it can cause
‘movement’, it does not in itself motivate.
 Job enrichment, job enlargement and job rotation can boost employee morale. For example, they
deal with the problem of monotony in the workplace and help to (professionally) develop the
worker.
 Effective teams can also help to improve productivity.
 Praise can work wonders in the workplace (recognition helping to boost ego needs).

However, there are potential drawbacks in using non-financial methods in an attempt to motivate.
These include:

 Basic needs must be met first in order for people to survive and hence pay is paramount. This
suggests that non-financial methods alone will not be sufficient to motivated the staff.
 Job empowerment, rotation, enlargement and enrichment can add significantly to a manager’s
planning and coordination time.
 Conflict might exist within the team , thereby creating friction in the workplace.
 Ineffective teams will add to a firm’s costs, e.g. procrastination, wastage and lower output.

The extent to which non-financial motivators really do improve productivity will depend on a
range of factors, such as:

 The organizational culture – for example, whether the organization is innovative and its attitudes
towards taking risks.
 Management and leadership styles and perceptions.
 The task under consideration, such as routine tasks versus crisis management.
 The extent to which financial motivators meet the needs of employees.
 Award [1 – 2 marks] for an answer that shows limited understanding of the demands of the
question. The response might be presented in a list with no / little relevance to the issue in
question.
Award [3 – 4 marks] for an answer that shows minimal understanding of the demands of the
question, where there is a lack of detail or the response is too vague.
Award [5 – 6 marks] if the answer shows some understanding of the demands of the question but
lacks detail or substance in certain areas. There is adequate use of business and management
terminology. At the bottom end, the response is one-sided.
Award [7 – 8 marks] if the answer shows good understanding of the demands of the question,
with good detail and substantiated comments. There is good use of business management
terminology. Judgements are not fully substantiated.
Award [9 – 10 marks] for an answer that shows clear understanding of the demands of the
question, which is balanced, with a discussion of the effectiveness of using non-financial
motivators to increase labour productivity. A judgement is made about the extent to which non-
financial motivators can boost productivity. There is good use of business management
terminology throughout the response.

Change
(a) Define the term resistance to change. [2 marks]
Resistance to change refers to the opposition or reluctance of employees in an organization to
accept and adapt to new ideas or developments in the workplace.
Award [1 mark] for a definition that shows partial understanding.
Award [2 marks] for a clear and accurate definition that shows good understanding, similar to the
example above.

(b) Explain two reasons for resistance to change at Alverez Corporation (AC). [4 marks]
Possible reasons include an explanation of:

 Fear of the unknown

 Lack of trust in AC's management team
 A lack of understanding of the reasons or urgency for the change
 Poor communication about the benefits of change for employees
 Accept any other relevant reason that is explained in the context of the case study.
Mark as a 2+2
For each reason, award [1 mark] for a valid reason, plus [1 mark] for an accurate explanation,
written in the context of the case study.

(c) Explain the impact of resistance to change for AC. [4 marks]

Resistance to change can have a negative impact on an organization if not managed effectively
and in a time efficient manner. Possible reasons for this could include an explanation of:
 
 Slowing down or even preventing the implementation of the proposed change. This would then
mean that AC would not benefit from making progress, despite the need to grow and evolve to
remain relevant in the marketplace.
 It can lead to decreased efficiency, increased average costs, and a lack of competitiveness for
AC.
 It can also cause low staff morale and employee dissatisfaction, which could escalate into conflict
and industrial action.
 Accept any other relevant impact that is explained in the context of the case study.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question, using relevant terminology and application throughout the response.

(d) Evaluate the effectiveness of AC's approach to mitigate resistance to change. [10
marks]
Points that could be considered for discussion include the following:

 AC's management team has tried to address the resistance to change by providing additional
training sessions and meeting to help employees learn about the new production process. The
increased communication and transparency may gain some support from employees.
 Providing regular updates on the progress of the change and addressing any questions and
concerns that employees may have help to (re)build trust with the workforce.
 Informing workers about the benefits of the new production process (emphasizing the positive
impacts it will have on the company's competitiveness and profits) can help to alleviate the
employees' concerns about job security.
 By providing support to employees throughout the change process can help them feel valued and
engaged, and more likely to embrace the change. However, the management team at AC do not
seem to have engaged with getting feedback from their employees, so this is likely to be a cause
of the lack of trust and resistance to embrace the proposed change.
 Furthermore, attempts thus far have failed to convince all workers of the need for or benefits of
change, i.e., employees cannot see the value in the change especially as there has not been any
reassurances from AC's management team about job security.
 In addition, there does not seem to be any communication about the timeframe of the proposed
implementation of the new production process. The company's approach has not taken into
account the time it is likely to take the employees to adapt to the change, and there is no
indication about whether the process has been rushed.
 Nevertheless, providing additional training and running additional meetings, with increased
communications and transparency can work as effective ways for AC to minimize or mitigate the
resistance to change.
 Accept any other relevant factor written in the context of the case study.
Award 1 – 2 marks for a response that shows limited understanding of the demands of the
question. There is limited use of appropriate terminology and little, if any, reference to the
stimulus material.
Award 3 – 4 marks for a response that shows some understanding of the demands of the
question. Some relevant business management tools, techniques, and theories are explained or
applied, and some appropriate terminology is used. There is some reference to the stimulus
material.
Award 5 – 6 marks for a response that shows understanding of most of the demands of the
question. There is relevant use of business management tools, techniques, and theories which
are explained and applied, and appropriate terminology is used throughout most of the answer.
There is some reference to the stimulus material that goes beyond the name of the organization.
There is some evidence of a balanced response.
Award 7 – 8 marks for a response that shows a good understanding of the demands of the
question. There is relevant use of business management tools, techniques, and theories which
are explained and applied well, and appropriate terminology is used. There is good reference to
the stimulus material, and good evidence of a balanced response. There are judgements that are
relevant but not always well substantiated.
Award 9 – 10 marks for an answer that shows a good understanding of the demands of the
question, including the impacts on the organization. There is relevant use of business
management tools, techniques, and theories which are explained clearly and applied skilfully,
with appropriate terminology used throughout the response. There is effective use of the stimulus
material in a way that significantly strengthens the response. There is evidence of balance, which
is consistent throughout the response. The judgements made are relevant and well
substantiated.

Organisational structures
Answers
(a) Define the term span of control. [2 marks]
The span of control describes the number of employees that report to each line manager
(supervisor). A narrow span of control means that each manager is in charge of a relatively few
number of staff. The span of control is wide if a manager is in charge of many staff.
Award [1 mark] for a definition that shows some understanding.
Award [2 marks] for a clear and accurate definition that shows good understanding, similar to the
example above.

(b) Explain the difference between delegation and accountability. [4 marks]

Delegation refers to the process of passing on authority from a line manager to a subordinate. As
an organization grows, it is inevitable that managers must relinquish some of their authority and
control by empowering and entrusting subordinates to carry out delegated tasks. However, the
line manager still retains overall responsibility for the tasks, i.e. authority can be delegated to
someone else but responsibility ultimately remains with the line manager.
Accountability describes the extent to which a person is held responsible for the success or
failure of a task. Having a clear organizational structure allows workers to see who is held
accountable for which functions and which teams. Accountability allows senior managers to have
better control over the running of their organizations. Those who achieve or exceed their targets
are recognised for their accomplishments. However, those who fail to meet deadlines or targets
can be clearly identified and held accountable for their mistakes. For example, subject leaders in
a school are held accountable for the examination results in their departments. These middle
managers can delegate tasks to their team of teachers, but the subject leaders still hold overall
responsibility for the degree of success of their teams.
Essentially though, the person who delegates is still accountable for the outcomes or results.
Similarly, those who have responsibility delegated to them are held accountable for their actions
and still need to report accordingly to their line managers/supervisors.

Award [1 – 2 marks] for a response that is limited in meeting the demands of the question. The
distinction may not be clearly expressed, although some understanding is shown.
Award [3 – 4 marks] for a response that is accurate in meeting the demands of the question.
There is a clear distinction that is explained, using appropriate terminology throughout the
answer.

(c) Explain how delayering is likely to impact the span of control and delegation in an
organization. [4 marks]
Delayering refers to a removal of levels or layers in an organizational hierarchical structure. The
span of control refers to how many workers are directly accountable to a particular line manager
in the organizational hierarchy. Delayering naturally leads to a wider span of control as there are
fewer levels of management in the organization. It also tends to lead to increased use of
delegation in the organization as managers with a larger span of control are not able to fulfil all
roles and responsibilities.
Award [1 – 2 marks] for a response that is limited in meeting the demands of the question. The
explanation may not be clearly expressed, although some understanding is demonstrated.
Award [3 – 4 marks] for a response that is accurate in meeting the demands of the question.
There is a clear explanation of the impact on both the span of control and delegation, using
appropriate terminology throughout the answer.

Gene Simons Manufacturer (GSM)

(a) Define the term span of control. [2 marks]
The span of control is the number of subordinates that a manager or supervisor directly oversees
in the organization.

(b) State Gene Simon’s direct span of control. [1 mark]

One (the assistant executive)

(c) On a separate piece of paper, construct an organization chart for GSM. [4 marks]
(d) From your organization chart, identify the number of levels in the hierarchy at GSM.
[1 mark]
Five

(e) Using information in the case study and the organization chart, examine the causes of
and solutions to GSM’s labour productivity problem. [10 marks]
Falling labour productivity means that production per worker is decreasing. Gene is also not
happy that there are no benefits from economies of scale (as average cost should go down with
GSM’s increased scale of production). There could be several reasons for this. The business has
increased the number of its workers, yet labour turnover is also increasing and the factory has
become more automated. This suggests that workers may not have received adequate training,
or the recruitment process could be improved. Furthermore, the factory manager must supervise
50 workers which is perhaps too wide a span of control to be effective. It would be challenging for
anyone to manage, coordinate, organize or direct so many workers in order to meet the goals of
GSM.
There are solutions. The factory manager needs some assistants to be employed so they can
each have a small team to monitor and oversee. This will cost GSM more money but should
increase overall productivity. Hiring more managers seems vital as GSM plans to increase
production so is likely to hire even more factory workers. Alternatively, GSM could consider
introducing more automation rather than employing more workers. This would increase capital
spending and existing workers may need retraining. It may help if the Factory Manager works
alongside the recruitment and training manager to ensure high calibre workers are recruited and
proper training provided, which should increase productivity.
In conclusion, the most important issue is the Factory Manager’s span of control which is too
wide. Hence, assistants should be hired who can help to organize and manage the workers. If
training and/or recruitment is flawed, this should be rectified quickly, with the involvement of the
Factory Manager. Rather than trying to grow the business with falling productivity, Gene Simons
should concentrate on fixing what is wrong at the moment.
Top tip: For this type of question, students should identify relevant issues from the case study,
use appropriate business management terminology and then make appropriate
recommendations.
 Leadership and management
Sir Richard Branson
(a) Outline what it means to be a leader. [2 marks]
A leader is someone who has the skills, authority, and influence to inspire others to get things
done. A leader exerts his/her charisma to ensure that people are inspired and motivated to
complete a certain task or job.
Award [1 mark] for an answer that shows some understanding of the meaning of being a leader.
Award [2 marks] or an answer that shows good understanding of what it means to be a leader,
using appropriate business management terminology, similar to the example above.

(b) Explain why Richard Branson might be considered to be an effective leader. [4

marks]
Effective leaders are those who inspire and guide their people to meet organizational goals and
objectives. Richard Branson has proved to be a highly successful entrepreneur with the Virgin
Group's ‘diverse portfolio of businesses’. He has succeeded in leading the organization by
diversifying from records (music) to a huge range of different products in so many different
industries. Furthermore, he is responsible for over 400 companies under the Virgin brand, as well
as his 71,000+ employees. His ‘high profile’ and ‘flamboyant’ nature are indicative of his natural
flair and leadership qualities, even before he was knighted by the Queen and earned his title as
Sir Richard Branson.
Award [1 – 2 marks] for an answer that shows some understanding of the demands of the
question, but lacks detail and/or the use of the stimulus material.
Award [3 – 4 marks] for an answer that shows good understanding of the demands of the
question, with a clear explanation of the meaning of effective leadership, applied to Richard
Branson and with reference to the case study materials.

Mount Beacon School (MBS)

Answers
(a) Identify two characteristics of an autocratic leader. [2 marks]
Characteristics of an autocratic leader could include:

 Makes autonomous decisions without consultation or regard for his/her subordinates

 Dictates all work methods and processes
 Largely unreceptive to changes in the business environment
 Maintains absolute and authoritarian control over a group/team
Accept any other valid characteristic of an autocratic leader.
Award [1 mark] for each characteristic of an autocratic leader that is correctly identified, up to a
maximum of [2 marks].
 (b) Define the term line manager. [2 marks]
A line manager is the person directly above an employee on the next hierarchical level of an
organizational chart. The line manager (such as Andy Hay) is responsible for the daily
management of the people who are directly on the next level down the hierarchy (the four
members of his department). Whilst the line manager might delegate tasks to subordinates, s/he
still retains overall responsibility for the tasks.
Award [1 mark] if there is some understanding of ‘line manager’ shown, although the answer
might lack clarity.
Award [2 marks] if ‘line manager’ is clearly defined, similar to the one given above (although not
necessarily in such depth).

(c) Examine whether the SLT at Mount Beacon School (MBS) ought to act on the advice of
Andy Hay to use external recruitment to hire the new Head of Department. [6 marks]
External recruitment is the process of hiring workers from outside the organization. Arguments
for MBS using external recruitment include:

 The external recruit might provide much needed ‘new blood’ (ideas and revitalizing force), given
that the existing members of the department have been there a while (collectively, over 15 years).
The new Head of Department can bring in new ideas, provide insight into best practise and how
things are done well in other schools.
 It tends to attract a larger pool of applicants. The Internet, for example, can have a global reach
for recruitment, yet only incurs relatively low costs. Hence, external recruitment increases MBS’
chances of finding the ideal candidate for the Head of Department job.
 Similarly, an external recruit might be more qualified or suitable than any of the internal
candidates, perhaps because they have gained the necessary experiences and skills required by
MBS. For example, the external candidate might be an existing Head of Department at another
school.

Arguments against using external recruitment to fill the Head of Department role at MBS include:

 External recruitment tends to be more time consuming than internal recruitment. External
advertising, screening of the applications, shortlisting suitable candidates, interviewing and
checking references all take up valuable senior management time. MBS might also be obliged to
consider anti-discrimination laws when advertising jobs and interviewing applicants. This further
lengthens the (external recruitment) process.
 External recruitment can be extremely expensive, such as the cost of the Head of Department job
advert being placed in national newspapers. There is also the opportunity cost of senior
management time involved in recruitment, selection, induction and training.
 There is a greater degree of uncertainty when hiring an external recruit. Senior management
would be taking some risk in that they do not really know the external candidates or their ability to
do the Head of Department job effectively.
 However, targeting the right person can be difficult and the advertising costs can also be high.
 Award [1 – 2 marks] if the answer is rather vague / descriptive and lacks coherence. The answer
might appear in a list-like format.
Award [3 – 4 marks] if the answer considers the merits and limitations of using external
recruitment. However, the answer lacks depth and/or application. Award up to [3 marks] for an
unbalanced answer.
Award [5 – 6 marks] if there is a thorough examination of various advantages and limitations of
using external recruitment to hire the new HOD at MBS. Appropriate terminology is used with
good application demonstrated.

(d) Evaluate the factors that contribute to effective leadership in organizations such as
MBS. [10 marks]
The answer should outline the meaning/interpretation of ‘effective leadership’ in relation to the
achievement of organizational objectives. Factors that contribute to effective leadership in
organizations such as MBS might include a discussion of the:

 Ability and experience of the leader (principal or senior leadership team).

 Confidence and competence of subordinates (teaching staff).
 Level of difficulty in completing the tasks at hand (depending on whether the task is routine, such
as recruitment, or a one-off task, such as dealing with a fire incident.
 Degree of staff loyalty towards the leader or organization (11% staff turnover at Mount Beacon
School).
 Motivation level of the leader and subordinates.
 Effectiveness of communication channels (issues of conflict between teaching staff).

Award [1 - 2 marks] for an answer that is vague/generalized and lacks substance. The answer
might be presented in a list-like format.
Award [3 - 4 marks] for an answer that shows limited understanding of the demands of the
question. There is minimal application shown.
Award [5 - 6 marks] for an answer that shows some understanding of the demands of the
question, with some effective application of the stimulus material. The answer may be
unbalanced and/or overly descriptive.
Award [7 - 8 marks] for an answer that shows good understanding of the demands of the
question. There is evidence of application of the stimulus material in the case study, but clear
evaluation is missing.
Award [9 - 10 marks] if there is clear discussion of the factors that contribute to effective
leadership in organizations such as MBS, some of which may be beyond the control of the leader
(school principal). Appropriate terminology is used throughout the response and there is
evidence of critical and reflective thinking.

Motivation
 Forest Hill Potters (FHP)
Answers
(a) Define the term wage rate. [2 marks]
The wage rate is a form of financial payment system, rewarding employees by time rather than
volume or quality of output. Workers are paid the flat rate wage rate per hour they work.
Award [1 mark] for a definition that shows limited understanding of the term wage rate (or
wages).
Award [2 marks] for a definition that shows a good understanding of the term wage rate (or
wages), similar to the example above.

(b) Define the term motivation. [2 marks]

Motivation refers to the desire and willingness to complete a task or to achieve a goal. It can be
extrinsic or intrinsic (such as morality or altruism - the desire to help others).
Award [1 mark] for a definition that shows limited understanding of the term motivation.
Award [2 marks] for a definition that shows a good understanding of the term motivation, similar
to the example above.

(c) Outline two potential problems of low staff motivation for FHP. [4 marks]
Possible responses could include:

 Workers at FHP will not enjoy their work (as they lack the opportunity to work in teams, for
example), so this effectively leads to low morale (social needs are not met) and lower
productivity. There is a lack of incentive to work hard, especially as workers are paid a fixed
hourly rate.
 Higher labour turnover is likely to result from low motivation, leading to higher costs for FHP, such
as the need for managers to recruit and train new workers.
 High labour turnover due to a lack of staff motivation can give FHP a poor corporate image,
meaning it can be more challenging and expensive for the company to attract and hire suitable
local staff in the future.
 Accept any other reasonable outline, written in the context of FHP.
Mark as a 2 + 2
Award [1 - 2 marks] for a written response that is limited in meeting the demands of the question.
Award up to [2 marks] if only one reason is provided.
Award [3 - 4 marks] for a written response that is accurate in meeting the demands of the
question.
Alternative approaches may be taken in response to the [4-mark] question that uses an AO2
command term. If an alternative approach is valid, then full credit should be given.

(d) Using relevant motivation theory, explain how FHP might be able to better motivate its
workers. [4 marks]
 Possible responses could include an explanation of:

 As suggested by F.W. Taylor, linking the pay of workers to their level of output through a piece
rate payment system creates an incentive for workers to be more productive. This is based on
Taylor's assumption that (all) workers are motivated by receiving more money for their work.
 Herzberg argued that wages and salaries do not, on their own, motivate workers – it simply
removes potential dissatisfaction at work (as workers expect to be paid for any work they commit
to). Instead, he argued that that job enrichment opportunities are a good way of motivating
workers, such as by giving them more challenging and responsible tasks in order to increase their
morale and job satisfaction, rather than their existing work that is simply repetitive and therefore
not so engaging.
 Accept any other reasonable explanation, written in the context of FHP.
Mark as a 2 + 2
Award [1 - 2 marks] for a written response that is limited in meeting the demands of the question.
Award [3 - 4 marks] for a written response that is accurate in meeting the demands of the
question. Students can, although are not expected or required to, use more than one motivation
theory to answer the question.
Alternative approaches may be taken in response to the [4 mark] question that uses an AO2
command term. If an alternative approach is valid, then full credit should be given.

Labour Turnover (HL only)

LovenSkate
Answers
(a) Define the term labour turnover. [2 marks]
Labour turnover refers to the number of people leaving an organization expressed as a
percentage of the total workforce, per time period (usually a year).
Award [1 mark] for a definition that shows some understanding of labour turnover.
Award [2 mark] for an accurate definition that shows good understanding, similar to the example
above.

(b) Calculate the labour turnover rate for LovenSkate. Show your answer to 2 d.p. [2
marks]

 Average number of employees for the year = (108 + 102 ) / 2 = 105

 Annual labour turnover rate = (10 / 105) × 100 = 9.52%
 Note that the two people who took maternity did not leave the company permanently, so are not
part of the calculation (the value of the numerator) for the firm's turnover rate.
Award [1 mark] for the correct answer and [1 mark] for showing appropriate working out.

Appraisal (HL only)

Explain the role of employee appraisals in business organizations. [6 marks]
 An appraisal is a formal system of judging a person’s performance at work. The process usually
consists of collecting data about an employee’s performance and contribution to the workplace
through observations and interviews with the employee being appraised.
The role or purpose of staff appraisals include:

 To measure performance – A key purpose or role of appraisals is to ensure employees are

working to the required standard as stated in their employment contracts. This also means that
appraisals are used to hold employees accountable for their performance in the workplace.
 To reward employees for high performance – Staff who meet or exceed their performance targets
may be eligible for bonuses, pay rises, and possibly internal promotion to managerial positions.
 To identify staff training and development needs – Staff appraisals, such as self-appraisals, give
opportunities for managers to identify training and development needs of their teams. Feedback
from employees can help manager to identify specific staff training and development needs. This
can also help the business to personalize staff training, rather than providing generic training to
all employees (which can be very costly yet reap limited benefits).
 To give employees a voice – Appraisals enable two-way communications between the employer
and employees. They provide employees with the opportunity to ask questions, express their
concerns, make recommendations, and to share their views or opinions. Hence, giving
employees a voice helps to improve staff morale as well as provide managers with potentially
meaningful and useful feedback.
 To improve staff performance – Ultimately, the role or purpose of staff appraisals is to improve
the performance and productivity of workers in the organization. Using regular appraisal meetings
helps managers to identify which employees have performed well. For those who under-perform,
summative appraisals help to identify skills gaps and training needs so that all workers can
perform their job roles even better.
 Accept any other relevant role or purpose of employee appraisals.
Award up to [2 marks] if the answer shows only a limited understanding of the demands of the
question. The response lacks detail and/or application.
Award up to [4 marks] for an answer that demonstrates some understanding of the demands of
the question. The response may be overly theoretical/descriptive and/or lacks effective
application.
Award up to [6 marks] if the answer demonstrates a good understanding of the demands of the
question. The response shows detailed explanations of the importance of staff appraisals. There
is appropriate use of terminology throughout the answer, with effective application of the stimulus
material.

Organisational culture (HL only)

STC Manufacturing
Answers
(a) Define the term organic growth. [2 marks]
 Organic growth occurs when a business expands internally by using its own resources to
increase the size of its operations. For example, STC Manufacturing has used a combination of
retained profits, loan capital and issuing of new shares to finance its internal growth, rather than
relying on external methods such as a merger, takeover, joint venture or strategic alliance with
another manufacturer.
Award [1 mark] for a definition that shows some understanding of organic growth.
Award [2 marks] for a definition that shows good understanding of organic growth, similar to the
example above.

(b) Outline two ways in which the market size of the ball bearings industry in Austria
might be measured. [4 marks]
Possible measures of market size could include:

 The total value of sales revenue of the ball bearings industry in Austria
 The number of employees who work in the ball bearings industry in Austria
 The overall profits earned by all ball bearings companies in the country
 The market capitalization (the market value) of all companies in the ball bearings industry
 The rate of growth in any of the above factors/measures
 Accept any other relevant measure of market size that is outlined in the context of the case
study.
Award [1 mark] for each valid measure of market size that is identified, and [1 mark] for a
description of each of these, up to the maximum of [4 marks].

(c) Describe how STC’s organizational culture might impact on the level of employee
motivation. [4 marks]
Organizational culture describes the norms and the traditions within an organization. Factors
affecting the corporate culture at STC might include:

 Employee demographics – There is a loyal workforce, with most employees being ‘happy' at STC
Manufacturing.
 Leadership style – Rhys Thomas is a paternalistic leader, which has shaped the corporate culture
at STC Manufacturing by making workers feel part of the (corporate) family. Employees would
feel safe and secure in their jobs, so there will be a high degree of employee loyalty.
Award [1 – 2 marks] if the there is some understanding of the link between organizational culture
and employee motivation. The answer lacks clear application to the case study.
Award [3 – 4 marks] if the answer shows a clear understanding of the link between organizational
culture and employee motivation. There is good use of business management terminology
throughout the response, with appropriate application to the case study.
 Unit 3 – Finance
Sources of finances
Answers
(a) Define the term market size. [2 marks]
Market size refers to the total number of individual customers or the value of total sales revenue
in a certain market. The size of a market can be measured in a number of ways, but usually
refers to the number of people in a certain market who are potential customers of a product or
service.
Award [1 mark] for a vague definition that shows some understanding of market share.
Award [2 marks] for an accurate definition that shows good understanding of the term market
share, similar to the example above.

(b) Calculate the forecasted percentage increase in the value of the global hair wigs
market. [2 marks]

 Percentage change = ($13.3bn – $5.8bn) / $5.8bn = 129.31%

 Accept answers that show 130%
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

(c) Define the term business angels. [2 marks]

Business angels are wealthy and successful private investors who risk their own money in start-
up firms and/or small but expanding business ventures that have significant growth potential. In
return, they gain part-ownership of such businesses.
Award [1 mark] for a vague definition that shows some understanding.
Award [2 marks] for an accurate definition that shows good understanding, similar to the example
above.

(d) Explain one reason for and one reason against the use business angels to generate
long-term investment in the beauty industry. [4 marks]
The use of business angels can be an effective way for businesses to generate much-needed
start-up capital and possibly a long-term investment. A business angel is a high net worth
individual who looks to take an equity stake in a commercial business that seems to have growth
potential, such as those in the hair wigs and extension market that is expected to grow by around
130% within the 5 years up to 2026.
Although the financial rewards can be high for venture capitalists, investments such as these are
extremely risky and so the businesses receiving the funds from angel investors may have to give
up a very high proportion of their business in return.
Mark as a 2 + 2.
Award [1 mark] for identifying a relevant advantage (and disadvantage), and [1 mark] for the
explanation, written in the context of the case study, up to the maximum of [4 marks].
 London Zoo Answers
(a) Define the term capital expenditure. [2 marks]
Capital expenditure refers to an orgaization's sources of finance being used for spending on fixed
assets or capital equipment. It is the investment expenditure of an organization for its future
growth and development. Examples for ZSL include spending on its buildings (such as animal
sanctuaries), capital machinery, and tools.
Award [1 mark] for a limited response that shows some understanding of capital expenditure.
Award [2 marks] for an accurate response that shows good understanding of capital expenditure,
similar to the example above. Note: application is not required for [2 marks], but has been
included for illustrative purposes of the key term.

(b) Define the term fixed costs. [2 marks]

Fixed costs are the expenditures of an organization that do not change with the level of output.
Typical examples include loan repayments (and the interest charges associated with these) and
salaries paid to managerial staff. In the case of ZSL, its fixed costs are the $1.344m+ required for
its animal feed, irrespective of the number of customers/visitors to its zoo.
Award [1 mark] for a limited response that shows some understanding of fixed costs.
Award [2 marks] for an accurate response that shows good understanding of fixed costs, similar
to the example above. Note: application is not required for [2 marks], but has been included for
illustrative purposes of the key term.

(c) Apart from admissions tickets, explain two other appropriate sources of finance for
ZSL. [4 marks]
Students can suggest any appropriate source of finance as long as they explain the suitability.
Possible sources of finance could include:

 Donations - They could come from the general public and/or from celebrity-endorsed schemes,
such as those mentioned in the case study.
 Grants and/or subsidies - Given the economic and social benefits that London Zoo brings to the
city, and the financial problems caused by the pandemic and lockdowns, this source of finance
could be particularly helpful for ZSL. For example, the government had furloughed many people
(paid their wages and salaries during the lockdown period). The government is also more inclined
to provide financial assistance to non-profit organization (such as ZSL) rather than for-profit
companies.
 Overdrafts – If agreed, the finance fom bank loans can be given quickly to help ZSL's current
situation, with the need to spend over £3 million on animal feed alone during the three months of
lockdown (without any paying visitors).
 Long term bank loans - Similarly, long term loans from banks could also be used to improve
ZSL's liquidity position, especially if it intends to proceed to with capital expenditure projects to
improve facilities at the zoo for when visitors and tourists are allowed to visit again.
 Sale of assets - despite plans for London Zoo to expand or upgrade its facilities, during such
crises, it is more realistic for ZSL to survive. Hence, there may be a need to sell some of its fixed
assets (e.g. office equipment such as desks, tables, chairs, and printers) and to raise necessary
finance to pay for its fixed costs.
 Accept different arguments for the above scenario, if fully justified. Do not accept answers that
suggest shares or an IPO (initial public offering) as ZSL is a non-profit organization.
Mark as 2 + 2.
Award [1 mark] for each source of finance that is identified, and [1 mark] for the explanation of
each of these sources, in the context of the case study, up to a maximum of [2 marks].

Costs and revenues

1. Snippets Hair Salon Co. has annual fixed costs of $1.2 million. The company has an
annual output of 150,000 customers, with a variable cost per customer of $15.
Calculate the total annual costs for Snippets Hair Salon Co. [2 marks]
Answer

 Total costs (TC) is the sum of total fixed costs (TFC) and total variable costs (TVC)
 TVC = Average variable cost (AVC) multiplied by the output level, i.e. $15 × 150,000 =
$2,250,000.
 Therefore, TC = $1,200,000 + $2,250,000 = $3,450,000
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

2. Thompsons Farms has annual fixed costs of $2 million. It has an annual output of
1,250,000 units, with variable cost per unit of $2.
Calculate the total annual costs for Thompsons Farms. [2 marks]
Answer

 Total costs (TC) is the sum of total fixed costs (TFC) and total variable costs (TVC)
 TVC = Average variable cost (AVC) multiplied by the output level, i.e. $2 × 1.25m = $2.5m
 Therefore, TC = $2m + $2.5m = $4.5 million
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

3. MisTech Limited is a large manufacturer with monthly fixed costs of $1 million. It has an
annual output of 150,000 units. The variable cost per unit is $150.
Calculate the total annual cost for MisTech Limited. [2 marks]
Answer
• Total costs = Total fixed costs + Total variable costs
• TC = TFC + TVC = ($1m × 12) + ($150 × 150,000)
 • TC = $12m + $22.5m = $34.5 million
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

4. Gardeners’ Pots has total costs of $2,000 and fixed costs of $1,100 for an output level of
600 units.
Calculate the variable cost per unit for the firm. [2 marks]
Answer
• Variable cost per unit = Average variable cost (AVC)
• AVC = TVC / Q (where Q = Quantity of output)
• TVC = TC – TFC = $2,000 – $1,100 = $900
• AVC = $900 / 600 = $1.50
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

YTF Toys Ltd.

Answers
(a) Calculate the total cost for YTF Toys Ltd. of producing 4,000 units. [2 marks]

 TVC = $8 × 4,000 = $32,000

 TFC = $7,000 + $8,000 = $15,000
 TC = TVC + TFC
 Hence, TC = $32,000 + $15,000 = $47,000
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(b) Calculate the profit earned by YTF Toys Ltd. if it is able to sell all of its output in a
month. [2 marks]

 Maximum capacity = 5,000 units per month

 TR = $20 × 5,000 = $100,000
 TVC = $8 × 5,000 = $40,000
 TFC = $7,000 + $8,000 = $15,000 (unchanged)
 TC = $40,000 + $15,000 = $55,000
 Profit = TR – TC
 Hence, profit = $100,000 – $55,000 = $45,000
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

Camiko Company
 Answers
(a) Calculate the total costs per month for Camiko Company. [2 marks]
TC = ($15 × 250) + $2,000 = $5,750
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(b) Calculate the monthly profit for Camiko Company. [2 marks]

 Sales revenue = ($25 × 250) = $6,250

 Profit = TR – TC
 Hence, profit for Camiko Company = $6,250 – $5,750 = $500
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(c) Calculate the change in the average cost of production for Camiko Company at 150
units and 300 units of output, and comment on why the unit cost has changed. [4 marks]

 AC = TC / Q
 TC at 150 units = ($15 × 150) + $2,000 = $4,250
 TC at 300 units = ($15 × 300) + $2,000 = $6,500
 AC at 150 units = $4,250 ÷ 150 units = $28.33
 AC at 300 units = $6,500 ÷ 300 units = $21.67
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(d) Using your answer from above, comment on why the unit cost has changed. [2
marks]
If Camiko Company can sell 300 units, its fixed costs of $2,000 are spread over more units of
output (300 rather than 150). Therefore, by doubling its operations, the company witnesses a fall
in its unit costs of production from $28.33 to $21.67. This means that the company is able to
benefit from economies of scale, i.e., falling average costs of production as a result of an
increase in its output.
Award [1 mark] for a limited understanding of the demands of the question.
Award [2 marks] for a clear and accurate understanding of the demands of the question,
including the appropriate use of the calculations in Question (c).

Rhapsody Sounds
Answers
(a) Assuming constant unit costs, calculate the value of the monthly fixed costs for
Rhapsody Sounds. [2 marks]
 TVC = $3000 per 100 (extra) units
 Hence, at 100 units of output, TFC = $5000 – $3000
 So, TFC = $2000
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(b) Calculate the change in average costs of production if Rhapsody Sounds changes
from producing 100 units per month to 300 units per month. [2 marks]

 It falls from $50 per unit ($5000 ÷ 100) to just $36.67 ($11 000 ÷ 300)
 This means the AC falls by $13.33.
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.
Note: this means that the firm experiences economies of scale.

(c) If Rhapsody Sounds manages to produce and sell 200 units per month and wishes to
make a 150% profit margin, calculate the price it should charge. [2 marks]

 Unit cost = $40 ($8000 ÷ 200)

 So, the price must be 150% higher, i.e. $100
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

Pawlyn Drones
Answers
(a) Define the term fixed costs. [2 marks]
Fixed costs of production do not change with the level of output. Such costs that have to be paid
regardless of how much or litle is produced or sold.
Award [1 mark] for a limited definition that shows some understanding of the term fixed costs.
Award [2 marks] for a clear and accurate definition of the term fixed costs, similar to the example
above.

(b) Calculate the average fixed cost (AFC) for Pawlyn Drones. [2 marks]

 AFC = TFC / Q
 AFC = $4,500 / 180 = $25
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(c) Calculate the total cost (TC) for Pawlyn Drones. [2 marks]

 TVC = AVC × Q = $190 × 180 = $34,200

 TFC = $4,500
 TC = TFC + TVC = $34,200 + $4,500 = $38,700
 Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(d) Calculate the total revenue (TR) for Pawlyn Drones. [2 marks]

 TR = P × Q
 TR = $230 × 180 = $41,400
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

(e) Calculate the profit for Pawlyn Drones. [2 marks]

 Profit = TR – Q
 Profit = $41,400 – $38,700 = $2,700
Award [1 mark] for appropriate working out, and a further [1 mark] for the correct answer.

Profit and loss account (Pay careful attention to how they want you to lay a P&L out)
Study the profit and loss account for Camiko Face Masks Ltd. below and state the missing
figures. [3 marks]
Answers

Camiko Face Masks Ltd.

($'000)
Statement of profit or loss for year ended 2022

Sales revenue 400

Cost of sales (a) (150)

Gross profit 250

Expenses (b) (70)

Profit before interest and tax 180

Interest (20)

Tax (25)

Profit for period (c) 135

Award [1 mark] for each correct answer, up to the maximum of [3 marks].

Apply the own figure rule (error carried forward rule) as appropriate.
Francis Chan runs a bike hire company called Chan’s Bike Hire Co. in a small local town.
Construct a profit and loss account for Chan’s Bike Hire Co. from the data below, for the year
ending 31 August 2022. [4 marks]
Answer
Statement of profit or loss for Chan’s Bike Hire Co., for the year ended 31 August 2022

Sales revenue 200,000

Cost of sales (COS) 50,000

Gross profit 150,000

Expenses (20,000)

Profit before interest and tax 130,000

Interest (10,000)

Profit before tax 120,000

Tax (20,000)

Profit for period 100,000

Dividends (35,000)

Retained profit 65,000

Award [1 – 2 marks] for an answer that shows some understanding of the structure of a profit and
loss account. There are two or more errors. Apply the own figure rule (OFR) as appropriate.
Award [3 – 4 marks] for an accurate answer that shows a good understanding of the format of a
profit and loss account. For 3 marks, allow up 1 error. An appropriate title is required for full
marks.

Balance sheets (Pay careful attention to how they want you to lay a Balance Sheet out)

a) Distinguish between current assets and non-current assets. [4 marks]

Answer
Current assets are possessions of an organization with a monetary value, but intended to be
liquidated (turned into cash) within twelve months. These include cash (in hand and at the bank),
debtors and stocks (inventory).
By contrast, non-current assets are possessions of an organization with a monetary value but are
not intended for resale within the next twelve months. Instead, the non-current assets are used
over and over again as part of the organization’s operations. Non-current assets include
buildings, equipment, machinery and vehicles.
Hence, although both are possessions owned by the business in question, the timeline and
intended purpose (use) distinguishes between these categories of assets.

Award [1 - 2 marks] for a response that shows some understanding of the demands of the
question, although the distinction is not made explicit.
Award [3 - 4 marks] for a response that shows good understanding of the demands of the
question, with a clear distinction made explicit.

b) Distinguish between the terms debtors and creditors. [4 marks]

Answer
Debtors are a type of current asset, referring to customers (individuals or other businesses)
owing money to the organization, due within the next twelve months.
By contrast, creditors are a type of current liability, referring to the money owed to others (such
as payment due to trade creditors/suppliers and financiers) within the next twelve months.
Award [1 - 2 marks] for a response that shows some understanding of the demands of the
question, although the distinction is not made explicit.
Award [3 - 4 marks] for a response that shows good understanding of the demands of the
question, with a clear distinction made explicit.

c) Construct a balance sheet for Javier Jewellery Co. from the financial data below, as of 31
August 2022. [4 marks]

Answer
Statement of financial position for Javier Jewellery Co. as of 31 August 2022

Non-current assets 500 000

Current assets 150 000

Total assets 650 000

Current liabilities 100 000

Non-current liabilities 350 000

Total liabilities 450 000

 Net assets 200 000

Share capital 150 000

Retained profits 50 000

Equity 200 000

Award [1 – 2 marks] for an answer that shows some understanding of the structure of a balance
sheet. There are three or more errors.
Award [3 – 4 marks] for an accurate answer that shows a good understanding of the format of a
balance sheet. For [3 marks], allow up 1 error. An appropriate title is needed for full marks.

d) Construct a balance sheet for Jim's Gym from the data below presented on 31st
December 2022. [4 marks]

Answer

$ ('000) $ ('000)

Non-current assets:

Property, plant, and equipment 350

Accumulated depreciation 25

Non-current assets 325

Current assets:

Cash 20

Debtors 15

Stock 20

Current assets 55
 Total assets 380

Current liabilities:

Bank overdraft 12

Trade creditors 20

Other short-term loans 10

Current liabilities 42

Non-current liabilities:

Borrowings (long term) 50

Non-current liabilities 50

Total liabilities 92

Net assets 288

Equity:

Share capital 100

Retained earnings 188

Total equity 288

Award [1 – 2 marks] for an answer that shows some understanding of the structure of a balance
sheet. There are three or more errors.
Award [3 – 4 marks] for an accurate answer that shows a good understanding of the format of a
balance sheet. For [3 marks], allow up 1 error. An appropriate title is needed for full marks.
 Depreciation HL only

A) STC recently paid $380,000 for a set of new photocopiers. The machines are expected to
be replaced in 5 years’ time, and have an expected residual value of $50,000. Calculate
the annual depreciation for STC. [2 marks]

Answer

 Annual depreciation = ($380,000 – $50,000) / 5 years

 Annual depreciation = 330,000 / 5 = $66,000 per year
Award [1 mark] for the correct answer, and [1 mark] for the correct working out.

B) A large publishing company purchases a new industrial printer for $7,500. The publisher
estimates the new industrial printer will have a salvage value of $1,200 and a useful life of
500,000 high-quality pages. During the first year of use, the publisher prints 25,000
pages.

Using the units of production method, calculate the depreciation expense of the industrial printer
at the end of the first year. [2 marks]

Answer

 Depreciation rate = ($7,500 – $1,200) / 500,000 pages = $0.0126 per page

 Units of production deprecation (Year 1) = $0.0126 × 25,000 pages = $315
Award [1 mark] for the correct answer] and a further [1 mark] for showing the working out in a
clear way. Apply the own figure rule (error carried forward) as appropriate.

C) At the beginning of the trading year, Siby Thomas Inc. paid $500,000 for a new
management information system (MIS). The company expects to use the new MIS for
5,000 hours, i.e., approximately 1,000 hours per year for 5 years. It expects to be able to
sell the MIS for $100,000 thereafter.

Using the units of production method, calculate the depreciation expense for the first year if Siby
Thomas Inc. uses the MIS for 1,500 hours. [2 marks]

Answer

 Depreciation rate = ($500,000 – $100,000) / 5,000 hours = $80 per hour

 Units of production deprecation (Year 1) = $80 × 1,500 hours = $120,000
Award [1 mark] for the correct answer] and a further [1 mark] for showing the working out in a
clear way. Apply the own figure rule (error carried forward) as appropriate.

D) A business has just purchased a large office photocopier for $3,500. The machine is
expected to last for 4 years and produce 1.8 million copies. The expected scrap value is
$500.
 [2
Calculate the per unit depreciation rate for the business. Express your answer
a mark
to 4 decimal places.
s]

Calculate the depreciation expense if the business makes 500,000 copies

during the year.

Answers
(a) Calculate the per unit depreciation rate for the business (to 4 d.p.) [2
marks]
Depreciation charge per unit = ($3,500 – $500) / 1,800,000 = $0.0017
Award [1 mark] for the showing appropriate working out and a further [1 mark]
for the correct answer.
[2
b mark
(b) Calculate the depreciation expense if the firm makes 500,000 copies s]
during the year. [2 marks]
Depreciation charge = $0.00166' × 500,000 = $833.33
Accept answers that show depreciation charge = $0.0017 × 500,000 = $850
Apply the Own Figure Rule (OFR) as appropriate (error carried forward).
Award [1 mark] for the showing appropriate working out and a further [1 mark]
for the correct answer.

Profitability and liquidity Ratios

LaLa’s Kitchen Co.

Answer
(a) Calculate LaLa’s Kitchen Co.'s gross profit margin (GPM). [2 marks]
GPM = ($3.5m ÷ $5.5m) × 100 = 63.63%
Award [1 mark] for the correct answer and [1 mark] for showing appropriate working out.

(b) Calculate LaLa’s Kitchen Co.'s profit margin ratio. [2 marks]

Profit margin ratio = ($3.5m – $1.5m) ÷ $5.5m × 100 = 36.36%
Award [1 mark] for the correct answer and [1 mark] for showing appropriate working out.

Jasmine Sportswear Co.

Answers
(a) Define the term profit. [2 marks]
Profit refers to the financial surplus of a business after it has paid for both cost of sales (COS)
and expenses (or overhead costs). It is the difference between a firm's gross profit and its
indirect costs, i.e. Profit = Sales revenue – (COS + Expenses).
Award [1 mark] for a limited response that shows some understanding of profit.
Award [2 marks] for an accurate definition that shows good understanding of profit, similar to the
example above.

(b) Calculate the value of JSC's profit during the previous three months. [2 marks]
Profit in previous time period = $212m / 1.06* = $200 million
*Note: "profits rising by 6% to $212 million" means dividing by 1.06 deflates the value by 6% for
the previous 3 months.
Award [1 mark] for the correct answer, and [1 mark] for appropriate working out.

(c) Comment on whether JSC's shareholders would be satisfied with the company's
gross profit margin (GPM). [4 marks]
JSC's gross profit margin ratio of 53.1 per cent means that for every $100,000 of sales revenue,
the company earns $53,100 in gross profit (the difference between the company's sales revenue
and its cost of sales (COS). This also means that JSC's COS are worth $46,900 for each
$100,000 of sales.
It can be difficult to determine whether a GPM of 53.1% is satisfactory to shareholders as it
depends on whether the GPM was higher or lower when sales revenue was 6% lower at
$200,000. Also, whether this GPM figure is acceptable to JSC's shareholders also depends on
benchmarking data, such as the GPM of JSC's main rivals in the industry. Shareholders also
have to determine whether the value of JSC's COS (at 46.9% of the firm's sales revenue) is
acceptable or whether this value should be (much) lower.
Award [1 - 2 marks] for a response that shows some understanding of the demands of the
question. There is some appropriate use of business management terminology, although the
response lacks depth or application.
Award [3 - 4 marks] for a response that shows good understanding of the demands of the
question. There is effective use of relevant business management terminology throughout the
answer, and appropriate application of the case study.

Study the profit and loss account for Camiko Face Masks Ltd.,
Answers
(a) Define the term gross profit margin (GPM). [2 marks]
The gross profit margin (GPM) measures the amount of trading profit as a percentage of the
firm's sales revenue, i.e. GPM = (Gross profit / Sales revenue) × 100. The higher the GPM figure,
 the lower the cost of sales (COS) are in relation to the firm's sales revenue, so the higher its
profitability.
Award [1 mark] for an answer that shows some understanding of gross profit margin.
Award [2 marks] for an answer that shows good understanding of gross profit margin, similar to
the response above.

(b) Define the term profit margin. [2 marks]

The profit margin measures the amount of profit (gross profit minus expenses) as a percentage
of a firm's sales revenue, i.e. profit margin = [(Gross Profit – Expenses) / Sales Revenue] × 100.
In this particular instance, rent has been categorized as a separate expense in Camiko Face
Mask Ltd.'s P&L account. The higher the profit margin ratio figure, the better the organization’s
control over its overheads and hence the higher its profitability tends to be.
Award [1 mark] for an answer that shows some understanding of profit margin ratio.
Award [2 marks] for an answer that shows good understanding of profit margin ratio, similar to
the example above.

(c) Calculate the GPM for Camiko Face Masks Ltd. for both 20202 and 2021 and comment
on your findings. [4 marks]
GPM 2022 = ($87,500 / $250,000) × 100 = 35%
GPM 2021 = ($91,000 / $260,000) × 100 = 35%
This means that for every $100 of sales made by Camiko Face Mask Ltd., $35 is earned as
gross profit in both years. This is because the other 65% is attributed to the firm's cost of goods
sold. Despite a slight fall in sales revenue, the firm has maintained its COS as a proportion of its
sales revenue.
Mark as a 2 + 2
Award [1 mark] for the correct calculation of the GPM and [1 mark] for showing appropriate
working out.
Award up to [2 marks] if the commentary shows good understanding of the GPM ratio, similar to
the example above.

(d) Calculate the profit margin for Camiko Face Masks Ltd. for both 2022 and 2021 and
comment on your findings. [4 marks]

 Profit margin 2022 = ($16,500 / $250,000) x 100 = 6.6%

 Profit margin 2021 = ($20,000 / $260,000) x 100 = 7.69%
This means that for every $100 of sales made by Camiko Face Mask Ltd., only $6.6 was earned
as profit in 2022 and slightly higher at $7.69 in 2021 before any deductions were made for
interest and tax. This also means that Camiko Face Mask Ltd.'s overall costs (i.e. COS,
expenses and rent) accounted 93.4% of sales revenue and 92.31% in 2021.
Mark as a 2 + 2
 Award [1 mark] for the correct calculation of the profit and [1 mark] for showing appropriate
working out.
Award up to [2 marks] if the commentary shows good understanding of the profit margin ratio,
similar to the example above.

(e) Explain why the profit and loss account records profit before interest and tax. [2
marks]
For historical benchmarking purposes, it is common for analysts to use the profit before interest
and tax because both interest and tax are subject to changes beyond the control of the business
(the rates of interest and tax are set by the government). Their inclusion in a P&L account could
easily distort the underlying profitability of an organization simply due to fluctuations in interest
and tax rates.
Award [1 mark] for an answer that shows some understanding of the demands of the question.
Award [2 marks] for an answer that shows good understanding of why profit before interest and
tax is recorded on the P&L account, similar to the response above.

(f) Explain two possible reasons why GPM and profit margin were lower than previously.
[4 marks]
The decline in Camiko Face Masks Ltd.'s GPM and profit margin could have been caused by
various reasons, such as:

 Inefficiencies within the company, thereby raising unit costs and reducing profit margins.
 Demand for face mask products in New Zealand may have slowed down / declined.
 The global pandemic of 2020 may have had negative impacts on both the GPM and profit margin
of the firm.
 Competition from rival manufacturers of personal protective equipment (such as face masks),
which caused the slight drop in Camiko Face Masks Ltd.'s sales revenue.
 Expenses have not declined despite Camiko Face Masks Ltd.'s sales revenues falling, so this will
have harmed the profit margin ratio.
 Rising labour costs in New Zealand, which would reduce Camiko Face Masks Ltd.'s profit margin
ratio.
 Accept any other possible reason for the lower GPM and profit margin ratio at Camiko Face
Masks Ltd.
Award [1 – 2 marks] for a limited answer that shows partial understanding of the possible
reasons for the decline in the profitability ratios or if the answer does not make any reference to
the financial data.
Award [3 – 4 marks] for an explanation that shows a clear understanding of two valid reasons for
the decline in the profit margin ratio and GPM at Camiko Face Masks Ltd. There is good use of
the financial data above, with appropriate use of business management terminology throughout
the answer.

Muller Books Limited (MBL)

 Answers
(a) Define the term non-current assets. [2 marks]
Non-current assets are resources owned by a business that are not intended for resale within the
next twelve months, e.g., delivery van, fixtures and fittings, land and trademarks. They are
therefore relatively illiquid assets.
Award [1 mark] if there is some understanding of ‘non-current assets’ shown, although the
answer might lack clarity.
Award [2 marks] if ‘non-current assets’ is clearly defined, similar to the example above.

(b) Construct a profit and loss account for MBL using the financial information above. [4
marks]
Profit and Loss account for MBL for year ended 31st December 2021 (all figures in euros €):
Sales revenue
Cost of sales
Gross profit
Expenses
Profit
350,000
(90,000)
260,000
(60,000)
200,000

Award [1 – 2 marks] if limited understanding is shown. The profit and loss account might be
presented in an incoherent format.
Award [3 – 4 marks] if the construction of the profit and loss account is coherent although there
are two or more errors. An appropriate title might be missing from the accounts.
Application of the Own Figure Rule (error carried forward) should apply where appropriate.
Award 4 marks for an accurate construction of the profit and loss account, with an appropriate
title used.

(c) Calculate the value of the current ratio. [2 marks]

 Current ratio = €60,000 ÷ €55,000

 Current ratio = 1.09:1
 Award [1 mark] for the correct answer but without any/the correct working out shown.
Award [2 marks] for correctly calculating the ratio with the coo working out shown.

(d) Using your answer from question (c) and the information in the case study, explain
why MBL is said to have “some working capital and liquidity issues”. [4 marks]
Working capital issues (problems) occur when a firm has insufficient working capital (net current
assets) in the short term, i.e. within twelve months of the balance sheet date. Longer term
liquidity issues occur when a firm experiences high gearing during times of escalating interest
rates because the commitment to non-current (long term) liabilities drain the firm’s financial
resources.
Hence, the current ratio of 1.09:1 means that for every €1 of current liabilities, MBL only has
€1.09 worth of liquid assets. In fact, non-current assets account for 92.6% of firm's total assets,
i.e., [€750,000 / (€750,000 + €60,000)] × 100. This means that MBL lacks adequate liquidity.
HL only candidates might also choose to use the gearing ratio to look at the longer term liquidity
issues. In this case, MBL’s gearing ratio is quite high at 42.38% (€320,000 ÷ €755,000). The
necessity to repay long term creditors with interest means that MBL’s level of gearing could make
the company quite vulnerable since the German economy is experiencing higher interest rates.
Candidates might also refer to the €85,000 of accumulated retained profit which could be used to
tackle its immediate liquidity issues.

Award [1 – 2 marks] for a limited response with some understanding shown. There are omissions
in the explanation and/or the answer lacks coherence and application to MBL.
Award [3 – 4 marks] for applying the liquidity ratio (the current ratio and perhaps the gearing
ratio). There is a good explanation of how the current ratio suggests MBL might be facing issues
regarding its working capital and liquidity. Appropriate use of terminology is shown.

(e) Examine possible financial strategies that Sarah Muller could use to deal with her
company’s working capital and liquidity issues. [6 marks]
Issues that could be considered include the following points:

 Obtaining an overdraft to deal with the lack of working capital – this might not be too difficult since
Sarah has a good professional relationship with her local bank manager. However, interest rates
are on an upwards trend.
 Since interest rates are increasing, cash outflow on MBL’s long term liabilities (which represent
over 42% of the company’s capital employed) will increase, thereby adding further pressure to
company’s liquidity position.
 Since the firm relies on e-commerce, extending its products and training courses to overseas
clients (schools and teachers) beyond German might help to increase revenue; thereby improving
MBL’s liquidity position.
 However, MBL could be experiencing problems with overtrading, i.e. expanding too quickly
without the necessary financial and human resources to do so. Hence, one strategy would be to
limit its rate of expansion in the USA and other countries.
 Tighter credit control – MBL can limit trade credit to their customers or reduce the credit period
offered so that the company can receive its cash sooner (thereby improving its working capital
and liquidity position).
 Accept any other valid factor that is examined in the context of MBL.

Award [1 – 2 marks] for a generalized answer that lacks reasoning and/or coherence. The
answer might appear in a list-like format.
Award [3 – 4 marks] if there is some understanding of the demands of the question, but the
answer lacks detail and/or clarity in some areas. At the top end, there is an attempt at application
of the stimulus material.
Award [5 – 6 marks] if the examination is thorough and considers numerous ways that MBL could
use to deal with its working capital and liquidity issues. Appropriate business management
terminology and examples are used throughout the answer in connection with information related
to MBL.

Efficiency ratios (HL only)

Ayad Construction Co. has cost of sales (COS) valued at $60,000. The company started the
trading year with stocks valued at $50,000. It had closing stock at the end of the trading year
valued at $20,000
a) Calculate Ayad Construction Co.’s stock turnover ratio. [2 marks]
Answer

 Average stock = (Opening stock + Closing stock) ÷ 2 = ($50,000 + $20,000) / 2 = $35,000

 Stock turnover ratio = $60,000 ÷ $35,000 = 1.71 times
 Alternatively, stock turnover ratio = [($50,000 + $20,000) / 2] /$60,000 = ($35,000 / $60,000) ×
365 = ($50,000 / $25,000) × 365 = 212.92 days (accept answers that show 213 days)
Award [1 mark] for the correct working out and [1 mark] for the correct answer.
Accept either method of calculating the stock turnover ratio.

Nightingale Café has cost of sales (COS) valued at $161,000. The café started the year with
stocks valued at $15,000 and at the end of the year the closing stock was $20,000.
a) Calculate the stock turnover ratio for Nightingale Café, expressed in terms of number of
times per year. [2 marks]
Answer

 Average stock = (Opening stock + Closing stock) ÷ 2 = ($15,000 + $20,000) / 2 = $17,500

 Stock turnover ratio = COS / Average stock level
 Hence, Nightingale Café's stock turnover ratio = $161,000 ÷ $17,500 = 9.2 times
Award [1 mark] for showing appropriate working out, and [1 mark] for the correct answer.

Cabinets Limited sells 1,500 units of output at a unit price of $60. The company has debtors
valued at $20,000.
 a) Calculate Cabinets Limited’s debtor days ratio. [2 marks]

Answer

 Sales revenue = Price × Units sold = $60 × 1,500 = $90,000

 Using the debtor days ratio, the average debt collection period = ($20,000 ÷ $90,000) × 365 =
81.11 days
Accept answers that state 82 days
Award [1 mark] for the correct answer, and [1 mark] for showing suitable working out.

Explain how an increase in the value of a firm's trade creditors is likely to affect its creditor days
ratio. [2 marks]

Answer
An increase in the value of trade creditors will tend to increase the creditor days ratio. This is
because the firm has bought more items (cost of sales) using trade credit and/or the timing of
payments to its creditors has been deferred. Hence, the firm takes longer to pay its trade
creditors.
Award [1 mark] for suggesting that the creditor days ratio is likely to increase. Award a further [1
mark] for the explanation.

Wok Express sold inventory valued at $240,000. The restaurant has trade creditors valued at
$25,000.
a) Calculate the creditor days ratio for Wok Express. [2 marks]
Answer

 Cost of sales (COS) = $240,000

 Creditor days ratio = ($25,000 ÷ $240,000) × 365 = 38.02 days = 39 days (accept answers that
state 38 days, although 38.02 means the 39th day in practice)
Award [1 mark] for the correct answer and [1 mark] for showing appropriate working out.

Cost Less Grocers has an existing mortgage of $1.5 million. The company has share capital
valued at $2.5m and retained earnings of $0.5 million.

a) Calculate the gearing ratio for Cost Less Grocers. [3 marks]

Answer

 Capital employed = Retained earnings + Share capital + Long term liabilities, i.e. the sum of
internal and external sources of finance
 Capital employed = 0.5m + $2.5m + $1.5m = $4.5 million
 Gearing ratio = (Loan capital / Capital employed) × 100
 Gearing ratio = $1.5m ÷ $4.5m = 33.33%
Award [1 mark] for the correct calculation of Costless Grocers’s capital employed.
Award [1 mark] for the correct gearing ratio, and [1 mark] for the correct working out of the
gearing ratio.
Apply the own figure rule (OFR), or error carried forward, where appropriate.

Cash Flow

Answers
(a) Define the term working capital cycle. [2 marks]
The working capital cycle refers to the time interval between cash payments for a firm's costs of
production and the cash receipts from its customers for the purchase of goods and/or services
bought. The time delay means that the business must manage its working capital (the money
available for its day to day operations) very carefully to continue functioning.
Award [1 mark] for an answer that shows some understanding of the term working capital cycle,
although the definition lacks detail / clarity.
Award [2 marks] for a definition that shows a clear understanding of the term working capital
cycle, similar to the example above.

(b) Explain the importance of working capital to business organizations. [4 marks]

Working capital (or net current assets) refers to the liquidity available to a business organization,
i.e., the existing short-term assets of a firm to cover its current liabilities. Working capital is
calculated as the sum of current assets (cash, stocks, and debtors) minus the sum of current
liabilities (such as overdrafts, trade creditors, and dividends).
Having sufficient working capital is vital for the daily operations of a business as a business
needs to have sufficient liquidity to cover its current liabilities. Having sufficient working capital
can prevent insolvency - the financial state where a business organization is unable to pay its
liabilities. Hence, without adequate working capital, insolvency can cause businesses to go
bankrupt.
Award [1 - 2 marks] for an answer that shows some understanding of the demands regarding the
importance of working capital.
Award [3 - 4 marks] for an answer that shows a good understanding of the demands of the
question, demonstrating a clear understanding of the importance of working capital. Award the
use of relevant examples.

(c) Distinguish between current assets and current liabilities. [4 marks]

Current assets are the short-term assets (items of monetary value) that belong to a business that
can be relatively easy to convert into cash within 12 months of the balance sheet date. Examples
include cash, stocks (inventory), and debtors.
By contrast, current liabilities are the short-term debts of a business, which need to be repaid
within 12 months of the balance sheet date. Examples include bank overdrafts, trade creditors,
and short-term loans from financial lenders.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question and the two terms.
 Award [3 - 4 marks] for an answer that shows a good understanding of the demands of the
question, demonstrating a clear difference between the terms current assets and current
liabilities, with reference to relevant examples.

Explain two reasons why a new bakery business is likely to face liquidity problems in its first few
months of its operation. [4 marks]

Answer
Possible reasons include a combination of why cash outflows for the bakery business are likely
to exceed cash inflows:

 A lack of marketing exposure to create sufficient sales revenue at the bakery

 Inability to attract customers away from well-established supermarkets that provide bakery
products
 High set-up costs which will take several months (at least) to recover once the bakery is
operational
 Ongoing expenses (such as salaries and rent) may initially exceed cash inflows from new
customers.
Mark as a 2 + 2
For each reason, award [1 mark] for a valid point, and [1 mark] for a clear explanation of this
reason.

The chief accountant of 360 Computers has compiled the following financial data:

 Opening balance = $50,000

 Total cash outflows = $120,000, and
 Total cash inflows = $110,000.
Calculate the closing balance for 360 Computers. [2 marks]
Answer

 Net cash flow = $110,000 minus $120,000 = ($10,000)

 Closing balance = $50,000 + ($10,000) = $40,000
Award [1 mark] for showing the working out.
Award [1 mark] for the correct answer, i.e. $40,000.

Ortega Football Academy’s

Answer
Ortega Football Academy’s closing balance = $80,000 + $12,000 – $18,000 = $74,000
Award [1 mark] for showing the working out.
Award [1 mark] for the correct answer, i.e. $74,000.
 Refer to the figures below for excerpts from Tonina & Co.’s cash flow statement. Answers
(a) Define the term cash flow statement. [2 marks]
A cash flow statement shows the actual cash inflows and outflows of an organization for a
specified time period.
Award [1 mark] for a definition that shows some understanding.
Award [2 marks] for a definition that shows good understanding, similar to the example above.

(b) Calculate Tonina & Co.’s net cash flow. [2 marks]

 Net cash flow = Cash inflow – Cash outflow

 NCF = $532,500 – $352,500 = $180,000
Award [1 mark] for the correct answer.
Award [1 mark] for showing appropriate working out.

(c) Calculate Tonina & Co.’s closing balance. [2 marks]

 Closing balance = Opening balance + Net cash flow

 Closing balance = $135,500 + $180,000 = $315,500
Award [1 mark] for the correct answer.
Award [1 mark] for showing appropriate working out.

Complete the 3-month cash flow forecast for Mustango Inc. A suitable title is also required. [4
marks]
Answer
Cash flow forecast for Mustango Inc.:

Dec ($) Jan ($) Feb ($)

Opening balance 0 (780) 1,720

Cash inflows

Cash sales revenue 8,500 6,500 7,500

Tax refund 0 4,000 0

Total cash inflows 8,500 10,500 7,500

 Cash outflows

Cost of sales 5100 3900 4500

Salaries and wages 2000 2000 2000

Rent 1800 1800 1800

Other costs 380 300 400

Total cash outflows 9,280 8,000 8,700

Net cash flow (780) 2,500 (1,200)

Closing balance (780) 1,720 520

Award [1 - 2 marks] for an answer that shows some understanding of cash flow forecasting,
although there 3 or more errors. Apply the own figure rule (error carried forward), as appropriate.
Award [3 - 4 marks] for an answer that shows good understanding of cash flow forecasting. For
[3 marks], allow up to 1 error. An appropriate title is used. Apply the own figure rule (error carried
forward) as appropriate.

Complete the 3-month cash flow forecast for Asllani Co. A suitable title is also required. [4
marks]

Answers

Janu Febru Marc

All figures in $000
ary ary h

Opening balance 0 0 (80)

Cash inflows

Cash sales revenue 600 500 700

Tax refund 0 0 10

Total cash inflows 600 500 710

 Cash outflows

Rent 15 15 15

Packaging 30 50 70

Salaries and wages 360 350 490

Cost of sales 180 150 210

Heating and lighting 10 10 10

Delivery 5 5 5

Total cash outflows 600 580 800

Net cash flow 0 (80) (90)

Closing balance 0 (80) (170)

Award [1 - 2 marks] for an answer that shows some understanding of cash flow forecasting,
although there 3 or more errors. Apply the own figure rule (error carried forward), as appropriate.
Award [3 - 4 marks] for an answer that shows good understanding of cash flow forecasting. For
[3 marks], allow up to 1 error. An appropriate title is used. Apply the own figure rule (error carried
forward) as appropriate.

Ness Blackburn Bakery (NBB) (a) Define the term sole trader. [2 marks]
A sole trader is a business entity owned by a single person, but can employ as many people as
necessary. The owner has full control but accepts unlimited liability as there is no legal
separation of the owner and the business entity itself.
Award [1 mark] if the answer shows some understanding of the term sole trader.
Award [2 marks] for an answer that shows a clear understanding of the term sole trader, similar
to the example above.

(b) State the value of the following:

(i) Net cash flow in September. [1 mark]
$1,000 (i.e., $20,000 – $19,000)
(ii) Cash outflow in October. [1 mark]
$18,400 (i.e., $7,400 + $3,000 + $8,000)

(iii) Opening balance in November. [1 mark]

$1,300 (i.e., equal to the closing balance in September).

(iv) Closing balance in December. [1 mark]

$500 (i.e., -$1,500 + $2,000)

Award [1 mark] for each correct answer, up to the maximum of [4 marks].

There is no need to show the working out.

(c) Using the figures in the cash flow forecast, comment on the liquidity position of NBB.
[2 marks]
The table below is for illustrative purposes only.

Sept Oct Nov Dec

Opening balance 200 1,200 1,300 2,000

Cash inflows

Cash sales
20,000 18,500 19,500 22,500
revenue

Total cash inflow 20,000 18,500 19,500 22,500

Cash outflows

Direct costs 8,000 7,400 7,800 9,000

Expenses 3,000 3,000 3,000 3,000

Salaries 8,000 8,000 8,000 12,000

Total cash outflow 19,000 18,400 18,800 24,000

Net cash flow 1,000 100 700 (1,500)

Closing balance 1,200 1,300 2,000 500

Possible comments may include:
 The net cash flow is negative in December ($1,500). This is largely due to the 50% extra pay that
staff receive as an end of year bonus. This is only affordable due to the positive$2,000 closing
balance in November.
 The closing balance in December is only positive because of the positive closing balance in
November. This may suggest liquidity problems in January onwards, especially if sales revenue
has a seasonable dip after December.
 Although profitable, the liquidity position is somewhat of a concern as net cash flow is only $100
in October (as negative in December).
 Accept any other relevant comment with reference to the data in NBB’s cash flow forecast.
Award [1 mark] if there is some understanding of the liquidity position of NBB.

Award [2 marks] if the commentary demonstrates a clear understanding of the liquidity position of
NBB, with good application of the data.

(d) Calculate the profit earned by NBB for the period from September to December. [2
marks]

 Profit = Sales revenue – Total costs

 Sales revenue = 20,000 + 18,500 + 19,500 + 22,500 = $80,500
 Total costs = 19,000 + 18,400 + 18,800 + 24,000 = $80,200
 Profit = $300

Note: Without paying staff an extra 50% in December, profit for the period would be $4,300.
Award [1 mark] for the correct answer and [1 mark] for showing the appropriate working out.

Investment Appraisal

Supreme Computing Inc. is considering spending $71,500 on new 3D printers. The annual
contribution from this investment is forecast to be $33,000.
Calculate the payback period for Supreme Computing Inc. [2 marks]
nswers

 $71,500 ÷ ($33,000 / 12) = 26 months

 So, the payback period = 2 years and 2 months.
Award [1 mark] for the correct answer.
Award [1 mark] for showing appropriate working out.

Exam Practice Question 2

Rowlands Printing Co. Answers
 (a) Define the term payback period. [2 marks]
The payback period is a method of investment appraisal, used to calculate the estimated time it
takes for the net cash flows (or contribution) of an investment project to recoup the initial costs of
the investment expenditure.
Award [1 mark] for an answer that demonstrates a limited understanding of the payback period.
Award [2 marks] for an answer that demonstrates a clear understanding of the payback period.

(b) Calculate the payback period for Rowlands Printing Co. [2 marks]
To calculate the PBP, the cumulative net cash flows are needed:

Year Net cash flow Cumulative net cash flow

1 $120,000 $120,000

2 $140,000 $260,000

3 $180,000 $440,000

4 $150,000 $590,000

5 $110,000 $700,000

 The PBP occurs between years 2 and 3 (as the cumulative NCF above $400,000 by the end of
the 3rd year)
 By the end of the 2nd year, there is a shortfall of $120,000 ($380,000 less $260,000) needed to
recover the investment costs of $380,000
 In Year 3, the total NCF is $180,000, i.e. the monthly NCF = $15,000
 Hence, it will take 8 months to reach payback in the 3rd year ($120,000 ÷ $15,000)
 Hence, the PBP = 2 years and 8 months
Award [1 mark] for the correct answer.
Award [1 mark] for showing appropriate working out.

(c) Comment on whether Rowlands Printing Co. should invest in the new printing
machines. [4 marks]
As the payback period occurs before the end of the third year, Rowlands Printing Co. can earn
profit for the remaining two years and four months of the 5-year project (or 28 months out of the
60 months in total). So, this is a relatively safe (or low risk) investment. However, as the firm “has
suffered from liquidity problems recently”, it may not be able to wait 2 years and ten months in
order to recoup the initial cost of the investment.
Award [1 – 2 marks] for showing some understanding of the decision to be made (to invest or
not, based on the calculated PBP). There is a lack of application to the stimulus in the case
study.
Award [3 – 4 marks] for a good level of understanding of the decision to be made (to invest or
not, based on the calculated PBP). There is relevant application to the stimulus in the case study.
 Exam Practice Question 3
Lewis & Co. is considering whether to pay for an annual subscription to an advertising agency at
a total cost of $80,800 for the next 5 years. The advertising agency predicts the net cash inflow
from this will be $28,200 of additional income per year for the company.
Calculate the payback period for Lewis & Co. [2 marks]
Answer


 PBP = 80,800 / (28,200/12) = 80,800 / 2,350 = 34.4 months
 This means payback occurs during the 35 month, i.e., the PBP is 2 years and 11 months.

Award [1 mark] for the correct answer.
Award [1 mark] for showing appropriate working out.

Exam Practice Question 4

Reed Taxi Co.
Answers
(a) Calculate the payback period for RTC. [2 marks]

 Payback period (PBP) = Cost of project ÷ Annual anticipated profits

 PBP = $38,000 / $12,000 = 3 years and 2 months
Award [1 mark] if the calculation is incorrect, but the working out is accurate, or if the calculation
is correct but the working is not shown.
Award [2 marks] if the calculation is correct. Appropriate working out is shown.

(b) Calculate the average rate of return (ARR) for RTC. [2 marks]

 ARR = (Average yearly profit / Capital employed) × 100

 Total profit = ($12,000 × 4) – $38,000) = $10,000
 Annual profit = $10,000 / 4 = $2,500
 ($2,500 / $38,000) × 100 = 6.58%
Award [1 mark] for the correct answer and [1 mark] for showing appropriate working out.

(c) Using your answers from above, suggest why the RTC might be undecided about
whether to proceed with the purchase of the new passenger vehicle. [4 marks]
The PBP is relatively long for RTC (3 years and two months) as this project is anticipated to last
only 4 years, by which time the passenger vehicle will need to be replaced. Hence, RTC is only
able to earn profit for the last 10 months.
 The ARR is 6.58%, meaning that the yearly net cash flow (or total returns) of $12,000 on an
investment project that costs $38,000 yields $6.58 for every $100 invested. If RTC cannot earn a
higher rate of return on the investment cost of $38,000, this yield may be attractive to the
company.
Award [1 – 2 marks] if the response shows some understanding of the demands of the question,
although there are some noticeable mistakes, misunderstandings, or omissions.
Award [3 – 4 marks] if the answer shows a good understanding of the demands of the question,
with reference to both investment appraisal methods. Award for up [3 marks] for an unbalanced
response.

Exam Practice Question 5

May Awady Stationers (MAS)
Answers
(a) Define the term net cash flow. [2 marks]
Net cash flow (NCF) is the numerical difference between a firm’s total cash inflows and its total
cash outflows, per time period.
Award [1 mark] for a definition that shows some understanding of net cash flow.
Award [2 marks] for a definition that shows a clear understanding of net cash flow, similar to the
example above.

(b) Calculate the payback period for May Awady Stationers (MAS). [2 marks]

Year 1 2 3 4 5

Net cash flow (NCF) 4,500 5,500 5,000 4,200 3,000

Cumulative NCF 10,000 15,000 19,200 22,200

MAS reaches its PBP within year 4 when the NCF ($19,200) exceeds the cost of the investment
($18,000).

 Shortfall in Year 3 = $18,000 – $15,000 = $3,000 to reach payback

 Monthly average NCF in Year 4 = $4,200 / 12 = $350
 $3,000 / $350 = 8.57 months (or 9 months)
 Hence, PBP = 3 years and 9 months
Award [1 mark] if the calculation is incorrect, but the working out is accurate, or if the calculation
is correct but the working is not shown.
Award [2 marks] if the calculation is correct. Appropriate working out is shown.

(c) Calculate the average rate of return for MAS. [2 marks]

Year 1 2 3 4 5
 NCF ($) 4,500 5,500 5,000 4,200 3,000

Cumulative NCF ($) 10,000 15,000 19,200 22,200

 Total profit = $22,200 – $18,000 = $4,200

 Average profit = $4,200 / 5 = $840
 Hence, ARR = $840 / $18,000 = 4.67%
Award [1 mark] if the calculation is incorrect, but the working out is accurate, or if the calculation
is correct but the working is not shown.
Award [2 marks] if the calculation is correct. Appropriate working out is shown.

(d) Using your answers from above to explain whether MAS should purchase the new
state-of-the-art photocopier. [4 marks]
The PBP for MAS is relatively long (3 years and 9 months) for the project which is anticipated to
last 5 years, by which time the state-of-the-art photocopier is likely to become outdated so will
need to be replaced. Hence, MAS is only able to earn profit on the investment for a little more
than a year – and possibly less if the forecasts are adversely incorrect.
The ARR is 4.67%, i.e., the average annual return is only $4.67 for every $100 invested in this
project. However, if MAS needs to have this new photocopier in order to operate efficiently, then
it may still be worth the expense.
Award [1 – 2 marks] if the answer shows some understanding of the demands of the question,
although there are some noticeable mistakes, misunderstandings, or omissions.
Award [3 – 4 marks] if the answer shows a good understanding of the demands of the question,
with consideration of both investment appraisal methods. Award for up [3 marks] for an
unbalanced response.

Exam Practise Question - Juke’s Retro Arcade Games (J-RAG)

(HL only)
Juke’s Retro Arcade Games (J-RAG) Answers
(a) (i) Define the term partnership. [2 marks]
A partnership is a form of business ownership where two to twenty people collectively own the
organization. In this case, brothers Jake and Luke own J-RAG as a partnership.
Award [1 mark] if there is some understanding of ‘partnership’ shown, although the answer might
lack clarity.
Award [2 marks] if ‘partnership’ is clearly defined, similar to the example above. Application is not
required to gain full marks.

(a) (ii) Define the term labour turnover. [2 marks]

 Labour turnover measures the number of workers who leave an organization expressed as a
percentage of the size of the workforce, per time period (usually each year).
Award [1 mark] if there is some understanding of ‘labour turnover’ shown, although the answer
might lack clarity.
Award [2 marks] if ‘labour turnover’ is clearly defined, similar to the example above. Application is
not required to gain full marks.

(b) (i) Calculate the payback period for the proposed investment project. [2 marks]
Payback period (PBP) calculations:

Year Annual NCF Cumulative NCF

1 45,000

2 50,000 95,000

3 55,000 150,000

4 45,000 195,000

5 40,000 235,000

 At the end of Year 2, there is a shortfall of $45,000.

 By the end of Year 3, the cumulative net cash flow ($150,000) is greater than the investment cost
($140,000). Hence, the PBP must occur between Year 2 and Year 3.
 In Year 3: $45,000 / ($55,000 / 12) = 4,583.33 = 9.82 months.
 Hence, the payback period is 2 years and 10 months.
Award [1 mark] if the PBP is correct but there is no working out shown or the correct procedure is
used but with an incorrect answer.
Award [2 marks] if the correct PBP is given with the working out shown.

(b) (ii) Calculate the average rate of return for the proposed investment project. [2
marks]

 ARR = $95,000 / 5 years = $19,000 per year

 ARR = $19,000 / $140,000
 ARR = 13.57%
Award [1 mark] if the ARR is correct but there is no working out shown or the correct procedure
is used but with an incorrect answer.
Award [2 marks] if the correct ARR is given with the working out shown.

(b) (iii) Calculate the net present value for the proposed investment project. [2 marks]
 The NPV is calculated by taking away the cost of the investment project from the sum of the
present values for the duration of the project. The higher the NPV, the more attractive the
investment project.

Annual Discount Discounted

Year
NCF factor NCF

1 45,000 0.9615 43,267.50

2 50,000 0.9246 46,230.00

3 55,000 0.889 48,895.00

4 45,000 0.8548 38,466.00

5 40,000 0.8219 32,876.00

Total 209,734.50

 Cumulative NCF = $209,734.50

 Cost = $140,000.00
 Hence, NPV = $69,734.50

Award [1 mark] if the NPV is correct but there is no working out shown or the correct procedure is
used but with an incorrect answer.
Award [2 marks] if the correct NPV is given with the working out shown.

(c) Evaluate whether J-RAG should invest in the new computerised system. Use
information from the case study and both quantitative and qualitative considers in your
answer. [10 marks]
Relevant financial factors could include:

 A relatively long payback period of 3 years and 10 months (especially given that the project is
expected to last 5 years before the computerized system needs to be upgraded).
 The ARR of 13.57% is high (and likely to be significantly higher than interest rates in the
economy, so there is an opportunity cost to just leaving any spare cash in the bank.
 However, J-RAG should also consider the reliability of the forecasted financial data, especially as
they are projecting figures for the next five years.
 There also needs to be consideration of the opportunity cost of the $140,000 that could be used
for investment. For example, there is the possibility of using this money for the partners to hire
two full-time workers, which would help to minimize the impact of the high labour turnover at J-
RAG.
 Accept any other relevant financial / quantitative factor, written in the context of the case study.
 Non-financial factors that could be considered by the partners regarding the investment in a new
computerized computer system could include:

 Consideration of whether the human resource issues are more of a priority than the need for a
new computerized system.
 The state of the economy – people are less likely to spend money on arcade consoles and
games if there is a recession, for example.
 The degree of competition in the local area (J-RAG operates in a rather niche market).
 Expected changes in interest rates.
 The impact on human resources, e.g. staff training, staff morale (retention is already an issue for
J-RAG).
 Accept any other relevant non-financial / qualitative factor, written in the context of the case
study.

Award [1 - 2 marks] if the answer is vague, generalized or lacks substance.

Award [3 - 4 marks] if the answer shows some understanding of the demands of the question.
There is some relevant application of the case study and figures calculated in Question (b),
although the answer lacks depth / analysis.
Award [5 - 6 marks] if the answer shows understanding of the demands of the question. There is
relevant application of the case study and figures calculated in Question (b), although the answer
lacks balance. Award up to [6 marks] if only financial or non-financial factors are considered.
Award [7 - 8 marks] if the answer shows good understanding of the demands of the question.
There is detailed consideration of both relevant numerical and non-numerical factors in relation to
J-RAG’s investment decision. However, evaluation is limited if attempted.
Award [9 - 10 marks] if there is a balanced discussion of relevant numerical and non-numerical
factors in relation to whether J-RAG should invest in the new computerized system to improve its
stock (inventory) control and operational efficiency. Appropriate terminology and examples from
the case study have been used effectively. There is evidence of critical and evaluative thinking.

Budgets (HL only)

Answers
(a) Define the term budgeting. [2 marks]
Budgeting is the cyclical (on-going) process of planning, setting, controlling, monitoring, and
reviewing the financial plan of expected revenues and expenditures for an organization (or a
department within an organization), for a given period of time.
Award [1 mark] for a vague definition of budgeting.
Award [2 marks] if budgeting is clearly defined, similar to the example above.
 (b) Define the term brand awareness. [2 marks]
Brand awareness measures the extent to which potential customers or the general public
recognize a particular brand. It can be expressed as a percentage of the sample surveyed.
Award [1 mark] for a vague definition of brand awareness.
Award [2 marks] if brand awareness is clearly defined, similar to example above.

(c) Examine the importance of budgeting to Tsingtao Brewery Company. [6 marks]

Being China’s second largest brewery, Tsingtao will need effective budgeting in order to run its
global operations efficiently. Budgeting as a management tool is important to Tsingtao for several
reasons, including:

 Budgeting can be used to motivate Tsingtao managers and other budget holders, to encourage
responsibility and accountability and to aid financial control.
 It helps to control business costs in order to prevent liquidity problems.
 It has a central role in strategic planning, e.g., setting aside a sufficient budget to sponsor major
sporting events such as the Beijing Olympic Games or the British Superbike Championship.
 Budgeting requires Tsingtao to plan for the future as it tries to enhance its corporate brand
awareness and brand development.
 It helps to ensure that Tsingtao managers plan ahead and to anticipate any financial problems
before they arise. They are required to anticipate the costs and revenues of different business
activities and hence to agree on competing priorities and targets.
 Ultimately, effective budgeting avoids inefficient expenditure and improves the long-term
competitiveness of Tsingtao.
Award [1 – 2 marks] if the answer is generalized and/or lacks substance.
Award [3 – 4 marks] if there is some examination of the importance of budgeting although the
answer might lack detail and/or application to Tsingtao Brewery Company.
Award [5 – 6 marks] if there is a thorough examination of the importance of budgeting to Tsingtao
Brewery Company. Appropriate terminology has been used with sound application to the case
study.

Answers
(a) Define the term profit centre. [2 marks]
A profit centre is a distinct part of a business organization, such as a department or division,
treated separately to analyze its financial performance. It aims to generate more revenue than
costs, contributing to the overall profitability of the organization.
Award [1 mark] for a limited definition that shows some understanding of the term profit centre.
Award [2 marks] for a clear and accurate definition that shows good understanding of the term
profit centre, similar to the example above.
 (b) Explain two roles of cost and profit centres for large business organizations. [4
marks]
Possible responses could include an explanation of of any two of the following points:

 Improved monitoring and control - Cost and profit centres help organizations keep a closer eye
on different aspects of their business operations, allowing for more effective monitoring and
control of their financial performance.
 Enhanced autonomy - Managers in these cost and profit centres have the freedom to make
decisions independently, leading to quicker and more tailored responses to departmental needs
without constantly having to seek prior approval from head office.
 Motivation for efficiency - Empowering managers with responsibility for cost and profit centres
helps to improve motivation. Efficient managers can be rewarded for improved cost control, and
those in profit centres can be incentivized for generating higher revenues and profits.
 Increased accountability - Cost and profit centres make managers accountable for their
designated financial responsibilities. They are held responsible for controlling costs in their areas,
and profit centre managers are further accountable for both revenue and profit, ensuring more
responsible business operations.
Mark as a 2 + 2.
For each point, award [1 mark] for an appropriate role and a further [1 mark] for an appropriate
explanation.

(c) Explain two reasons why businesses may choose to set up cost centres or profit
centres. [4 marks]
Possible reasons could include (any two of):

 To support decision making in the organization, based on financial data, such as decisions
about whether to invest or divest in a particular aspect/division of the business.
 Improved accountability as cost and profit centres help to hold specific divisions of the business
accountable for their costs and/or revenues. This means being abl to identify and hold managers
and their teams accountable for operational and financial inefficiencies (as well as rewarding
those who perform better than anticipated).
 Increasing motivation in the workplace by providing departmental managers and their staff
with autonomy (to do their work) and incentives (to perform better than budgeted). For example,
divisions that perform favourably may receive financial bonuses and/or individuals may be
promoted for their efforts and achievements. The use of profit centres in particular can help to
empower managers and their staff by delegating authority and control to departmental managers
and increasing staff morale within the different cost and profit centres of the organization also
helps in improving motivation.
 Accept any other relevant reason, such as any two from the MAMA acronym, such as autonomy
and/or monitoring and control.
Award [1 - 2 marks] for a limited response that shows some understanding of the demands of the
question. There is limited use of appropriate business management terminology or a lack of
detail. Award up to [2 marks] if only one reason is provided.
Award [3 - 4 marks] for an accurate response that shows good understanding of the demands of
the question. There is appropriate use of relevant business management terminology throughout
the answer, with two reasons explained in detail.

Exam Practice Question - Ed Jaen Toys Inc.

Answers
(a) Define the term budget. [2 marks]
A budget is a detailed financial plan for the future, usually involving the expected costs and
revenues or a cash flow forecast, for a pre-determined period of time.
Award [1 mark] for a limited response that shows some understanding.
Award [2 marks] for a definition that shows good understanding, similar to the example above.

(b) Use the information below to construct a budget for Ed Jaen Toys Inc. for the trading
period ended 31st December 2023. [4 marks]
Budget for Ed Jaen Toys Inc. for the period ended 31st December 2023

Budgeted Actual
All figures in $'000 Variance
figures figures

Revenue:

Sales revenue 500 520 20

Interest earned 15 12 (3)

Total revenues 515 532 17

Costs:

Salaries and wages 250 260 (10)

Materials 100 110 (10)

Rent 100 100 0

Advertising 20 25 (5)
 Electricity 10 15 (5)

Total costs 480 510 (30)

Excess of revenues over (under)

35 22 (13)
costs

Note: variances are not required for this question but have been included for ease of reference.
Deduct [1 mark] for each error, applying the own figure rule (error carried forward) where
appropriate.

(c) Explain your findings for Ed Jaen Toys Inc. based on the constructed budget. [4
marks]
The company had budgeted for $515,000 of sales revenue but the actual amount was $17,000
higher at $532,000. This is favourable for the business, although it is important to also consider
costs. The business had budgeted to spend $480,000 on its costs but ended up spending
$30,000 more as actual total costs amounted to $510,000. This is clearly unfavourable for the
business overall. Whilst Ed Jaen Toys Inc. has excess revenue over costs of $22,000 (actual
total revenue – actual total costs), this is still $13,000 less than budgeted.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question, although there is a lack of clear application of the constructed budget.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question, with clear and accurate application of the constructed budget. The response uses
appropriate terminology throughout.

Exam Practise Question 1

Answer
A favourable variance occurs when the actual outcome for a variable in a budget (such as
budgeted sales revenue) is better than the budgeted (planned) outcome.
By contrast, an adverse variance occurs when the actual outcome is worse than the budgeted
plan for an item in the budgeting process.
Variance analysis can therefore enable managers to investigate and examine the reasons for the
differences (variances) that occur to improve the organization's financial performance. Hence,
variance analysis can be a useful analytical planning and decision-making tool.

Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question. The explanation of variances is likely to be vague / incomplete, and there may not be
any specific reference to adverse and favourable variances.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question. The explanation of variances is clear and complete, with appropriate and specific
reference to adverse and favourable variances.
 Exam Practice Question 2 - Saka Toys
Answer

 Budgeted labour costs = 300 hours × $8 per hour = $2,400

 Actual labour costs = 312 hours × $8 per hour = $2,496
 Variance = Actual costs – Budgeted costs = $2,496 – $2,400 = $96 [A]
 As the actual costs for this order are greater than budgeted costs, this variance is adverse.
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

Exam Practice Question 3 - Xhaka Inc.

Answers
(a) Calculate the labour cost per unit of output for Xhaka Inc. [2 marks]

 Labour cost per unit of output = ($25,000 × 12) ÷ 20,000

 300,000 ÷ 20,000 = $15 per unit
Award [1 mark] for the correct answer and [1 mark] for showing appropriate working out.

(b) Comment on your answer to Question 2(a). [2 marks]

Xhaka Inc. has a favourable variance on its budgeted cost of labour per unit of output. This is
because the company had budgeted for $18 per unit but the actual amount was only $15, i.e., it
has a favourable variance of $3 per unit of output.
Award [1 mark] for a limited understanding of the demands of the question.
Award [2 marks] for showing good understanding of the demands of the question, similar to the
example above.

Exam Practice Question 4 - Burgers R Us

(Answers

(a) Complete the missing figures in the table below for Burgers R Us. [6 marks]

Budgeted Variance
Variable Actual Outcome ($) Variance (F/A)
($) ($)

Wages 3,000 3,200 200 Adverse

Salaries 4,500 4,500 0 -

Stock (inventory) 1,500 1,850 350 Adverse

 Revenues 12,350 12,050 300 Adverse

Cost of sales
9,750 9,700 50 Favourable
(COS)

(b) Suggest two examples of stock (inventory) that are likely to be held by Burgers R Us.
[2 marks]

Burgers, buns, cheese, tomatoes, onions, sauces (ketchup, mustard etc.), gherkins, fries, fizzy
drinks etc.

Mark as a 1 + 1

(c) Suggest two examples of costs of sales likely to be incurred by Burgers R Us. [2
marks]

Wages of hourly paid staff, stocks / inventory (such as those in the answer for Question c), fat /oil
for frying, electricity etc.

Mark as a 1 + 1

Exam Practice Question 1

Answers

(a) Define the term budget. [2 marks]

A budget is a financial plan of expected revenue and expenditure for an organization, or a

department within an organization, for a given time period.

Award [1 mark] for an answer that shows some understanding of the term budget, although the
response lacks depth or clarity.

Award [2 marks] for a definition that shows a clear understanding of the term budget, similar to
the example above.

(b) Describe two advantages of preparing a marketing budget. [4 marks]

Possible advantages of preparing a marketing budget could include:

 Being a forward-looking financial plan, a budget requires the marketing manager to plan for the
future such as deciding how much ought to be spent on marketing activities in the forthcoming
year.
 It enables the marketing department of a business to anticipate financial problems before they
occur. This should therefore help the business to be better prepared to overcome such problems
should they materialise.
 A budget enables marketing managers to control the firm’s money, instead of the money
controlling the department / firm.
 A budget helps the entire marketing department to focus on common goals, i.e., there are
positive impacts of motivation.
 The department / firm can benefit from better financial control. The marketing department cannot
spend beyond its means, so budgeting helps to control its marketing expenditure. Also, it helps
marketing managers to be held accountable for their actions. Having tighter financial control can
prevent a business going into debt, particularly in large organizations that delegate budgets to
their middle and senior managers.
 Accept any other relevant advantage of preparing budgets in the context of the marketing
department.

Award [1 – 2 marks] if the answer shows some understanding of the advantages of preparing
budgets. Award up to [2 marks] if only one advantage is described.

Award [3 – 4] marks if the answer shows a good level of understanding of the advantages of
preparing budgets in the marketing department. The description is clear, with appropriate use of
business management terminology throughout the response.

Exam Practice Question 2 - Golden Dragon Coach Company (GDCC)

Answers
(a) State two other ways to measure the market size of coach travel industry. [2 marks]
Market size can also be measured by:

 Number of customers (customer base)

 Sales revenue of the coach company as a proportion of the total sales within the airline industry
(market share)
 Size of each coach travel company’s fleet (number of coaches owned)
 Relative profit figures of each coach company
 Accept any other valid measure.
Award [1 mark] for each suitable measure of market size, up to [2 marks].

(b) Define the term adverse variances. [2 marks]

An adverse variance refers to the discrepancy in the budget (or particular aspect / component of
a budget), which occurs when profit is lower than expected. This is due to the organization's
costs being higher than expected and/or sales revenues being lower than predicted.
Award [1 mark] for a response that shows some understanding of adverse variance.
Award [2 marks] for a definition that shows a good understanding of adverse variances, similar to
the example above.
 (c) Explain the importance of budgeting to businesses such as GDCC. [4 marks]
Budgeting refers to the process of financial planning and control in a business organization. As a
financial plan, budgeting is important for a business such as GDCC as it allows the organization
to check its actual performance against the budgeted (planned) targets, such as sales revenue,
costs, profit, staffing, or marketing expenditure.
A budget also helps with strategic planning. It should therefore reflect the aims of the
organization. For example, if a business plans to upgrade or replace it coaches, then the
intended amount of expenditure should be incorporated into the budget. The same applies to the
company's growth objectives.
Award [1 – 2 marks] if the answer shows some understanding of the importance of budgets.
Award [3 – 4] marks if the answer shows a good understanding of the importance of budgeting.
The explanation is clear, with appropriate use of business management terminology throughout
the response.

(d) Explain two limitations of using budgeting for GDCC. [4 marks]

Limitations of using budgeting at GDCC include:

 Unforeseen changes in the external business environment can cause large variances in budgets,
e.g., the coronavirus pandemic of 2019 - 2020 causing major repercussions for the travel and
tourism industry or fluctuating exchange rates affecting the final price paid to the European
supplier of the vehicles.
 Similarly, rigid and poorly allocated budgets can create serious problems for GDCC, i.e.,
budgeting can be far too inflexible in today’s fast-paced and constantly changing business
environment, especially as the company continues to grow and gain market share.
 Over-generous budgets can cause complacency and inefficient expenditure at GDCC, e.g., can it
really afford to give away so many free tickets, despite its double-digit growth (which is not the
same as profit)? By contrast, under-provision of finance can cause major operational problems,
e.g., constraints on marketing the 20th anniversary celebrations of the company.
 The budgeting process (of planning, setting, controlling, monitoring and reviewing budgets) can
be extremely time-consuming, especially in large organizations such as GDCC with its operations
in 35 different cities.
 By placing too much emphasis on budgetary control, GDCC might neglect non-financial issues,
such as non-financial motivation of the company's staff.
 Any other valid and explained limitation, in the context of GDCC.
Any two suitable limitations (of budgeting) explained in the context of GDCC would warrant full
marks.
Mark as a 2 + 2.

Unit 4 – Marketing
Market vs product orientation
Tesco
Answers
(a) Define the term market share. [2 marks]
Market share is a measure of the size of a business in comparison to others in the same
industry. It is calculated by expressing the firm' sales revenue as a percentage of the sales
revenue of all firms in the industry.
Award [1 mark] for a limited response that shows some understanding of the term market share.
Award [2 marks] for an accurate definition of market share, similar to the example above.

(b) Explain whether the above example illustrates market orientation or product
orientation. [4 marks]
Market orientation is a strategic approach used by a business that provides a good or service to
meet the requirements of consumers, usually based on market research. Tesco used market
research findings to respond to the changing market needs of its customers.
By contrast, product orientation is an alternative marketing approach that focuses on making or
supplying products a business knows how to make well, rather than primarily concentrating on
the needs and desires of potential customers. Tesco outsourced the catering services to Elior
Group and Compass Group because operating restaurants and cafes is not part of the
supermarket chain's core competencies. This enables these catering companies to better meet
the need of customer who visit the 300+ restaurants or many more coffee shops at Tesco
supermarkets.
Note:
Outsourcing of non-core functions can be an example of both market orientation and product
orientation, depending on the reason behind it. If outsourcing is done with the aim of improving
Tesco's ability to meet their customers' needs and improving the supermarket's competitiveness,
then it can be considered an example of market orientation.
However, if outsourcing is done to improve the quality, functionality, or cost-effectiveness of a
product or service (as in the case of Tesco's restaurants and coffee shops), then it can be
considered an example of product orientation.
Accept any accurately explained answer that shows knowledge and application to the case
study.
Award [1 - 2 marks] for a limited response that shows some understanding of the demands of the
question.
Award [3 - 4 marks] for an accurate response that shows good understanding of the demands of
the question. There is effective use of business management terminology throughout the answer,
making a clear distinction between market orientation and product orientation.

(c) With reference to Ansoff's martix, explain the method of growth used by Tesco. [4
marks]
The Ansoff matrix is a strategic management tool, used to devise product and market growth
strategies for a business.In this particular case, Tesco is adopting a diversification growth
strategy, which involves the business launching new products (coffee shops and restaurants in
some of its larger supermarkets) in new markets (catering services for people who do not
necessarily shop regularly in Tesco). Having invested in almost 300 restaurants and coffee
shops, Tesco had taken immense risks by providing a new service (not part of its core
competencies) and catering for new customers (those who do not necessarily shop in Tesco).
Note: it may be possible that some students argue this to be a market development strategy in
that Tesco is catering for new customers (diners and coffee drinkers) in their existing stores.
After all, market development is a growth strategy that uses customer loyalty to persuade people
(existing and prospective customers) to buy a new product. Award answers that are
substantiated and justified accordingly.
Award [1 - 2 marks] for a limited response that shows some understanding of the demands of the
question.
Award [3 - 4 marks] for an accurate response that shows good understanding of the demands of
the question. There is effective use of business management terminology throughout the answer,
making a clear distinction between market orientation and product orientation.

Market share

Exam Practice Question 1

Naples Souvenirs has 1.3% market share of the souvenirs market in the city. The market is
worth $28.5 million per year.
Answers
(a) Define the term market share. [2 marks]
Market share is the proportion of the sales revenue in a market that is attributed to any particular
business, product, or brand. It is measured by expressing the sales revenue of a business as a
percentage of the industry's total sales revenue.
Award [1 mark] for a limited response that shows some understanding.
Award [2 marks] for a clear and accurate definition, similar to the example above.

(b) Calculate the annual sales of Naples Souvenirs. [2 marks]

Market share = 1.3% × $28.5m = $370,500
Award [1 mark] for the correct answer and [1 mark] for the correct working out.

Exam Practice Question 2

Answer
The total industry sales = $21m + $24m + $12m + $18m = $75 million

Business Sales ($m) Market share (%)

 A 21 21/75 = 28%

B 24 24/75 = 32%

C 12 12/75 = 16%

D 18 18/75 = 24%

Market Growth
Exam Practice Question
Answers
(a) Calculate the percentage change for each of the four subject combinations shown. [2
marks]

Subject Le Le Growt
Subject 2 2021 2022 2023
1 vel vel h (%)

19.16
Bus Man HL Economics HL 3,257 3,553 3,881
%

23.09
Bus Man HL Economics SL 888 1,044 1,093
%

34.55
Bus Man SL Economics HL 683 743 919
%

-
Bus Man SL Economics SL 209 182 204
2.39%
Award [1 mark] for particial understanding of the demands of the question.
Award [2 marks] for the correct answers (calculations). There is no requirement to show any
working.

(b) Calculate the overall growth in the number of candidates who sat their final exams in
both Business Management and Economics in the Diploma Programme. [2 marks]

 Total number of candidates in 2021 = 5,037

 Total number of candidates in 2023 = 6,097
 Growth rate = [(6,097 – 5,037) / 5,037] × 100 = 21.04%
Award [1 mark] for the correct answer (expressed to 2 d.p.) and [1 mark] for appropriate working
out.

(c) Comment on your findings from the above calculations. [2 marks]

Possible responses could include a commentary on any of the following points:
 The highest growth rate (+34.55%) is for students who studied SL Business Management along
with HL Economics for the period 2021 to 2023.
 There was a slight fall (-2.39%) in the number of candidates who studied SL Business
Management alongside SL Economics.
 In 2023, the majority of students (63.65%) who studied both these subjects took the the exams at
Higher Level.
 By contrast, in 2023, only 3.35% of the 6,097 candidates took both subjects at Standard Level,
i.e., 96.65% took at least one of these two subjects at Higher Level.
 The total number of candidates who studied both subjects increased by 21.04% during the given
time period.
Award [1 mark] if the commentary shows particial understanding of the demands of the question.
Award [2 markw] if the commentary shows good understanding of the demands of the question,
with appropriate interpretation of the calculations.

Sales forecasting (HL only)

Answers
(a) Define the term sales forecasts. [2 marks]
Sales forecasts are predictions of an organization’s sales volume or sales revenue over a given
period of time, such as per quarter or year.
Award [1 mark] for a definition that shows limited understanding.
Award [2 marks] for a definition that shows good understanding, similar to the example above.

(b) Explain two possible economies of scale from that PCC is likely to have benefited
from. [2 marks]
Possible answers could include an explanation of:

 Purchasing economies of scale - Buying materials in bulk, including fabrics, buttons, labels,
thread, stitching, and sewing needles. Unit costs of such materials will fall due to discounts
offered by PCC’s suppliers for bulk purchases.
 Technical economies of scale - Investments in equipment and machinery used to produce the
clothing items (such as CAD-CAM machinery, layer cutting machines, stitching machines etc.) in
larger quantities. Over the long run, unit costs will fall as the scale of PCC’s production increases.
 Marketing economies of scale - As PCC sells and distributes its fashion products in the USA,
India, UK, and Germany, it can benefit from lower unit costs of advertising and promotion
perhaps through more effective international marketing media.
 Financial economies of scale - Increased amounts of finance, and at more affordable interest
rates, can be made available to firms as they expand.
 Accept any other relevant answer.
Mark as 2 + 2.
 For each answer, award [1 mark] for identifying a relevant economy of scale and [1 mark] for an
appropriate explanation in the context of PCC.

(c) Outline one advantage and one disadvantage of using sales forecasting for PCC. [4
marks]
Possible advantages could include:

 Sales forecasting helps to facilitate planning - Sales forecasting uses past and current data which
can be used as a useful planning tool to reduce future uncertainties, such as purchase orders of
fabrics. Researchers, such as the marketing director, can identify the trend based on a method of
moving averages to forecast the sales figures in the future.
 Improved inventory control - Sales forecasting allows PCC to keep an appropriate level of stocks,
such as fabrics, at different times of the year.
 Improved budgetary control - Sales forecasting allows various budgets to be better prepared for
different functions within the organization. This could help PPC to improve its corporate strategies
to achieve it business aims and objectives.
 Better cash flow position and improved working capital - Sales forecasting and improved
budgetary control help PPC to identify seasonal fluctuations and such impacts on the firm’s
liquidity position.
 Accept any other relevant explanation written in the context of the case study.

Possible disadvantages or limitations could include:

 Limited and/or inaccurate information - Data is limited and does not necessarily indicate the
whole picture for the company. For instance, the forecasts are based on the past, which maybe
unrepresentative so the sales forecasts might be ineffective in practice.
 External influences - Changes in the external environment limits the usefulness of the sales
forecasts prepared. For example, changes in economic conditions or consumer habits, taste and
preferences will affect the demand for PCC’s fashion items.
 Accept any other relevant explanation written in the context of the case study.
Mark as 2 + 2.
Award [1 mark] for a relevant advantage and [1 mark] for a relevant disadvantage that is clearly
identified, up to a maximum of [2 marks].
Award [1 mark] for each appropriate explanation / application, up to a maximum of [2 marks].

Sampling Answers
(a) Define the term market research. [2 marks]
Market research is a systematic process of collecting, analyzing, and interpreting information
about a market, including potential and existing customers, competitors, and the trends in the
industry. The aim is to gain insights into changing market dynamics in order to make informed
marketing decisions to meet the needs and wants of customers.
Award [1 mark] for a limited definition that shows some understanding of market research.
 Awaed [2 marks] for a clear and accurate definition of market research, similar to the example
above.

(b) In the context of the case study, outline the purpose of sampling in market research.
[2 marks]
Sampling is the process of selecting a subset or a representative group of consumers from a
larger population for the purpose of conducting market research. Sampling involves choosing a
manageable number of individuals (4,000 Chinese coffee shop consumers in the above case)
from the entire target population to gather insights, make inferences, or draw conclusions about
the population as a whole. The purpose is to obtain accurate and reliable information while
minimizing the time, cost, and resources required to study the entire population.
Award [1 mark] for a limited answer that shows some understanding of the purpose of sampling
in market research.
Award [2 marks] for an accurate answer that shows clear understanding of the purpose of
sampling in market research, written in the context of the case study.

(c) State two features of quota sampling for World Coffee Portal. [2 marks]=
Features of quota sampling include:

 Quota sampling involves the identification of specific characteristics or demographics deemed

relevant to the research, e.g., the age, gender, and income of coffee drinkers.
 Participants are selected non-randomly within each subgroup to fulfill predetermined quotas.
 Quotas are set for each subgroup to ensure that the final sample represents the diversity present
in the overall population of coffee drinkers.
 Researchers have control over the selection process, as they actively choose participants to
meet the established quotas.
Mark as a 1 + 1.

(d) Explain the difference between random and convenience sampling. [4 marks]
Random sampling is a probability sampling method where every individual in the population has
an equal chance of being selected for the sample. Participants are chosen randomly using
methods like random number generators or lottery systems, ensuring each member of the
population has a fair and unbiased opportunity to be included, thereby reducing potential bias.
However, this can be time consuming and expensive if the population is large.
In contrast, convenience sampling is a form of non-probability sampling as individuals are chosen
based on ease of access or proximity. Convenience sampling is typically used when practical
considerations take precedence over obtaining a representative sample, e.g., due to time and
budgetary constraints. However, convenience sampling may lead to biased samples because
individuals who are conveniently accessible might not be representative of the entire population,
i.e., certain groups may be overrepresented or underrepresented.
Award [1 - 2 marks] for some understanding of the demands of the question. The difference(s)
may not be explicitly explained.
 Award [3 - 4 marks] for an answer that shows a clear understanding of the demands of the
question. The difference(s) is (are) explicitly explained, using appropriate terminology throughout
the response.

Marketing Mix
Toymaker Mattel
Answers
(a) Define the term intellectual property (IP). [2 marks]
Intellectual property (IP) refers to the intangible assets of a business through its creativity and
capital expenditure. It encompasses a wide range of intangible assets, such as inventions,
innovations, designs, artistic works, symbols, slogans, images, and proprietary knowledge that
are products of human creativity and intelligence.
Award [1 mark] for a definition that shows partial understanding of the term intellectual property.
Award [2 marks] for a definition that shows good understanding of the term intellectual property,
similar to the example above.

(b) Explain one benefit of using social media marketing (SMM) as a promotional strategy for
Mattel. [2 marks]
Possible answers include an explanation of any one of the following:

 SMM has a wide reach - Social media platforms have a broad user base, allowing the Barbie
marketing team to reach a large and diverse audience across different demographics. This helps
to ensure that the promotional messages reach the right people who were more likely to be
interested in the Barbie movie and associated products.
 SMM has potential to go viral - The use of engaging and shareable content related to the Barbie
movie, such as movie trailers, behind-the-scenes footage, and interactive posts on various social
media platforms, help to encourage users to share and spread the brand content with their social
networks. This word-of-mouth marketing helps to amplify the reach of the Barbie campaign and to
generate additional marketing buzz around the movie.
 SMM facilitates real-time interaction and customer engagement - Social media platforms facilitate
real-time interaction between brands and their audience. The Barbie marketing strategy
leveraged this feature by engaging with fans, especially with the world tour to promote the movie.
This high level of engagement created a sense of involvement and emotional connection with the
Barbie brand, fostering brand loyalty and advocacy.
 Accept any other relevant benefit that is explained in the context of the case study.
Award [1 mark] for a valid benefit and a further [1 mark] for a suitable explanation, written in the
context of the case study.

(c) Explain one way in which Mattel differentiates itself and its products from competitors. [2
marks]
Possible answers include an explanation of any one of the following:
 Strategic brand partnerships and collaborations - Mattel has set itself apart from its competitors
by establishing licensing agreements with over 100 brands, including well-known names from
Airbnb to Zara in order to expand the reach and appeal of its Barbie products. These
collaborations go beyond traditional movie promotions, allowing Mattel to leverage the popularity
and credibility of these partner brands to create cross-promotional campaigns.
 Multi-platform marketing: The Barbie marketing strategy uses a multi-platform approach,
combining product tie-ins, viral social media marketing (SMM), and traditional movie promotions.
This comprehensive marketing mix enables Mattel to create a buzz and engage with customers
on various levels. By leveraging social media platforms, for example, Mattel ensures that the
marketing message reaches a wide and diverse audience..
 Expanding the brand beyond dolls and toys - Mattel's corporate strategy involves expanding the
Barbie brand beyond dolls and toys. This diversification strategy allows Mattel to capitalize on the
strong brand recognition, value, and recognition of Barbie to enter new product categories and
markets. By doing so, Mattel would differentiate itself from competitors who may have a much
narrower product focus.
 Emotional appeal and escapism - The Barbie marketing campaign taps into the emotional appeal
of escapism, especially in a post-COVID world. By emphasizing the movie's ability to offer a form
of escapism and leveraging lead actor Margot Robbie and director Greta Gerwig for promotional
activities, Mattel creates an emotional connection with audiences and customers from across the
world. This approach sets Barbie apart by resonating with customers who seek entertainment
and distraction from the challenges of reality.
 Accept any other relevant method that is explained in the context of the case study.
Award [1 mark] for a valid way or method by which Mattel differentiates itself and a further [1
mark] for a suitable explanation, written in the context of the case study.

(d) Explain two benefits of businesses collaborating with Mattel as part of its marketing strategy
for the Barbie movie. [4 marks]
Possible answers include an explanation of any two of the following interrelated points:

 Expanded customer reach and brand exposure - Collaborating with Mattel as part of the Barbie
movie marketing strategy offers businesses the opportunity to tap into Barbie's extensive and
diverse audience. With the Barbie brand having a global presence and a rich history spanning
over six decades, businesses can benefit from increased reach and exposure to various
demographics and markets. This extended visibility can help to improve brand recognition and
potentially attract new customers to their products.
 Leveraging Barbie's brand value - As the best-selling toy of all time, the Barbie brand carries
substantial brand value and the trust of customers. By associating themselves with Barbie
through strategic collaborations, partner businesses can leverage this positive brand image in
order to enhance their own corporate reputation. Being associated with a beloved and iconic
brand like Barbie can positively impact the perception of their own products, leading to increased
sales and profits.
 Cross-promotional opportunities - Collaborating with Mattel provides businesses with the
opportunity to engage in cross-promotional activities. By aligning their products with the Barbie
movie and merchandise, businesses such as Burger King and Crocs can tap into the excitement
and hype surrounding the film's release. This cross-promotion can lead to mutual benefits, where
 the marketing efforts of both Mattel and the collaborating businesses reinforce each other,
resulting in greater visibility and consumer interest.
 Access to Mattel's intellectual property (IP) licensing - Businesses collaborating with Mattel are
allowed to incorporate aspects of the company's characters and themes from the Barbie movie
into their own products or marketing campaigns. The association with Barbie can enhance the
appeal of their own product offerings, potentially leading to increased sales and market
competitiveness.
 Creative and innovative marketing - The Barbie marketing strategy for the movie involved a broad
range of elements, including product tie-ins, viral social media marketing, and brand partners. By
collaborating with Mattel, businesses can be part of these creative and innovative marketing
campaigns. This collaboration can help to inject new ideas and creativity into their own marketing
mix, helping them to also stand out in a competitive market and capture the attention of their
target audience.
 Enhancing customer engagement - The Barbie marketing strategy generated much excitement
and customer engagement across the globe. By collaborating with Mattel, businesses can benefit
from this level of enthusiasm and emotional connection that consumers have with the Barbie
brand. Engaging in joint promotional activities can also create a sense of involvement and
interest amongst customers, leading to higher levels of engagement and brand loyalty.
Mark as a 2 + 2.
For each point, award [1 mark] for a valid benefit and a further [1 mark] for a suitable explanation,
written in the context of the case study, up to the maximum of [4 marks].

International Marketing (HL only)

(a) Define the term multinational company (MNC). [2 marks]
A multinational company (MNC) is a business that has operations overseas, i.e., it operates in
two or more countries. Although the MNC has its headquarters in one country, it has operations
and premises in other countries.
Award [1 mark] for a definition that shows limited understanding of multinational company.
Award [2 marks] for a definition that shows good understanding of multinational company, similar
to the example above.

(b) Define the term international marketing. [2 marks]

International marketing refers to the marketing of an organization’s goods and/or services in
overseas markets. It includes anticipating and identifying the needs of the target market based in
foreign nations, and meeting these needs in a profitable way.
Award [1 mark] for a definition that shows limited understanding of international marketing.
Award [2 marks] for a definition that shows good understanding of international marketing, similar
to the example above.

(c) Explain the importance of branding for a multinational company (MNC). [6 marks]
Possible reasons that could be explained could include:
 An appropriate brand is needed to meet the expectations of the target market in different
international markets.
 Brand association can have a direct impact on sales, especially in overseas markets where
particular brand may/may not be known.
 International branding helps to differentiate a product from rival ones on the market, and can give
a business a unique identity.
 Brand recognition can help to increase sales, especially in international/overseas markets.
 Branding can enhance a firm’s unique selling point (USP).
 It can help businesses operating in new/overseas markets to attract customers, especially in well-
established markets with existing market leaders.
 A well-developed and respected brand can help the MNC to set premium prices, thereby helping
to improve its profit margins.
 An effective international branding strategy can help the MNC to encourage repeat purchases
(due to brand loyalty).
 Effective international brand management helps to lengthen the product life cycle of the MNC's
goods.

Award a maximum of [2 marks] if the response shows limited understanding of the demands of
the question or if there is minimal, if any, application to a MNC.
Award a maximum of [4 marks] if the response shows good understanding of the importance of
branding but parts of the explanation lack depth or if the application is weak in some areas.
Award up to [6 marks] if there is a thorough explanation of the importance of branding for a MNC.
The response is explained with effective use of terminology throughout the answer, which is
applied well to the chosen MNC.

German car manufacturer BMW

Answers
(a) Define the term market leader. [2 marks]
The term "market leader" refers to a business that has the largest market share within a specific
industry or market segment. The market leader is generally recognized as the most influential
and dominant firm in the industry, as measured by metrics such as sales value, sales volume,
size of the customer base, brand recognition, and overall market influence.
Award [1 mark] for a definition that shows some understanding of market leader.
Award [2 marks] for a definition that shows good understanding of market leader, similar to the
example above.

(b) Explain two opportunities for BMW of operating internationally. [4 marks]

Possible opportunities could include an explanation of:

 Market growth – Despite the criticism faced due to the inappropriate commercial, BMW has a
significant market share in the premium car segment in the Middle East. This indicates an
opportunity for BMW to further expand its presence and increase its market share in the region.
 With its existing customer base and brand recognition, BMW can leverage its strengths to tap into
new markets or segments within the Middle East and capture a larger share of the premium car
market.
 Brand development – As there is scope for BMW to grow its brand even further in the Middle
East, this presents an opportunity for BMW to focus on brand development strategies such as
increasing brand awareness and enhancing its brand image through more culturally appropriate
market strategies to improve customer perceptions. By effectively positioning itself as a premium
and desirable brand, BMW can differentiate itself from competitors and attract more customers in
the UAE and Middle East. This can be achieved through targeted marketing campaigns,
delivering exceptional customer experiences, and emphasizing the unique features and benefits
of BMW cars.
 Opportunities to engage with the local community and partner with local organizations – These
opportunities enable BMW to build stronger relationships, gain trust, and establish itself as a
premium brand that respects and values regional cultures and traditions. Cultural sensitivity and
localization are crucial aspects of effective international marketing, as exemplified by the
criticisms of BMW’s inappropriate commercial in the UAE. Instead, BMW can localize its
marketing campaigns in the Middle East and align its marketing mix with the target market’s
cultural values.
Award as a 2 + 2.
For each point, award [1 mark] for an appropriate advantage and a further [1 mark] for a suitable
explanation, up to the maximum of [4 marks].

(c) Explain two threats for BMW of operating internationally. [4 marks]

Possible threats could include an explanation of:

 Damage to BMW’s brand reputation – The inappropriate use of the national anthem in BMW’s car
commercial led to significant criticism and anger among Emiratis. This incident can damage
BMW’s brand reputation not only in the UAE but also in other regional and international markets.
Negative perceptions and backlash can lead to a loss of trust and credibility of the brand, making
it challenging for BMW to maintain a positive image and attract new customers in international
markets.
 Risk of cultural misunderstandings and causing offense – Similarly, the incident highlights the
importance of cultural sensitivity and understanding in international marketing. BMW’s failure to
recognize and respect cultural nuances in the UAE can lead to offensive or inappropriate
advertisements, causing anger and backlash from local communities. This threatens BMW’s
overseas operations and international competitiveness as it can result in reputational damage,
boycotts, and loss of market share in affected regions.
 Intense market competition – Competition in the premium car segment in the Middle East is
intense. This presents a threat to BMW’s international operations as the company needs to
compete against other well-established luxury car brands. The intense competition can lead to
price wars, aggressive marketing tactics, and challenges in capturing and retaining market share.
BMW must continuously innovate, differentiate itself, and effectively address customer needs to
withstand the competition and maintain its position in the market. However, the cost of this can be
extremely high, such as the costs of research and development (R&D).
 Award as a 2 + 2.
For each point, award [1 mark] for an appropriate disadvantage and a further [1 mark] for a
suitable explanation, up to the maximum of [4 marks].

Tesla
Answers
(a) Define the term depreciation. [2 marks]
Depreciation refers to the reduction in the value of a non-current asset over time. For example,
motor vehicles fall in value over time due to factors such as usage, wear and tear, technological
obsolescence, and changing market conditions.
Award [1 mark] for a limited definition that shows some understanding of depreciation.
Award [2 marks] for a clear and accurate definition of depreciation, similar to the example above.

(b) Explain two ways that Tesla can gain from economies of scale. [4 marks]
Possible ways that Tesla can gain from economies of scale include:

 Cost reductions - Producing at a larger scale (left-hand drive only cars) often leads to lower costs
per unit. Tesla could negotiate better deals with suppliers, benefit from bulk purchasing, and
optimize manufacturing processes, all of which ultimately reduces the cost of each vehicle.
 Operational efficiency - With a larger production volume (of left-hand drive cars), Tesla can fine-
tune its manufacturing processes and improve overall efficiency. This can lead to faster
production cycles, reduced waste, and improved quality management.
 Market influence - As Tesla becomes a more dominant player in the EV market, it gains more
influence over suppliers and can shape industry standards. This could further enhance its ability
to negotiate favourable terms and secure strategic partnerships in international markets.
 Economies of scale can facilitate international expansion. Tesla can therefore spread fixed costs
over a larger output, making it more financially feasible to enter new international markets,
beyond the USA and the UK.
 Accept any other appropriate reason, explained in the context of the case study.
Mark as a 2 + 2
Award [1 mark] for each valid reason, and a further [1 mark] for appropriate application to Tesla,
up to the overall maximum of [4 marks].

(c) Explain why understanding and catering to diverse customer needs in different
markets is crucial for the success of businesses like Tesla. [4 marks]
Understanding and catering to diverse customer needs in different markets is crucial for Tesla's
success for several reasons, including:

 Cultural sensitivity - Preferences and values vary across cultures. Tesla needs to be aware of
cultural nuances to design marketing strategies and product features that resonate with the
preferences of customers in each market (such as right-hand drive vehicles for the UK market).
 For example, what appeals to car drivers in the US may not have the same impact in Europe or
Asia.
 Regulatory compliance - Each market has its own set of regulations and standards. Being
attuned to these requirements is essential for Tesla to ensure that its products comply with local
laws and safety standards, such as the use of km per hour on vehicle speedometers (used in the
US) versus miles per hour (used in the UK). Failure to do so can lead to legal and financial
consequences.
 Infrastructure and charging networks - The availability and development of charging infrastructure
for electric vehicles vary across countries. Tesla needs to adapt its strategies to address the
unique challenges and opportunities presented by the infrastructure in different markets. This is
particularly important in international markets like the UK, given the inconvenience of using left-
hand drive cars in the UK, for example.
 Vehicle size and preferences - Preferences for vehicle size, design, and features can differ. Tesla
may need to offer variations of its models or introduce new models that better suit the
preferences of customers in specific markets. For instance, a smaller vehicles might be more
suitable for crowded urban areas.
 Price sensitivity - Economic conditions and income levels vary globally. Tesla must be mindful of
the pricing sensitivity in different markets to ensure that its products remain competitive and
accessible to a broad range of consumers.
 Competitive landscape - Competitors and market dynamics differ across countries. Being aware
of the nature of competition in different markets helps Tesla to position itself strategically and
tailor its international marketing approaches to stand out in each country or region.
By adapting to diverse customer needs, Tesla can enhance its market penetration, build stronger
customer relationships, and enhance its market dominance in the international electric vehicles
market.
Award [1 - 2 marks] for a response that shows some understanding of the demands of the
question. The explanation is limited in areas and/or there is a lack of application.
Award [3 - 4 marks] for a response that shows good understanding of the demands of the
question. The explanation is detailed and shows good application of why catering to diverse
customer needs in different markets is crucial for the success of Tesla.

Unit 5 – Operations
Operations Methods
(a) Explain two features of job production. [4 marks]
(b) Explain the difference between batch production and mass production. [4 marks]
(c) Explain two drawbacks of using batch production for a bakery. [4 marks]
Answers
(a) Explain two features of job production. [4 marks]
Possible answers could include an explanation of any two of the following points:
 Highly skill labour is used to create bespoke products that meet the requirements of each
customer.
 Typically, there is high quality output as this operations method strives to meet the product
specifications of the customer.
 Similarly, it is a highly flexible method of production, with customers being able to customize
most, if not all, aspects of the product.
 Workers are likely to be highly motivated to produce a unique product due to the variety of roles
and the skills involved as well as the quality of the final output.
 Products are unique rather than standardized.
 Accept any other relevant feature that is clearly explained.
Mark as a 2 + 2
For each point, award [1 mark] for a valid feature and [1 mark] for an accurate explanation.

(b) Explain the difference between batch production and mass production. [4 marks]
Batch production is a method of production that involves producing a set of identical products,
with work on each batch being fully completed before production switches to another batch. It is
used where the level of demand for a product is frequent and steady, relying on capital-intensive
technologies.
By contrast, mass production as an operations method that uses an automated production
processes and specialist machinery to produce a high volume of standardized output. The
various operations are continuously and progressively carried out in sequence, enabling the firm
to benefit from huge economies of scale.
Award [1 - 2 marks] for an answer that shows some understanding of the difference between
batch and mass production.
Award [3 - 4 marks] for an answer that shows a clear explanation of the distinction between
batch and mass production, There is accurate use of business management terminology
throughout the response, similar to the example above.

(c) Explain two drawbacks of using batch production for a bakery. [4 marks]
Possible answers could include an explanation of any two of the following:

 Downtime occurs between different batches of breads, pastries, and other bakery food items as
machines and equipment may need switching around and/or maintenance (such as cleaning).
 Batch production can involve large levels of stock, such as flour, salt, and yeast. This increases
the cost of inventory, e.g., storage and maintenance costs.
 The repetitive nature of work that arises from the division of labour in batch production can mean
that workers in the bakery may lack motivation. This can reduce labour productivity and increase
labour turnover, both with their associated costs to the bakery.
 Accept any other relevant drawback that is clearly explained.
Mark as a 2 + 2
For each point, award [1 mark] for a valid drawback of batch production and [1 mark] for an
accurate explanation.
 Lean production and quality management (HL only)
Rolex,
Answers
(a) Define the term quality. [2 marks]
Quality refers to the features of a product that make it fit for purpose in order to meet customer
needs and preferences. Such customer satisfaction can come from precision, durability, and a
commitment to flawless performance.
Award [1 mark] for a limited definition that shows some understanding of the term quality.
Award [2 marks] for an accurate definition that shows good understanding of the term quality,
similar to the example above.

(b) Distinguish between quality assurance (QA) and quality control (QC). [4 marks]
Quality control (QC) is a quality management system whereby a product’s quality is checked or
tested at the end of the production process. Quality inspectors or quality controllers are
responsible for examining a sample of the finished products to assess whether they meet the
required quality standards.
By contrast, quality assurance (QA) is a quality management system whereby the quality of the
product is conducted throughout its entire production process. QA is a philosophical approach to
quality management, involving all employees at every stage of production, thereby helping to
identify and/or prevent defective output.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question, although there is a lack of detail in parts of the answer.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question, similar to the example above. There is effective use of appropriate terminology
throughout the response.

(c) Explain two reasons why quality is of importance to Rolex. [4 marks]

Possible reasons could include an explanation of any two of the following points:

 Brand reputation - Rolex has built a legacy of excellence and reliability. Consistent high quality
reinforces its prestigious brand image, attracting discerning customers and maintaining its global
brand reputation.
 Customer loyalty - Superior quality ensures longevity and durability, fostering customer
satisfaction and loyalty. A satisfied customer is also more likely to remain loyal and recommend
the brand.
 Market differentiation - In the competitive luxury watch market, quality becomes a key
differentiator. Rolex's commitment to precision and high quality can help to set it apart, allowing
the brand to command premium prices and stand out amongst competitors.
 Preservation of exclusivity (as a competitive advantage or distinctive selling point) - By
maintaining stringent quality standards and limiting production, Rolex preserves the exclusivity of
its watches. This scarcity, coupled with high quality, enhances the perceived value of Rolex
watches, appealing to a niche market that values both quality and rarity.
Mark as a 2 + 2
Award [1 mark] for a valid reason that is accurately explained, and a further [1 mark] for
appropriate application to the case study, up to the overall maximum of [4 marks].

Break Even Analysis

Exam Practice Question - Heather Manetta's Hotdogs

Answers
For each question, award [1 mark] for the correct answer and [1 mark] for showing appropriate
working out.
(a) Calculate Heather Manetta's contribution per unit. [2 marks]
$10 – $6 = $4 contribution per unit.

(b) Calculate Heather Manetta's total contribution per month. [2 marks]

$4 × 1,500 hotdogs = total contribution of $6,000 per month

(c) Calculate Heather Manetta's break-even quantity. [2 marks]

BEQ = $2,000 / ($10 – $6) = 500 hotdogs per month

(d) Calculate Heather Manetta's average profit per month. [2 marks]

Profit = Total contribution – Fixed costs = $6,000 – $2,000 = $4,000
 Exam Practice Question 1
A large company manufactures a single healthcare product for hospitals. Each unit is sold to
customers for $80. The average variable cost of manufacturing the product is $50. Total fixed
costs for the year are $40,000. The company strives to achieve a target profit of $80,000 for the
year.

Answers

(a) Calculate the break-even quantity for the company. [2 marks]

 Break-even quantity = Total fixed costs / Unit contribution

 BEQ = $40,000 / ($80 – $50)
 BEQ = $40,000 / $30 = 1,333.33
 Award answers that state 1,334 units of output to reach break-even

Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

(b) Calculate the target profit output for the company. [2 marks]

 Target profit output = (Total fixed cost + Target profit) / Unit contribution
 Target profit output = ($40,000 + $80,000) / ($80 – $50)
 Target profit output = $120,000 / $30 = 4,000 units of output

Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

Exam Practice Question 2

Use the data in the table below to calculate the break-even price.
Costs of raw materials for A2 Bakery in June
Answer

 The break-even price is equal to the unit cost (or average cost) of the product.
 Average cost = Total cost ÷ Quantity of output
 AC = ($12,000 + $25,000 + $10,600) ÷ 11,900 = $4

Exam Practice Question 3

Refer to the data below for a firm that produces Bluetooth loudspeakers, and then answer
the following questions. Answers
(a) Calculate the break-even quantity for the manufacturer. [2 marks]

 BEQ = TFC / (P - AVC)

 BEQ = 35,000 / ($250 - $150) = 35,000 / 100 = 350
 Hence, the firm needs to see 350 loudspeakers per time period in order to reach break-even.
Award 1 mark for the correct answer, and 1 mark for showing appropriate working out.
 (b) Calculate the number of units that the firm has to sell in order to earn its target profit.
[2 marks]

 Sales revenue = P × Q
 Target sales revenue = TVC + TFC + Target profit
 $250Q = $150Q + $35,000 + $40,000
 Target sales output = $100Q = $75,000
 Q = $75,000 / $100 per unit
 Q = 750 loudspeakers
 Hence, the firm needs to sell 750 loudspeakers in order to earn a target profit of $40,000
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

Exam Practice Question 4 - Mayer's Doughnuts

Answers
(a) Calculate the unit contribution for Mayer’s Doughnuts. [2 marks]
The formula for contribution per unit is selling price minus variable cost per unit (P – AVC).
Given that P = $1.50 and AVC = $0.25, the contribution per unit is $1.25
Award [1 mark] for the correct working out and [1 mark] for the correct answer with the correct
unit of measurement ($).

(b) Calculate the number of doughnuts the firm has to sell each month in order to reach
break-even. [2 marks]
The formula for break-even is fixed costs divided by unit contribution, i.e. TFC ÷ (P – AVC).
Hence, BEQ = $10,000 ÷ $1.25 = 8,000 doughnuts per month.
Award [1 mark] for the correct working out and [1 mark] for the correct answer with the correct
unit of measurement (doughnuts).

(c) Calculate the monthly safety margin for Mayer’s Doughnuts. [2 marks]
The safety margin is calculated by finding the difference between actual sales and the break-
even quantity
Hence, the safety margin = 9,500 – 8,000 = 1,500 doughnuts
 Award [1 mark] for the correct working out and [1 mark] for the correct answer with the correct
unit of measurement (doughnuts).
Apply the OFR (own-figure rule) as appropriate.

(d) Use the above answers to plot the break-even chart for Mayer’s Doughnuts. [4 marks]
Break-even chart for Mayer’s Doughnuts

Award [1 mark] for each of the following, up to the maximum of [4 marks]:

 Correctly plotting and labelling the total sales revenue (TR) line.
 Correctly plotting and labelling the total cost (TC) line.
 Clearly identifying the break-even output at 8,000 doughnuts.
 Correct labelling of both axes.
Note the TFC line and the margin of safety (1,500 doughnuts) have been included above for
illustrative purposes.

Production planning (HL only)

Exam Practice Question - Carrefour

Answers
 (a) Define the term supply chain management (SCM). [2 marks]
SCM is the management process of overseeing the flow of goods from the source (such as
farmers for supermarket fruits and vegetables) to the final destination of reaching the customer
(such as supermarket customers). Essentially, it means getting the right ball bearings to the right
customers at the right time, and at the right price.
Award [1 mark] for an answer that shows some understanding of supply chain management
(SCM), although the definition lacks detail / clarity.
Award [2 marks] for a definition that shows clear understanding of supply chain management
(SCM), similar to the example above.

(b) Examine how a supermarket retailer can improve the efficiency of its supply chain. [6
marks]
Ineffective and long supply chains provide opportunities for things to go wrong. Due to the large
scale of its operations, a supermarket retailer will need to improve the efficiency of its SCM in
order to remain competitive and profitable. This might be achieved by various means, including
the following methods:

 Improved stock control – Lean production methods such as just-in-time help to ensure that the
appropriate supplies of inventory at the supermarket are produced / available in order to meet the
level of customer demand. By contrast, a lack of stocks from suppliers will cause delays to the
rest of supply chain.
 Quality assurance – All stages in a supermarket’s supply chain must have value added in order to
attract customers to buy their products, thereby generating profit for the retailer. For example, a
JIT stock control system using bar codes to keep track of inventories, for example, will help the
supermarket to reduce wastage.
 Supplier networks – Improving relationships with suppliers or intermediaries will help the
supermarket retailer to get the right stocks delivered to the right place and at the right time. This
helps the supermarket in its daily operations and to avoid a possible stock-out. Collaboration
between partners in the supply chain (such as suppliers and distributors of food and drinks
products) can facilitate improvements in the supermarket's SCM, thereby helping to reduce its
operational costs without compromising quality.
 Transportation networks – The supermarket retailer could also investigate the most cost effective
methods of distributing the diverse product range from multiple suppliers and distributors. This
will also depend on external factors such as the quality of the country's infrastructure, for
example.
 Subcontracting – As a relatively large organization, the supermarket retailer might also decide to
use sub-contractors and couriers for part of the business's operations.
 Award any other valid way to improve the efficiency of the supply chain for a supermarket
retailer.
Essentially, SCM is a tool for achieving lean production by helping the supermarket retailer to
identify areas of wastage and inefficiencies in its operations.

Award [1 – 2 marks] if limited knowledge and understanding of supply chain management is

shown. There is limited use of appropriate business management terminology.
Award [3 – 4 marks] for a descriptive answer that shows a partial examination, i.e. the answer
lacks overall depth. There is some use of appropriate business management terminology.
Award [5 – 6 marks] for a thorough examination that shows an accurate and detailed knowledge
and understanding of how a supermarket retailer can increase the efficiency of its supply chain
management. There is appropriate and effective use of business management terminology
throughout the answer.

Exam Practice Question 1

Answers
(a) Outline the purpose of a stock control chart. [2 marks]
Businesses may choose use a stock control chart as part of their production planning to ensure
they have sufficient inventory (of raw materials, component parts, and/or finished goods) for
production. Efficient stock control is essential in order to meet customers’ needs and wants.
Award [1 mark] for a limited response.
Award [2 marks] for a response that shows good understanding of the purpose of stock control
charts.

(b) Define the term lead time. [2 marks]

Lead time the duration (measured in hours, days, weeks, or months) between when a business
orders new stock (inventory) and when it arrives ready for production.
Award [1 mark] for a limited response.
Award [2 marks] for a definition that shows good understanding of lead time, similar to the
example above.

(c) Distinguish between a firm’s re-order quantity and its re-order level. [2 marks]
In the traditional stock control system, the re-order quantity is the amount of inventory that a
business orders at a particular point in time. The firm’s re-order level is the predetermined
amount of stock which triggers the business to place a new order from its supplier.
Note: for "distinguish" questions, there is no explicit need to define each of the terms.
Award [1 mark] for a limited response that does not make a clear distinction between a firm's re-
order quantity and its re-order level.
Award [2 marks] for a clear response that shows good understanding of the distinction between
the re-order quantity and re-order level, with effective use of terminology throughout.

(d) Explain how the usage rate for fast moving consumer goods (FMCGs) is likely to be
significant higher than that for durable goods. [4 marks]
 The usage rate refers to the speed at which inventory is used in the production process. FMCGs
are everyday products purchased by people, such as fresh groceries, so tend to be relatively
low-cost items that are sold quickly. Therefore, the stocks used to make FMCGs have a high
usage rate.
In contrast, consumer durables are items that last over a long period of time, such as home
furniture or electronic devices. Hence, they take up a much larger proportion of an average
person’ income. This means that the purchase of consumer durables will typically require
significant thought and time. Therefore, the inventory used to make consumer durables tends to
have a relatively low usage rate.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question, although the response may lack depth in areas.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question. The explanation is clear and uses appropriate terminology and examples.

Exam Practice Question 2 - Andrex Toilet Tissues

Answers
(a) Define the term buffer stocks. [2 marks]
Buffer stocks refer to the minimum stock level that a firm wishes to hold at any point in time, so
that it is able to meet the demands of its customers. The buffer stock is held as a contingency in
case of unexpected orders for the firm's output and/or in case of any delays from suppliers of raw
materials, components or finished goods.
Award [1 mark] for a limited response.
Award [2 marks] for a definition that shows good understanding of buffer stocks, similar to the
example above.

(b) Define the term stock piling. [2 marks]

Stockpiling refers to the practice of a business ordering more stock than it would usually do or
holding more stock than is necessary or efficient. This tends to happen in anticipation of higher
levels of demand during economically prosperous times or due to poor stock control systems.
Award [1 mark] for a limited response.
Award [2 marks] for a definition that shows good understanding of stockpiling, similar to the
example above.

(c) Explain two objectives of inventory control for a business such as Kimberley-Clark.
[4 marks]
Possible objectives of inventory control include:

 The overall objective of inventory (stock) control is to maintain inventory levels in order that the
firm's total costs of holding stocks is minimized.
 Kimberly-Clark needs to monitor its inventory control so that it meets the needs of its customers.
A stock out would be disgruntled customers who are unable to buy Andrex toilet tissues.
 Poor inventory control could have a negative impact on Kimberly-Clark's corporate image.
 Accept any other relevant reason / objective of inventory control, explained in the context of the
case study.
Mark as a 2 + 2
Award [1 mark] for each valid reason, and [1 mark] for each explanation, written in the context of
the case study.

Exam Practice Question 1 - Sharma Fabrics Answers

(a) Calculate the capacity utilization rate for Sharma Fabrics. [2 marks]

Capacity utilization rate = 261,000 / 300,000 = 87%

Award [1 mark] for the correct answer, and a further [1 mark] for showing appropriate working
out.

(b) Calculate the cost of labour as a proportion of the firm's total costs, and comment on
your results. [4 marks]

 Labour intensity rate = (Labour costs / Total costs) × 100

 ($52,000 / $98,000) × 100 = 53.06%
 This means that labour costs account for more than half of all costs for Sharma Fabrics. In this
case, for every $100 of total costs, $53.06 comes from labour costs. This suggest the firm is
labour intensive rather than capital intensive.

Mark as a 2 + 2

Award [1 mark] for the correct answer, and a further [1 mark] for showing appropriate working
out.

Award [1 mark] for a vague commentary that shows limited understanding, and [2 marks] for a
clear response that shows understanding of the calculated figure.

(c) Calculate the cost of capital as a proportion of the firm's total costs, and comment on
your results. [4 marks]

 Capital (Capital costs / Total costs) × 100

 Capital expenditure = $98,000 – $52,000 – $11,500 = $34,500
 Capital intensity rate = ($34,500 / $98,000) × 100 = 35.2%
 This means that capital costs account for about a third of all costs for Sharma Fabrics. In this
case, for every $100 of total costs, $35.20 comes from the costs of capital. Despite being a
textiles manufacturing that uses the "latest capital equipment", it is not capital intensive.

Mark as a 2 + 2

Award [1 mark] for the correct answer, and a further [1 mark] for showing appropriate working
out.
 Award [1 mark] for a vague commentary that shows limited understanding, and [2 marks] for a
clear response that shows understanding of the calculated figure.

Exam Practice Question 2 - Fortune Shoes

V Answers

(a) Define the term sole trader. [2 marks]

A sole trader (or sole proprietor) is a type of business structure that is owned and run (controlled)
by one person, although s/he can employ staff. Hence, all profits made by the business (if any)
belongs to the owner (Veronica Fortune in this case). There is no legal distinction between the
owner and the business itself, so the owner has unlimited liability (legal and financial
responsibility for all losses and debts).

Award [1 mark] for an answer that shows some understanding of the term sole trader.

Award [2 marks] for an answer that shows good understanding of the term sole trader, similar to
the example above.

(b) Calculate the capacity utilization rate for Fortune Shoes. [2 marks]

Capacity utilization rate = (1,600 / 2,000) × 100 = 80%

Award [1 mark] for the correct answer, and a further [1 mark] for showing appropriate working
out.

(c) Calculate the fixed costs per unit for Fortune Shoes at 1,600 units of output and at its
maximum capacity. [3 marks]

 Fixed cost per unit = Total fixed cost / Output

 At 1,600 units, the fixed cost per unit = $6,000 / 1,600 = $3.75
 At 2,000 units, the fixed cost per unit = $6,000 / 2,000 = $3.00

Award [1 mark] for each correct answer, and a further [1 mark] for showing appropriate working
out, up to the maximum of [3 marks].

(d) Calculate the mark-up at 1,600 units of output for Fortune Shoes and at its maximum
capacity. [3 marks]

 Mark-up = Price – Average toal cost

 At 1,600 units, ATC = $3.75 + $20 = $23.75
 At 1,600 units, mark-up = $80 – $23.75 = $56.25
 At 2,000 units, ATC = $3.00 + $20 = $23
 At 2,000 units, mark-up = $80 – $23 = $57.00
 Award [1 mark] for each correct answer, and a further [1 mark] for showing appropriate working
out, up to the maximum of [3 marks].

(e) Calculate the difference in profit if Fortune Shoes could operate and sell all of its
shoes at its level of productive capacity. [3 marks]

 Profit = Total contribution – Total fixed costs

 At the current 1,600 units, profit = [(80 – 20) × 1,600] – $6,000 = $90,000
 At the maximum 2,000 units, profit = [(80 – 20) × 2,000] – $6,000 = $114,000
 Hence, the difference in profit = $114,000 – $90,000 = $24,000

Award [1 mark] for the correct answer. Award a further [2 marks] for showing appropriate working
out, up to the maximum of [3 marks].

Exam Practice Question

Cesc's Doors Inc.
Answers
(a) Define the term operating leverage. [2 marks]
Operating leverage measures the extent to which a company relies on fixed costs versus
variable costs in its operations. High operating leverage means a company has a significant
portion of fixed costs, making its operating income more sensitive to changes in revenue. If
revenue increases, the impact on operating income is proportionally larger. Conversely, low
operating leverage indicates a smaller reliance on fixed costs, resulting in a more proportional
change in operating income with shifts in revenue.

(b) Calculate the operating leverage for Cesc’s Doors Inc. [2 marks]

 DOL = [Quantity × (Price – Variable cost per unit)] / [Quantity × (Price – Variable cost per unit)] –
Fixed costs
 DOL = [120,000 × (65 – 20)] / [120,000 × (65 – 20) – 500,000 = 5,400,000 / (5,400,000 –
500,000) = 1.10.
Award [1 mark] for the correct answer, and [1 mark] for showing appropriate working out.

(c) Comment on your answer from the above question. [2 marks]

The operating leverage ratio is 1.10 which means that a 10% increase in sales will yield an 11%
increase in the firm's profits (10% × 1.10 = 11%).
Award [1 mark] for a limited response that shows some understanding.
Award [2 marks] for an answer that shows clear understanding of the operating leverage ratio
calculated in Question (a).

Capacity utilisation
Answers
 (a) Define the term capacity utilization. [2 marks]
Capacity utilization measures the extent to which a business is operating at its maximum
potential level. A capacity utilization rate of 100% means the business is operating at full
capacity, with all its human, capital and financial resources being used.
Award [1 mark] for a definition that only shows partial understanding of the term capacity
utilization.
Award [2 marks] for a definition that shows clear understanding of the term capacity utilization,
similar to the example above.

(b) Calculate Karen Wang’s capacity utilization rate. [2 marks]

Karen Wang’s capacity utilization rate is: (21 / 24) × 100 = 87.5%
Award [1 mark] for showing appropriate working out and [1 mark] for the correct answer, up to
the maximum of [2 marks].

(c) Outline one advantage of operating at a high capacity utilization rate. [2 marks]
An advantage of operating at a high capacity utilization rate could include any of the following:

 Economies of scale - lower average fixed costs of production

 Productivity and efficiency gains
 Lean production (less/no waste)
 Higher profitability
Award [1 mark] for stating a correct advantage and an additional [1 mark] for a relevant
explanation of the advantage, up to the maximum of [2 marks].

(d) Calculate the mark up on each wedding dress, expressed in absolute terms (dollars)
and as a percentage figure. [2 marks]

 Mark up (absolute terms) = $2,200 – $1,050 = $1,150

 Mark up (percentage) = ($1,150 / $1,050) × 100 = 109.52%
Award [1 mark] for each correct answer. Apply the own figure rule (OFR) as appropriate.

(e) Comment on whether Karen Wang's business is capital intensive or labour intensive.
[2 marks]
Karen Wang’s expenditure on capital = $5,000 – $3,200 – $1,000 = $800
This means its capital expenditure = 16% (i.e., $800 expressed as a % of $5,000) of total costs
Karen Wang’s expenditure on labour = ($3,200 / $5,000) × 100 = 64%.
Hence, it can be seen that Karen Wang's business is labour intensive. This is because labour
costs account for a greater proportion of the costs for the business, given that it makes bespoke
wedding dresses.
 Note: candidates are not expected to calculate the labour or capital intensity rates to be awarded
full marks.
Award [1 mark] for the correct working out and [1 mark] for the correct answer, up to the
maximum of [2 marks].

(f) Outline one advantage of labour intensive production. [2 marks]

An advantage of labour intensive production could include any of the following:

 High quality output (of wedding dresses)

 Meeting the changing and specific needs / specifications of the customer
 Labour can adapt to the feedback of customers for continuous improvement
 The ability to provide brides (customers) with a personalised service
 Employment opportunities (good for corporate social responsibility).
Award [1 mark] for stating a correct advantage and an additional [1 mark] for a relevant
explanation of the advantage, up to the maximum of [2 marks].

(g) Calculate the change in the average fixed costs of production if Karen Wang operates
at only 75% capacity compared to operating at full capacity. [4 marks]

 AFC at full capacity = $5,000 / 24 = $208.33

 AFC at 75% of full capacity = $5,000 / 18 = $277.78
 Hence, unit fixed costs have increased by $69.45 or 33.33%
Award [1 mark] each for the correct calculations of average fixed costs at only 75% capacity and
at full capacity.
Award an additional [1 mark] for the correct working out. Award a further [1 mark] for calculating
the correct change in fixed costs per unit, up to the total of [4 marks].

(h) Calculate the increase in monthly profits if Karen Wang is able to operate at full
capacity. [4 marks]

 Profit = (Unit contribution × Sales volume) – Fixed costs

 Current profit level = [($2,200 – $1,050) × 21] – $5,000 = $19,150
 Profit @ full capacity = [($2,200 – $1,050) × 24] – $5,000 = $22,600
 Hence, the increase in profits = 22,600 – 19,150 = $3,450
Award [1 mark] each for the correct calculations of the current profit level and profit at full
capacity. Award an additional [1 mark] for the correct working out. Award a further [1 mark] for
calculating the correct increase in profit by operating at full capacity, up to the total of [4 marks].

Crisis management and contingency planning

Exam Practice Question - ToyCo (a) Define the term crisis. [2 marks]

A crisis is any major event that has negative implications on the operations and continuity of
an organization. Crises are usually unexpected and unpredictable events, e.g., the outbreak
 of a highly infectious illness, a severe fire, natural disasters (such as or tsunamis), or a
global financial crash.

Award [1 mark] for a limited response that shows some understanding.

Award [2 marks] for an accurate response that shows good understanding, similar to the
example above.

(b) Define the term contingency plan. [2 marks]

A contingency plan is a document outlining the procedures, processes and policies to help
an organization manage and minimise the potential damage caused by a crisis, should one
ever occur. The plan is used to anticipate possible threats to the continuity of the business in
order to devise appropriate strategies for the stability of the organization.

Award [1 mark] for a limited response that shows some understanding.

Award [2 marks] for an accurate response that shows good understanding, similar to the
example above.

(c) Identify two stakeholder groups from the case study. [2 marks]

Possible stakeholders include: consumers, retailers (that sell the toys produced by ToyCo),
pressure groups (news media reporters), senior management team (CEO and board of
directors), PR team, employees.

Mark as a 1+1

(d) Describe what is meant by a product recall. [2 marks]

A product recall happens when a product is faulty or substandard. In this case, ToyCo had to
recall (take back) 28 products that were defective. Product recalls can irrevocably damage the
reputation of the business, e.g., ToyCo could be associated with producing unsafe and harmful
toys.

Award [1 mark] for a limited response that shows some understanding.

Award [2 marks] for an accurate description that shows good understanding, similar to the
example above.

(e) Suggest one reason why crisis management and contingency planning are important
to ToyCo. [2 marks]

Possible reasons could include:

 Crisis management and contingency planning can better prepare ToyCo to deal with unforeseen
emergencies and incidents such as the need to recall dangerous or substandard products. This
would improve the multinational company’s chances of surviving any future crises.
 Secondly, multinational companies such as ToyCo are more vulnerable to media exposure and
pressure groups. Again, effective crisis management and contingency planning helps to minimize
the damage caused by such negative publicity and to ensure ToyCo's global operations remain
intact.

Accept any other relevant reason.

Award [1 mark] for a limited response that shows some understanding of the demands of the
question.

Award [2 marks] for a relevant reason that shows good understanding, similar to the example
above.

Coronavirus Cruise Ship Chaos

(a) Define the term crisis. [2 marks]
A crisis in the context of business management denotes an event with significant adverse
repercussions on the current operational and sustained functioning of an organization. A crisis
typically manifest as an unforeseen and unpredictable event, posing challenges to the
established frameworks and routines of a business.
Award [1 mark] for a limited response that shows some understanding of the term crisis.
Award [2 marks] for a clear and accurate definition of the term crisis, similar to the example
above.

(b) In the context of Princess Cruises, distinguish between contingency planning and
crisis management. [4 marks]
Crisis management is about the response a business takes in the event of an actual crisis. It is
about the way in which a business, such as Princess Cruises, reacts during a real crisis such as
the coronavirus outbreak on one of its cruise ships.
The main difference is that contingency planning is proactive and preventative in nature as the
business tries to predict the possible crisis that may pose a threat and disrupt Princess Cruises’
operations. Crisis management is preventive and proactive in nature, and is particularly important
if the crisis is significant enough to threaten the survival of Princess Cruises.
By contrast, crisis management is reactive and remedial in nature, which involves the senior
management team at Princess Cruises looking at how it needs to manage and respond to the
crisis after it has happened. In essence, contingency planning in a prerequisite to effective crisis
management.
Award [1 - 2 marks] for a response that shows some understanding of the demands of the
question, although the distinction is not made explicit or there is a lack of application.
Award [3 - 4 marks] for a response that shows clear understanding of the demands of the
question. The distinction between contingency planning and crisis management is accurate and
there is appropriate application.
 (c) Explain two possible opportunities that may arise for Princess Cruises in the future.
[4 marks]
Possible answers could include an explanation of any two of the following:

 Opportunities to rebuild / regain the trust of the previous target market, i.e., elderly (retired)
passengers who account for the majority of customers on cruise holidays.
 Opportunities to segment and target the market, e.g., to consider scope for marketing Princess
Cruises holidays to a younger audience (such as those aged 18 - 30) by providing more relevant /
targeted entertainment services to appeal to these new segments.
 Opportunities to redesign / refurbish Princess Cruises ships in order to make them (even) safer
and to appeal to a wider market than ever. This would also include updating operations
management processes for cleaning / disinfecting all areas of the ships, and improved
maintenance of air-conditioning and ventilation systems.
 Opportunities to target new countries and emerging economies where cruise ships holidays may
not be a relative new business concept.
Mark as a 2 + 2
For each response, award [1 mark] for identifying a suitable opportunity, and a further [1 mark]
for an accurate explanation.

(d) Discuss how Princess Cruises can best plan to rebuild cruise ship bookings following
the crisis. [10 marks]
The contingency plans and strategic directions of Princess Cruises could include:

 Plans for the immediate survival as bookings / sales have collapsed due to the widespread
outbreak of the coronavirus.
 Reassuring and rebuilding a strong workforce – many employees will be afraid of continuing to
work in the industry, and attracting good potential staff may be increasingly challenging.
However, as a service provider, Princess Cruises will need to focus on the 'people' aspect of its
extended marketing mix.
 Plans to rebuild customer demand in the latter part of 2020 and from 2021. In particular, Princess
Cruises will need plans to attract / retain elderly and retired customers (the age group traditionally
targeted by cruise ship operators). For example, Princess Cruises could offer special / discounted
rates to formerly loyal customers, aiming to fill bookings with experienced cruisers. This could
help to rebuild confidence, especially as trying to persuade first-time customers to travel on cruise
ships would be so much more difficult following the crisis.
 Plans to renegotiate with and persuade ports in different parts of the world to re-accept cruise
ships.
 Plans for public relations / communications with the media in order to drip-feed updates about
how Princess Cruises has improved safety on its vessels, including information about deep
clean / hygiene / disinfection processes.
 Effective contingency plans to deal with a second wave of the coronavirus and the possibility of
other/new infectious diseases that could jeopardise the operations and survival of Princess
Cruises.
 The reality is that whatever plans may be in place, Princess Cruises many just have to accept
that 2021 is likely to be a loss-making year. Hence, it will need contingency plans in place to deal
with liquidity problems that the company may face in 2021 and perhaps beyond.
 Accept any other reasonable and well-justified plan of action to allow Princess Cruises to resume
its operations and fill its cruise ships with passengers who expect to receive an exceptional and
safe service / experience.
Award [1 - 2] marks for a limited response that shows little understanding of the demands of the
question.
Award [3 - 4] marks for an answer that shows some understanding of the demands of the
question. There is minimal application of the Princess Cruises case study.
Award [5 - 6] marks for an answer that shows understanding of most of the demands of the
question. Relevant business management tools, techniques and theories are explained and
applied as appropriate. There is some reference to the stimulus material in the Princess Cruises
case study, and some evidence of a balanced response.
Award [7 - 8] marks for an answer that shows good understanding of the demands of the
question. Relevant business management tools, techniques and theories are explained and
applied as appropriate. There is good reference to the stimulus material in the Princess Cruises
case study, and good evidence of a balanced response. The judgements made are relevant but
not always well substantiated.
Award [9 - 10] marks for an answer that shows good understanding of the demands of the
question. Relevant business management tools, techniques and theories are explained and
applied effectively to the Princess Cruises case study. There is effective use of the stimulus
material in a way that significantly strengthens the answer, as well as good evidence of a
balanced response throughout the answer. The judgements are relevant and well substantiated.

Research and development

Heinz,
Answers
(a) Define the term research and development (R&D). [2 marks]
Research and development (R&D) refers to the systematic operational activities that businesses
undertake to create new and improved goods, services, or processes. It is crucial for innovation
and technological advancements, helping businesses to stay competitive in their respective
industries.
Award [1 mark] for a limited definition that shows some understanding of R&D.
Award [2 marks] for a clear and accurate definition of R&D, similar to the example above.

(b) Outline the purpose for Heinz of using prototypes. [2 marks]

Prototypes provide a tangible representation of a product, such as a new bottle cap, enabling
Heinz to validate and test its feasibility before committing to full-scale production. This reduces
the risks of investing resources in ideas that may not be commercially practical or viable.
 Award [1 mark] for a limited response that shows some understanding of the demands of the
question.
Award [2 marks] for a clear and accurate response that shows good understanding of the
demands of the question, similar to the example above.

(c) Explain two advantages and one disadvantage for Heinz from investing in R&D. [6
marks]
Possible advantages could include an explanation of any two of the following points:

 Innovation and product development - A key advantage for Heinz is that R&D drives innovation
and helps the company to 155+ years old company to stay ahead in the market by creating
unique and improved product offerings, responding to changing consumer preferences, and
adapting to emerging trends.
 Competitive advantage - R&D helps organizations like Heinz to maintain a competitive advantage
in the industry. By continuously improving products and processes, Heinz can differentiate itself
from competitors, attracting and retaining customers. The ability to introduce innovative,
sustainable, and high-quality products can support Heinz to maintain or improve its market
leadership position and market share.
 Efficiency and cost-saving benefits - Investing in R&D allows Heinz to enhance its operational
efficiency and reduce production costs in the long term. Through research, the company can
identify more cost-effective manufacturing processes, source sustainable materials, and optimize
supply chains. This not only improves profits for the company but also allows Heinz to offer more
competitive prices to its customers.
 Product differentiation - Investing in R&D, such as developing prototypes of 100% fully recycable
packaging, helps Heinz to create a unique selling proposition (USP). A appealing USP helps
Heinz to position its brand as the market leader and capture the attention of consumers who are
particularly concerned about the natural environment. This differentiation contributes to building a
strong brand identity and customer loyalty, enabling Heinz to charge premium prices and
maintain high profit margins.
 Allow any other relevant advantage explained in the context of the case study.

Possible disadvantages could include an explanation of any one of the following points:

 Risks and uncertain outcomes - The outcomes of R&D efforts are inherently uncertain. Despite
careful planning and execution, there is no guarantee that R&D will result in a successful product
or innovation. There will always be risks for Heinz in predicting consumer acceptance, market
demand, or the overall success of a new product launch.
 Costs and resource allocation - R&D often requires substantial financial investments. Heinz
needs to balance the costs of R&D with other operational, marketing, and HR expenses, so this
can be challenging. Allocating resources to R&D projects may divert funds from other critical
areas of the MNC's operations.
 Time constraints - R&D projects, especially those involving extensive prototyping and testing
phases can be extremely time-consuming (as in the case of spending 9 years and 185,000 hours
redesigning ketchup bottle caps). The lengthy R&D timelines may hinder Heinz's ability to
 respond quickly to market changes or capitalize on emerging trends. Delays in product launches
can also affect the company's competitive position and profits.
 Allow any other relevant advantage explained in the context of the case study.
Award [1 mark] for each of the two advantages that are valid and [1 mark] for an appropriate
disadvantage, plus a further [1 mark] for each of the explanations, up to the overall maximum of
[6 marks].

Answers
(a) Define the term copyrights. [2 marks]
Copyrights are a form of intellectual property protection, safeguarding the creator's exclusive and
legal rights to control the use, public display, and distribution of their original artistic, literary,
musical, or dramatic works.
Award [1 mark] for a response that shows limited understandingof the term copyrights.
Award [2 marks] for a response that shows clear understanding of the term copyrights.

(b) Explain two challenges facing businesses trying to protect their intellectual property.
[4 marks]
Challenges could include an explanation of any two of the following:

 Counterfeiting, piracy, and infringement pose significant threats to intellectual property rights.
 Rapid technological advancements and digitalization have made IP theft more prevalent and IP
protection harder to enforce.
 Globalization and varying legal frameworks across countries create complexities in enforcing IP
rights, especially for businesses such as Twitter that operate online.
 Accept any other valid challenge that is explained in the context of the case study.
Mark as a 2+2
For each challenge, award [1 mark] for a suitable answer and [1 mark] for an appropriate
explanation.

(c) Explain two reasons why intellectual property protection is important for businesses.
[4 marks]
Possible reasons could include an explanation of any two of the following:

 IPP help to protect the investments that manufacturers make in the R&D process, i.e., limit or
prevent others from using/copying/stealing the IP of the business.
 To gain commercial/competitive advantages.
 To limit/prevent competition in the market.
 To maintain a unique selling point (USP).
 To charge premium prices (and hence to earn higher profit margins).
 Accept any other valid reason that is explained in the context of the case study.
Mark as a 2+2
 For each reason, award [1 mark] for a suitable answer and [1 mark] for an appropriate
explanation.

Answers
(a) Define the term incremental innovation. [2 marks]
Incremental innovation involves a firm making minor upgrades or improvements to existing
products, such as a facelift for a motor vehicle where the manufacturer only updates certain
select features. The aim is to improve an existing product’s features, functionality, performance,
efficiency, or competitive differentiation.
Award [1 mark] for a definition that shows some understanding.
Award [2 marks] for a clear and accurate definition, similar to the example above.

(b) Explain why R&D is usually a prerequisite to the successful launch of a new product.
[4 marks]
Explanations could include any of the points below:

 Research and development provides important market information and insights. Hence, this helps
to improve existing products for new product launches.
 R&D can help firms to make efficiency gains and reductions in costs. Hence, this enables
businesses to develop new products and to price these in a competitive manner.
 R&D enable a business to gain insight to what customers want (enabling the business to have a
higher chance of success in the market); this could also include an investigation of any legal
restrictions and parameters of new product launches, for example.
 Product development, through the R&D process, helps to ensure the right product is launched to
meet the changing needs of consumers.
 Accept any other point that explains why R&D is important for launching new products
successfully.
Award [1 - 2 marks] for a limited comprehension of the demands of the question demonstrating
some understanding of why R&D is usually a prerequisite to the successful launch of a new
product.
Award [3 - 4 marks] for a clear and accurate understanding of the demands of the question,
explaining why R&D is usually a prerequisite to the successful launch of a new product. There is
appropriate use of terminology throughtout the response.

Management Information Systems

Amazon Answers
(a) Define the term customer loyalty scheme. [2 marks]
Customer loyalty programmes are marketing strategies designed to retain customers by using a
rewards programme that give loyal customers direct benefits, such as discounted prices based
on their purchase history. Such rewards programmes mean that customers are more committed
to a certain business and make repeat purchases time and time again.
 Award [1 mark] for a definition that shows some understanding of customer loyalty scheme.
Award [2 marks] for a clear and accurate definition that shows a good understanding of customer
loyalty scheme, similar to the example above.

(b) Define the term data analytics. [2 marks]

Data analytics is the management process of examining and scrutinising raw data to find
meaningful trends and patterns to support decision making and business planning. It involves
extracting, collating, organizing, and analyzing raw data, transforming these into meaningful
information to support management decision making and strategic planning.
Award [1 mark] for a definition that shows some understanding of data analytics.
Award [2 marks] for a clear and accurate definition that shows a good understanding of data
analytics, similar to the example above.

(c) Outline the importance of the marketing mix for Amazon 4-star. [2 marks]
The marketing mix describes the key components of marketing a physical good or an intangible
service. It enables Amazon to plan the marketing of its goods sold at the 4-star outlets. This
helps to meet the needs and wants of customers, by focusing on and ensuring that the product,
price, place and promotion are effective in encouraging customers to buy from its 4-star retail
outlets.
Note: students can refer the extended marketing mix to include people, process, and physical
environment. If such an approach is taken, marks should be awarded accordingly.
Award [1 mark] for an answer that shows limited understanding of the demands of the question.
Award [2 marks] for an answer that shows good understanding of the demands of the question,
similar to the example above.

(d) Explain two ways in which Amazon 4-Star can make use of data analytics to improve
business decision making. [4 marks]
Possible responses could include an explanation of any two of the following points:

 Data analytics allows Amazon's managers to gain a better understanding of the dynamics of their
business, such as . It also enables them to anticipate market shifts and manage risks.
 Data analytics can help Amazon to make more informed decisions related to their customers (to
assure them that "they are buying popular and highly rated products"), markets (being new to the
UK), and competitors.
 It supports decisions made about Amazon's internal operations, such as planning of delivery of
the stocks of products sold at the 4-star outlets. Its MIS and use of AI technology, for example,
can help managers with predictive analysis to know which products are the latest popular ones
that must be delivered to the stores. Being data-driven means less waste and reduced
operational costs for Amazon 4-star outlets.
 Data analytics can help Amazon to make better decisions related to finance (money), such as its
sales trends, cash-flow cycles, revenue forecasts, and budgeting. Being data-driven means
 Amazon can make more accurate and efficient decisions, such as inventory of the products sold
in the 4-star outlets to further the company's growth.
 Accept answers that explain any two of the four methods of data analysis (descriptive analytics,
diagnostic analytics, predictive analytics, and prescriptive analytics).
Mark as a 2 + 2
For each point, award [1 mark] for a relevant way in which Amazon 4-Star can make use of data
analytics, plus a further [1 mark] for a suitable explanation, up to the maximum of [4 marks].
Award up to [2 marks] if application of the stimulus material is lacking.

Post Office
Answers
(a) Define the term digital Taylorism. [2 marks]
Digital Taylorism refers to the application of principles of Frederick W. Taylor's scientific
management theory to modern workplaces, enhanced and facilitated by management
information systems (MIS) and digital technologies. It involves the use of MIS to further refine
and control work processes, including breaking down complex tasks into simpler, standardized
parts and using digital technologies to monitor, measure, and manage these with precision.
Award [1 mark] for a definition that shows some understanding of digital Taylorism.
Award [2 marks] for a definition that shows good understanding of digital Taylorism, similar to the
example above.

(b) State two features of management information systems (MIS) other than digital
Taylorism that could have bene used by the Post Office. [2 marks]
Possible responses include:

 Data analytics
 Databases
 Cybersecurity and cybercrime
 Critical infrastructures
 Big data
 Artificial intelligence
 Data mining
Mark as a 1 + 1.

(c) In the context of the Post Office, discuss the use of MIS to manage and monitor
employees and subpostmasters. [10 marks]
Management information systems (MIS) and digital Taylorism include the automation of routine
tasks, the use of data-driven decision-making, and the standardization of work processes in
organizations like the Post Office. However, the use of data and digital Taylorism (a component
of MIS) to manage and monitor employees and subpostmasters was a central aspect of the
controversy, particularly through the implementation of the Horizon computer system. This
ITsystem, designed to manage financial transactions and record-keeping for subpostmasters,
 heavily relied on MIS to monitor and control the performance of post office workers and
managers.
The advantages of the Post Office using MIS to manage and monitor employees and
subpostmasters include:

 Financial tracking - The Horizon IT system was intended to provide accurate and real-time
financial data, allowing the Post Office to monitor transactions and account balances in a more
efficient way. In theory, MIS provide businesses with an advantage in maintaining financial
transparency and preventing fraud.
 Automation - Automation of financial processes through data management aimed to reduce
manual errors by Post Office workers and subpostmasters, thereby improving overall efficiency.
This could potentially streamline the Post Office's operations and enhance the accuracy of
financial records.
The disadvantages of the Post Office using MIS to manage and monitor employees and
subpostmasters include:

 Data inaccuracy - The most important issue of the scandal revolved around the unreliability of the
Horizon IT system. Many subpostmasters reported discrepancies in their accounts, such as
unexplained shortfalls, which were later attributed to faults in the Horizon software. This highlights
the risk of over relying on data from MIS that may be flawed or inaccurate.
 Lack of transparency - The Post Office's management of data was not transparent as it failed to
adequately disclose the issues with the Horizon system to subpostmasters. This lack of
transparency led to wrongful accusations and legal action against innocent subpostmasters
based on inaccurate data generated from the MIS.
 Technological failures - The Post Office scandal highlights the dangers of blindly trusting MIS
without thorough scrutiny. The Post Office, in its reliance on the Horizon IT system, failed to
critically assess the accuracy and reliability of the data it produced, leading to severe
consequences for hundreds of subpostmasters.
 Dehumanized management approach - Digital Taylorism, represented by the reliance on
automated systems, may have contributed to a dehumanized approach where the experiences
and insights of subpostmasters were ignored and overlooked in favour of the supposedly infallible
data generated by the Horizon system.
While MIS in its broadest sense aim to enhance efficiency and productivity in the workplace,
digital Taylorism has been criticized for potential negative effects on workers and
subpostmasters at the Post Office. This includes job monotony, skills erosion (such as
accounting skills of subpostmasters), and concerns about job security.
The use of MIS in managing and monitoring employees and subpostmasters aimed to enhance
efficiency, productivity, and accuracy. However, the lack of transparency, overreliance on flawed
technology, and neglect of the human element all contributed to a significant miscarriage of
justice in the form of false accusations and financial penalties against innocent subpostmasters.
This highlights the importance of ethical and transparent use of data in management information
systems, especially when livelihoods and reputations are at stake.
Accept any other relevant argument written in the context of the case study.

Note: For the top mark band, candidates must provide some acknowledgement of the limitations
of the data or information in the stimulus material. For example, there is no inclusion of financial
data or perspectives from the Post Office in response to the scandal. There are no details about
any training that the Post Office might have provided to employees and subpostmasters
regarding the use of the MIS, including any ongoing support or updates. It may also be useful to
know details about how the Post Office validated and cross-checked the data generated from the
Horizon system to confirm its trustworthiness. Having such information may provide a more
considered conclusion or judgement about the organization's use of MIS to manage and monitor
employees and subpostmasters.

Award [1 – 2 marks] for an answer that shows little understanding of the demands of the
question. There is minimal use of business management tools and theories, or these are
irrelevant or used inaccurately. There is little or no reference to the stimulus material.
Award [3 – 4 marks] for an answer that shows some understanding of the demands of the
question. There is some use of appropriate business management tools and theories, but these
are mostly lacking in accuracy and relevance. There is superficial use of information from the
stimulus material, often not going beyond the name of the Post Office. Any arguments made are
generally unsubstantiated.
Award [5 – 6 marks] for an answer that shows an understanding of the demands of the question,
but these demands are only partly addressed. There is some relevant and accurate use of
business management tools and theories. There is some relevant use of information from the
stimulus material that goes beyond the name of the Post Office. The arguments are
substantiated but are mainly one-sided.
Award [7 – 8 marks] for an answer that addresses most of the demands of the question. On the
whole, there is mainly relevant and accurate use of business management tools and theories.
Information from the stimulus material is used appropriately to support the arguments, although
there is some lack of clarity in certain areas. The arguments are substantiated and the answer
provides some balance.
Award [9 – 10 marks] for an answer that shows clear focus on addressing the demands of the
question. There is relevant and accurate use of business management tools and theories
throughout the response. Relevant information from the stimulus material is integrated effectively
throughout the response to support the arguments presented. The arguments are well
substantiated and balanced, with acknowledggement of the limitations of the case study or
stimulus material.

Answers
(a) Define the term data mining. [2 marks]
Data mining is the management process of analyzing data from various sources to extract
specific data for predictive analysis and forecasting purposes. It involves collecting raw data, and
then extracting and refining data to determine patterns and insights from from the refined data.
Award [1 mark] for a definition that shows some understanding.
Award [2 marks] for a definition that shows a clear and accurate understanding of data mining.

(b) Outline why data mining is important to businesses. [2 marks]

Data mining is an important part of a firm's management information systems (MIS). The process
involves the extraction and analysis of large volumes of data in order to establish possible
 patterns, trends, and associations in the data. This provides valuable information for decision
makers to make predictions and forecasts about future trends that may impact the organization.
For example, data mining can help businesses to find new sources of revenue and opportunities
for cost savings.
Award [1 mark] for a response that shows some understanding of the demands of the question.
Award [2 marks] for a response that shows a clear and accurate understanding of the importance
of data mining to businesses.

(c) Explain two advantages of data mining for businesses. [4 marks]

Possible advantages could include an explanation of any two of the following points:

 Improved decision-making - Data mining can help managers to make more informed decisions as
they are able to extract valuable insights based on predictive analysis of the large amount of
data.
 Enhanced understanding of customers - Data mining helps businesses gain a deeper
understanding of their customers by analyzing their behaviours, preferences, and purchase
patterns.
 Predictive analysis - Data mining enables firms to predict future outcomes based on historical
data and patterns. This can be used to improve sales forecasting and optimize stock (inventory)
levels.
 Improved risk management - Data mining can be used to detect fraudulent activities, unusual
financial transactions, and anomalies within the data.
Mark as a 2 + 2
For each advantage, award [1 mark] for a suitable benefit and a further [1 mark] for an
appropriate explanation, up to the maximum of [4 marks].

(d) Explain two advantages of data mining for businesses. [4 marks]

Possible disadvantages could include an explanation of any two of the following points:

 Privacy concerns and legal issues - Data mining involves the collection and analysis of large
amounts of data, which raises concerns about data privacy and data protection.
 Data security risks - Data mining requires secure storage and access of large data sets, which
can make businesses vulnerable to data breaches and cybersecurity threats.
 Data quality - Data mining is heavily dependent on the quality (reliability) of the underlying data
collected and extracted. If the data used for analysis is inaccurate, incomplete, or outdated, it can
lead to substandard insights and decisions.
 Complexity and resource requirements - Implementing data mining processes can be complex
and resource-intensive for businesses, e.g., skilled data analysts, appropriate hardware and
software infrastructure, and ongoing maintenance and updates.
 Cost and time implications - Similarly, implementing data mining processes can be costly and
time-consuming for businesses, especially for smaller organizations. It requires investments in
technology, training, and data management.
Mark as a 2 + 2
 For each disadvantage, award [1 mark] for a suitable drawback and a further [1 mark] for an
appropriate explanation, up to the maximum of [4 marks].

Asia's elderly population

Answers
(a) State two examples of the technologies that are being used to help care for Asia's
elderly population. [2 marks]
Possible examples include:

 Wearable GPS tags

 Motion sensors and CCTV
 AI-based smart speakers
 Smart home technologies
 Automated call
Award [1 mark] for each valid example.

(b) Explain two ethical impacts of management information systems on the elderly in
Asia. [4 marks]
Possible ethical impacts could include an explanation include:

 Human rights – MIS technologies could potentially be used to violate the privacy rights of elderly
people, especially as the technology can track the movements and activities of elderly people
without their consent.
 Safety – MIS technologies can monitor elderly people and protect them from harm, but can also
create a false sense of security.
 Wellbeing – MIS technologies can provide a service to check on elderly people, but can also be
intrusive and create feelings of isolation.
 Accept any other valid explanation, written in the context of the case study.
Mark as a 2 + 2.
For each ethical impact, award [1 mark] for a valid point, and a further [1 mark] for an appropriate
explanation.

(c) Explain two implications of the increasing elderly population in the Asia Pacific region
on the use of MIS technologies used to help care for them. [4 marks]
Possible implications could include an explanation of:

 Increase in demand for MIS technologies – as the elderly population grows, the demand for MIS
technologies used to help care for them will also increase.
 Access to MIS technologies – elderly people need to have direct and ease of access to the MIS
technologies in order to benefit from it.
 Regulation – governments may need to regulate the use of MIS technologies in order to protect
the rights of the elderly and to safeguard their wellbeing.
 Cost – MIS technologies can be expensive and may not be affordable for all elderly people.
 Accept any other valid explanation, written in the context of the case study.
Mark as a 2 + 2.
For each valid implication, award [1 mark], and a further [1 mark] for an appropriate explanation.

Paper 1
Comprehension Questions
Answers

1. In which year was BON established? 2001

2. How much money does BON spend on cleaning up after each music festival? $250,000 (or
$1.25m per year)
3. In which year did BON convert from a private limited company (privately held company) to a
public limited company (publicly held company)? 2016
4. Why did BON convert from a private limited company (privately held company) to a public
limited company (publicly held company)? To raise additional finance to fund its expansion
5. How many permanent employees does BON have? 60 (but there are also temporary staff)
6. How many farmers have contracts with BON for using their farmland to hold the music festivals?
Five
7. What do BON’s directors regard as a significant challenge? Environmental sustainability
8. During which months do BON’s music festival season run? May to August
9. On which days do BON's music festival runs? From Friday to Sunday
10. For each of BON's music festivals, how many weeks does it take to set up and then to dismantle?
Two weeks to set up and one week to dismantle

Exam Questions (no mark scheme is available yet!)

1. Define the term private limited company (line 5). [2 marks]
2. State two features of a public limited company (line 5). [2 marks]
3. Define the term expansion (line 6). [2 marks]
4. Explain two reasons for BON choosing to convert from a private limited company to a
public limited company (line 5). [4 marks]
5. Suggest two reasons why BON might want to expand (line 6). [4 marks]

6. Explain one advantage and one disadvantage for BON of relying on temporary workers
and freelancers (lines 6 – 7). [6 marks]

7. Define the term average costs. [2 marks]

8. Identify two revenue streams for BON. [2 marks]
9. Describe two suitable source of finance for BON to fund its music festivals. [4 marks]
 10. Describe two elements of BON’s marketing mix for its running music festivals. [4 marks]

11. Outline the importance of location for BON (line 1). [2 marks]

12. Define the term environmental sustainability (line 10). [2 marks]

13. Explain one advantage and one disadvantage for BON of operating as a seasonal
business (line 12). [4 marks]

14. Evaluate the impact of changes in the external environment on BON’s competitiveness in
the European music festivals industry. [10 marks]
15. Justify the importance of sustainability initiatives for BON. [10 marks]
16. With reference to BON, discuss the importance of ethical business objectives and
corporate social responsibility (CSR). [10 marks]
17. Examine the impact of the external environment on the operations of BON. [10 marks]

Paper 2
Paper 2 Exam Practice Question - IKEA

Mark scheme
a. Define the term multinational company. [2 marks]
A multinational company (MNC) is a business that operates in its home country as well as in at
least one other country. The head office is located in one country (usually the home country),
which coordinates the management functions across all offices.
Award 1 mark for a basic definition that conveys partial knowledge and understanding of the term
multinational company.
Award 2 marks for a full, clear definition that conveys knowledge and understanding of MNC,
similar to the answer above.

b. Apply the Ansoff matrix to two growth strategies used by IKEA. [4 marks]
Possible responses include an explanation of:

 Market penetration: Opening of more stores in India including Mumbai, Hyderabad, Pune, as well
as adding online platforms.
 Product development: IKEA’s wide/broad product range, with over 9,500 products.
 Market development: Expansion in different regions and countries of the world, including Europe,
the USA, and India.
 Diversification / related diversification: IKEA restaurants and coffee shops within its furniture retail
stores, providing new offerings targeted at different and/or the same set of customers.

 Award 1 – 2 marks for a response that shows some understanding of the Ansoff matrix.
Application is somewhat limited.
Award 3 – 4 marks for a clear understanding of the Ansoff matrix, with accurate application of the
growth strategies used by IKEA.

c. Explain one advantage and one disadvantage to IKEA from its franchising strategy. [4
marks]
Possible advantages to IKEA include:

 Franchisees pay the Inter IKEA Group an annual fee of 3% of their net sales revenue – this helps
to increase the return on investment and profits for IKEA as a MNC.
 Franchisees provide valuable input based on their consumer and local market insights. This
increases the probability of success of IKEA operating in the host countries as well as reducing
the risk of failure due to limited local knowledge of overseas markets.
 Faster expansion across the globe – IKEA operates 422 stores in more than 50 countries. Such a
large-scale expansion is possible due to its franchising growth strategy.
 Economies of scale – by operating on such a large scale, IKEA is able to reduce the average cost
of its furniture and related products. This helps to give all franchisees and IKEA a cost advantage
over its local and international competitors.
 Strengthening the brand name across all IKEA stores. Brand recognition and brand loyalty bring
further benefits to the Inter IKEA Group.
 Accept any other relevant advantage, written in the context of the IKEA case study.

Possible disadvantages to IKEA include:

 IKEA may find it difficult to control the standards and quality of customer service across some
franchisees, spread across the world.
 The brand image of IKEA as an organization may be negatively impacted by just a handful of
franchisees operating outside of the standards and practices expected by the Inter IKEA Group.
 Franchising is a slower growth strategy (due to the stringent processes involved) when compared
to mergers and acquisitions.
 Accept any other relevant disadvantage, written in the context of the IKEA case study.
Mark as 2 + 2.
Award 1 mark for identification of a relevant point (advantage and disadvantage)
Award 1 mark for application of this point to IKEA.

d. Discuss the impact of the external environment on the growth and expansion of IKEA
in India. [10 marks]
The external environment presents opportunities and threats to IKEA. This can be presented
through the use of PEST analysis, STEEPLE analysis, or any other similar tool.
The following points are possible areas to be covered in the discussion:
Social: Indian consumers are open-minded while purchasing from foreign companies such as
IKEA. The Indian market is also a very large one (with around 100 million customers being
targeted by IKEA). This provides immense business opportunities for IKEA in its growth and
expansion plans. Furthermore, as consumers are price-sensitive and IKEA provides products at
relatively cheap / affordable prices, this could help to attract even more customers in the future.
However, many Indian customers are loyal towards domestic business and retail stores, so this
will be an initial constraint for IKEA in its pursuit of growth.
Technological: Improvements in technology (such as investments in Internet technologies and
e-commerce) will allow IKEA to better integrate designs, products, and markets using various
online platforms. The Indian government’s commitment to infrastructural developments and
investments in technology should also reassure IKEA with its growth plans.
Economic: Increasing demand in India provides many business opportunities for IKEA to
explore. The Indian domestic furniture market is expected to expand at a rate of around 13%
between 2020 and 2024. Growing demand also provides opportunities for IKEA to experience
further economies of scale. However, competition from local producers, such as Godrej, Zuari,
Yantra, and Pepper Fry, provides customers with various choices. Hence, competition in the
domestic market can be a threat to IKEA’s growth plans in India. Competitors including Pepperfry
and Urban Ladder are able to generate high amounts of revenue through their own online
platforms. Their success and market presence will also be constraints on the ability of IKEA to
expand and succeed in the Indian market.
Political: The Indian government has eased the processes of expansion of foreign MNCs in the
country, as well as providing support for these companies. Hence, the political climate in India
provides a conducive environment for IKEA to explore in its pursuit of further growth in India.
Legal: The legislative practices have been refined, and new contracts have also been formed to
source other unconventional materials from India. Support of the government should encourage
IKEA with its ambitious growth plans. Also, the mandate by the Indian government to ensure that
30% of all goods sold in IKEA’s Indian stores are sourced locally will assure regular supplies
from local businesses in India. Such partnership agreements should also lead to win-win
outcomes for all parties involved. However, some local suppliers may be expensive and/or lack
the quality standards expected by the Inter IKEA Group.

Apply the marks using the generic level descriptors and assessment criteria for 10-mark
questions in Paper 2.
Award 1 – 2 marks for a response that shows limited understanding of the demands of the
question. Only a few business management tools, techniques, and theories are explained or
applied, and the use of relevant business management terminology is lacking. There is little, if
any, reference to the stimulus material.
Award 3 – 4 marks for a response that shows some understanding of the demands of the
question. Some relevant business management tools, techniques, and theories are explained or
applied, and some appropriate terminology is used. There is some reference to the stimulus
material but often not going beyond the name of the organization.
Award 5 – 6 marks for a response that shows understanding of most of the demands of the
question. There is relevant use of business management tools, techniques, and theories which
are explained and applied, and appropriate terminology is used throughout most of the answer.
There is some reference to the stimulus material that goes beyond the name of the organization.
There is some evidence of a balanced response. Some judgements are relevant but not
substantiated.
Award 7 – 8 marks for a response that shows a good understanding of the demands of the
question. There is relevant use of business management tools, techniques, and theories which
are explained and applied well, and appropriate terminology is used. There is good reference to
the stimulus material, and good evidence of a balanced response. The judgements are relevant
but not always well substantiated.
Award 9 – 10 marks for an answer that shows a good understanding of the demands of the
question, including the impacts on the organization. There is relevant use of business
management tools, techniques, and theories which are explained clearly and applied skilfully,
with appropriate terminology used throughout the response. There is effective use of the stimulus
material in a way that significantly strengthens the response. There is evidence of balance, which
is consistent throughout the response. The judgements made are relevant and well
substantiated.

Paper 2 Exam Practice Question - Alverez Corporation (AC)

(a) Define the term economies of scale. [2 marks]
Economies of scale refer to the benefit of a reduction in average cost of production (the cost per
unit of output) as a firm increases its level of output.
Award [1 mark] for a basic definition that conveys partial knowledge and understanding of the
term economies of scale.
Award [2 marks] for a full, clear definition that conveys knowledge and understanding of
economies of scale, similar to the example above.

(b) Explain two reasons for resistance to change at Alverez Corporation (AC). [4 marks]
Possible reasons include an explanation of:
 Fear of the unknown
 Lack of trust in AC's management team
 A lack of understanding of the reasons or urgency for the change
 Poor communication about the benefits of change for employees
 Accept any other relevant reason that is explained in the context of the case study.
Mark as a 2+2
For each reason, award [1 mark] for a valid reason, plus [1 mark] for an accurate explanation,
written in the context of the case study.

(c) Explain the impact of resistance to change for AC. [4 marks]

Resistance to change can have a negative impact on an organization if not managed effectively
and in a time efficient manner. Possible reasons for this could include an explanation of:

 Slowing down or even preventing the implementation of the proposed change. This would then
mean that AC would not benefit from making progress, despite the need to grow and evolve to
remain relevant in the marketplace.
 It can lead to decreased efficiency, increased average costs, and a lack of competitiveness for
AC.
 It can also cause low staff morale and employee dissatisfaction, which could escalate into conflict
and industrial action.
 Accept any other relevant impact that is explained in the context of the case study.
Award [1 - 2 marks] for an answer that shows some understanding of the demands of the
question.
Award [3 - 4 marks] for an answer that shows good understanding of the demands of the
question, using relevant terminology and application throughout the response.

(d) Evaluate the effectiveness of AC's approach to mitigate resistance to change. [10
marks]
Points that could be considered for discussion include the following:

 AC's management team has tried to address the resistance to change by providing additional
training sessions and meeting to help employees learn about the new production process. The
increased communication and transparency may gain some support from employees.
 Providing regular updates on the progress of the change and addressing any questions and
concerns that employees may have help to (re)build trust with the workforce.
 Informing workers about the benefits of the new production process (emphasizing the positive
impacts it will have on the company's competitiveness and profits) can help to alleviate the
employees' concerns about job security.
 By providing support to employees throughout the change process can help them feel valued and
engaged, and more likely to embrace the change. However, the management team at AC do not
seem to have engaged with getting feedback from their employees, so this is likely to be a cause
of the lack of trust and resistance to embrace the proposed change.
 Furthermore, attempts thus far have failed to convince all workers of the need for or benefits of
change, i.e., employees cannot see the value in the change especially as there has not been any
reassurances from AC's management team about job security.
 In addition, there does not seem to be any communication about the timeframe of the proposed
implementation of the new production process. The company's approach has not taken into
account the time it is likely to take the employees to adapt to the change, and there is no
indication about whether the process has been rushed.
 Nevertheless, providing additional training and running additional meetings, with increased
communications and transparency can work as effective ways for AC to minimize or mitigate the
resistance to change.
 Accept any other relevant factor written in the context of the case study.
Award 1 – 2 marks for a response that shows limited understanding of the demands of the
question. There is limited use of appropriate terminology and little, if any, reference to the
stimulus material.
Award 3 – 4 marks for a response that shows some understanding of the demands of the
question. Some relevant business management tools, techniques, and theories are explained or
applied, and some appropriate terminology is used. There is some reference to the stimulus
material.
Award 5 – 6 marks for a response that shows understanding of most of the demands of the
question. There is relevant use of business management tools, techniques, and theories which
are explained and applied, and appropriate terminology is used throughout most of the answer.
There is some reference to the stimulus material that goes beyond the name of the organization.
There is some evidence of a balanced response.
Award 7 – 8 marks for a response that shows a good understanding of the demands of the
question. There is relevant use of business management tools, techniques, and theories which
are explained and applied well, and appropriate terminology is used. There is good reference to
the stimulus material, and good evidence of a balanced response. There are judgements that are
relevant but not always well substantiated.
Award 9 – 10 marks for an answer that shows a good understanding of the demands of the
question, including the impacts on the organization. There is relevant use of business
management tools, techniques, and theories which are explained clearly and applied skilfully,
with appropriate terminology used throughout the response. There is effective use of the stimulus
material in a way that significantly strengthens the response. There is evidence of balance, which
is consistent throughout the response. The judgements made are relevant and well
substantiated.

Paper 2, Section A Exam Practice Question - Marco

Campanetti (MC) Answers
 (a) Identify two methods of below the line promotion. [2]
Possible below the line promotional methods include:

 Direct mail and email marketing

 Event sponsorship
 Menus and promotional flyers
 Newsletters to registered customers
 Sales promotions and discounts
 Trade shows (trade fairs)
 Word-of-mouth advertising
Award [1] for each appropriate method of below the line promotion identified.

(b) Prepare a cash flow forecast for MC for the next four months. [6]

Cash flow forecast for MC for the next four months

All figures in $ January February March April

Opening balance 200 (350) (850) (1,150)

Cash inflows

Cash sales revenues 4,000 3,800 4,600 5,000

Tax refund 150

Total cash inflows 4,000 3,950 4,600 5,000

Cash outflows

Cost of sales 2,000 1,900 2,300 2,500

Food truck rent 8,00 800 800 800

Packaging 100 100 100 100

Marco’s salary 900 900 900 900

Internet and electricity costs 200 200 200 200

 Promotional costs 350 350 400 400

Fuel costs 200 200 200 200

Total cash outflows 4,550 4,450 4,900 5,100

Net cash flow (550) (500) (300) (100)

Closing balance (350) (850) (1,150) (1,250)

Allow own figure rule (OFR) where appropriate.

Award [1]:

 the candidate has limited understanding of cash flow forecast.

 the forecast is largely inaccurate, incomplete, or illegible.
Award [2–3]:

 the candidate constructs the cash flow forecast, but it is not in the format accepted or it is untidy.
 the forecast contains three or more errors: errors can be: numbers, placement problems,
mathematical errors, terminology errors or omissions.
Award [4–5]:

 the cash flow forecast is constructed correctly and in a generally accepted format.
 there is one error for [5] or two errors for [4].
Award [6]:

 the cash flow forecast is constructed accurately and neatly in a generally accepted format and
does not have errors.
 there is an appropriate title included.

(c) Comment on MC’s cash flow position. [2]

Comments could include reference to any of the following:

 The net cash flow is negative for all four months, so this can be a huge concern for the bank
manager, which contributes to the escalating negative value for the closing balance.
 MC’s cash inflows are expected to improve during the four months (by 25%), whilst the cash
outflows increase at a slower rate (12.09%), which improves MC’s net cash flow figure for each of
the months.
 Marco’s promotional costs are high, so he should perhaps consider changing above the line
promotional methods to cheaper methods such as below the line promotion or social media
marketing. Being a sole trader, using BTL promotional methods is more appropriate, which will
help to reduce cash outflows.
 Taking out a bank loan to finance the new oven will incur interest charges to be paid monthly, so
this contributes to MC’s cash flow problems.
 He could perhaps consider taking a temporary, but considerable, pay cut (the closing balance is -
$1,250 in April). Reducing his own salary to around $587 or $588 per month should help to get
the closing balance to zero in April.
 Accept any other comment that is appropriately and accurately written in the context of the case
study.
Award [1 mark] for recognition that MC’s net cash flow position is negative for the four months,
cash inflows are increasing, and/or cash outflows are also increasing.
Award an additional [1 mark] for a comment related to specific entries in the cash flow forecast,
either inflows or outflows, such as sales revenue or the costs of promotion, fuel, electricity, and
Marco’s salary.

Proti-Munch (PM) Mark scheme

(a) State two challenges that Lucas may have encountered when starting his own business. [2]
Possible challenges for staring up a business could include:

 Limited market research

 Unable to raise enough funds
 Lack of experience and knowledge
 Difficulties in recruiting employees
 Legal challenges/requirements.
Accept any other relevant response.
Award [1] for each appropriate challenge identified up to a maximum of [2].

(b) Explain one advantage and one disadvantage of PM operating as a partnership. [4]
Advantages could include:

 Partnerships are able to raise more finance than sole traders.

 Partners bring more skills and ideas, such as Roberto’s creativity skills.
 Partners can share the workload and have more possibilities of continuity. If something happens
to Lucas or Roberto, the other one can continue with the business.
 Partnerships benefit from privacy; they only need to show their financial accounts to the tax
authorities.
Disadvantages could include:

 Partners have unlimited liability and are legally responsible for any debts of PM.
 Any profits are shared between the partners.
 Decisions can take longer as both partners have to agree.
 Sometimes, disagreements may happen. This can cause conflict between the two partners and
delay decision making.
 Compared to limited liability companies, partnerships have less access to sources of finance.
Accept any other relevant response.
 Mark as 2+2.
Award [1] for a relevant advantage/disadvantage, with an additional [1] for application to PM.

(c) Use the data in Table 1 to:

(i) Calculate the forecasted unit contribution for the three products. [2]

Product Protein bar Protein biscuits Protein shakes

Selling price per unit ($) 2.50 1.50 3

Unit variable cost ($) 1.50 1 2.25

Unit contribution ($) 1.00 0.5 0.75

Working out is not required for this question but has been included for illustrative purposes only.

 Unit contribution = Selling price – Unit variable cost

 Unit contribution of protein bar = $2.50 – $1.50 = $1.00
 Unit contribution of protein biscuit = $1.50 – $1 = $0.50
 Unit contribution of protein shake = $3 – $2.25 = $0.75
Award [1] for one or two correct answers. Award [2] for three correct answers.

(ii) Calculate the forecasted total profit for PM (show working). [2]

 Total contribution = Unit contribution × Quantity

 Total contribution = ($1 × 250,000) + ($0.50 × 180,000) + ($0.75 × 120,000) = $430,000
 Total profit = Total contribution – Total fixed costs
 Total profit = $430,000 – $200,000 = $230,000
Award [1] if the candidate demonstrates how to calculate the forecast total profit but makes a
mathematical error.
Award [2] if the candidate demonstrates how to calculate the forecast total profit and produces
the correct answer.
If the candidate produces the correct answer but does not show workings, award [1].

(d) Using the Ansoff matrix, evaluate the two possible growth strategies for PM. [10]
The partners of PM have to evaluate two proposed growth strategies. The Ansoff matrix is a
decision-making tool used to examine different growth strategies.
Option 1
Arguments for:

 This option is a product development strategy, i.e., it focuses on developing new products
(Protein Powder in this case) for the existing customers.
 Lucas and Roberto know their target market and understand their needs.
 The protein powder will complement the firm’s existing product range.
 It can be distributed in the same establishments.
 It relies on customer loyalty, which PM currently enjoys.
Arguments against:

 This is a medium risk growth strategy.

 It can be expensive and time consuming to develop the new product.
 If Protein Powder is not successful, it could damage the other products in the product range.
 It cannot benefit from a first mover advantage as there are many existing competitors that offer
protein powder products.
Option 2
Arguments for:

 This option is a market development strategy, i.e., it focuses on offering existing products (in this
case, selling the protein bar) in a new market (Country X).
 The product has been successful in UK, and customers like the packaging and taste.This could
also be advantageous in Country X.
 This growth option can help to spread the risk if the UK experiences problems, such as going into
a recession.
 It can gain competitive advantages in an overseas market.
Arguments against

 This is a medium risk growth strategy, and it will take time to plan and execute.
 Roberto and Lucas do not have knowledge of the market in Country X.
 Sales may be low at the beginning, so cash flow could become an issue for PM.
 does not have any distribution channels in Country X, so this could be costly.
 Fluctuations in the exchange rate can affect the price and profits of the protein bar.
 Legal regulations of operating in Country X also need to be considered.
There is no need to recommend one of the growth strategies (the command term is to evaluate
the two growth options for PM).
However, judgements should be substantiated.
Candidates should refer to the limitations of the case study to achieve the top marks. For
example, the case study does not provide forecasted costs or revenues for either of the growth
options, and there is limited information about Country X.
Marks should be allocated according to mark bands shown on pages 44 – 45 and 47 – 48 of the
Business Management Guide.

Additional guidance:
If the candidate discusses only one option (with balanced and substantiated arguments) then
award a maximum of [5].
For one relevant issue that is one-sided, award up to [3].
To reach the [7–8] mark band, candidates need to refer to the Ansoff matrix, consider both
options in a balanced way, and substantiate their arguments.
Candidates cannot reach the [9–10] mark band if they do not consider the limitations of the case
study or to the stimulus material.

Paper 2 Exam Practice Question - The Female Company

(TFC)
Mark scheme
(a) Define the term privately held company. [2 marks]
A privately held company is a business organization that is owned and operated by private
investors or shareholders without its shares being openly traded on a Stock Exchange. The
majority of shares are typically held by a small group of individuals, such as family and friends.
The owners (shareholders) have full control of the organization’s operations, including all
decisions that need to be made.
Candidates are not expected to word their definition exactly as above.
Award [1 mark] for a definition that shows some understanding of the term privately held
company.
Award [2 marks] for definition that shows a clear and accurate understanding of the term
privately held company, similar to example above.

(b) In the context of the case study, distinguish between business angels and
crowdfunding. [4 marks]
Business angels are wealthy individual investors who provide capital to support start-up
companies in exchange for equity (a share in the company) or debt (as a loan with interest
charges). They usually have a personal interest in the target company and will usually have prior
experience in the industry, so often also provide business advice to support start-up
entrepreneurs.
In contrast, crowdfunding is a form of finance where a large number of people make small
contributions to fund a project or business venture, usually through an online platform. Unlike
business angels, crowdfunding contributors do not typically take any ownership or stake in the
start-up company or business venture. Instead, they often receive rewards in the form of free or
discounted products or services. Crowdfunding is often used to raise funds for creative projects,
such as TFC’s project to make female hygiene products more affordable to consumers in
Germany and beyond.
Award [1 – 2 marks] for an answer that shows some knowledge of business angels and
crowdfunding at a generic, theoretical level.
Award [3 – 4 marks] for an answer that fully and clearly distinguishes between business angels
and crowdfunding with reference to the case study.

(c) Explain two reasons why having a unique selling point (USP) is important to TFC. [4
marks]
 Having a unique selling point (USP) can be extremely important for TFC in order to stand out
from the intense competition in the industry and to attract more customers. TFC’s USP has been
its creative solution to the problem of tampons being classified as luxury goods and taxed at 19%
in Germany. By packaging the tampons inside a book, TFC was able to qualify for the lower tax
rate of 7%. This ingenious approach has become a major selling point for TFC and is likely to
attract customers who are looking for an ethical and sustainable product that is also cost-
effective.
In addition to the cost savings, TFC’s USP also has the benefit of providing customers with a
sense of corporate social responsibility (CSR). By supporting TFC and buying their products,
customers are helping to fight against the perceived unfair tax on feminine hygiene products.
This resonates well with customers who are not only looking for a product that is of good quality
but also serves a moral and ethical purpose. Ultimately, this USP allows TFC to differentiate itself
from competitors in the market.
Mark as 2+2
Award [1 mark] for identification of a relevant point of importance and an additional [1 mark] for
a suitable explanation and application to TFC, up to a maximum of [2 marks] per reason.

(d) Using the data provided in Table 1 and information in the stimulus, recommend a
suitable marketing mix for TFC to increase its market share. [10 marks]
Possible aspects of the marketing mix that TFC could use as part of its strategy to increase
market share could include a discussion about the following points:

 Product: TFC could emphasize its unique selling point of providing organic cotton tampons with
no harmful chemicals or pesticides, packed in paper instead of plastic wrapping. This can help to
differentiate its products from some of the competitors and emphasize TFC’s commitment to
environmental sustainability, which will appeal to the consumers who are increasingly demanding
hygiene products that are environmentally friendly and sustainable.
 Price: TFC’s price per tampon is competitive with other leading brands (Table 1) although this is
not necessarily advertised or promoted very well. TFC could consider advertising the price per
tampon ($0.22) being one of the lowest available (Table 1). It might even consider reducing the
price a little, given that the German government has abolished the sales tax on tampons, to
match the price of Playtex Sport Tampons ($0.20 per tampon). This could make TFC’s tampons
even more attractive to customers. Alternatively, TFC’s subscription service could provide
opportunities for the company to provide discounted prices for loyal members.
 Promotion: TFC’s USP is a great way to promote the company and its mission. Finding further
opportunities to share its story with potential customers and the media can help the relatively new
company to build brand awareness, brand recognition, and brand loyalty in order to increase its
market share. However, TFC has a limited marketing budget, so is likely to rely on the use of
below-the-line promotional strategies. For example, TFC could make better use of social media
marketing to promote the company, its products, and success in pushing for social justice, such
as creating targeted ads and campaigns, or even influencer marketing, to reach more potential
customers and to raise awareness of TFC’s products.
 Place: To increase its market share, TFC could focus on expanding its presence in different
countries and markets, especially in the European Union. This could involve targeting specific
countries or regions and partnering with other retailers, such as supermarkets, to expand its
reach. TFC could also consider expanding into online platforms, such as Amazon, to reach more
 customers. Although using an intermediary such as Amazon, sales revenues are likely to
increase over time, which could increase overall profits and market share for TFC in the long
term. With the rise of e-commerce, more customers are buying hygiene products online and the
trend is expected to continue as people become more comfortable with online shopping.
 People: TFC could also focus on recruiting and training a team of knowledgeable and
enthusiastic employees who can provide excellent customer service and further improve
customer relations. This can help the company to create a positive customer experience and
build customer loyalty. Additionally, TFC should ensure its 33 employees are well trained in
product knowledge and have a good understanding of the company’s values and mission. This
helps to build consumer confidence and strengthen customer loyalty, thereby helping to increase
TFC’s market share.
 TFC could also consider investing in market research to ensure its products remain competitive
and its marketing is up to date with customer needs and preferences. This would ultimately help
to improve the company’s marketing mix. For example, TFC could conduct regular surveys and
focus groups with its customers to gain valuable insights into the customer experience and to
identify any new areas for improvement. Additionally, TFC should consider using new but
affordable management information systems (MIS) to monitor customer data and to track
customer trends and preferences. This information can then be used to continuously improve the
company’s marketing, female hygiene products, and customer services – all of which can help to
improve the company’s market share.
Accept any other relevant argument written in the context of the case study.
Note that for the top mark band, candidates must provide some acknowledgement of the
limitations of the data or information in the stimulus material. For example, table one only shows
the top five tampon brands based on one particular survey, and it is not known whether TFC may
have a higher ranking in Germany, its home country. Furthermore, there is limited information
about the company’s finances. If TFC has inadequate funds raised through business angels and
crowdfunding, it might be difficult for the company to change its marketing mix and compete
effectively with the more established rivals. In particular, being a small company compared to the
likes of Procter and Gamble, TFC may well struggle to improve its market share by any
significant measure.
Award [1 – 2 marks] for an answer that shows little understanding of the demands of the
question. There is minimal use of business management tools and theories, or these are
irrelevant or used inaccurately. There is little or no reference to the stimulus material.
Award [3 – 4 marks] for an answer that shows some understanding of the demands of the
question. There is some use of appropriate business management tools and theories, but these
are mostly lacking in accuracy and relevance. There is superficial use of information from the
stimulus material, often not going beyond the name of The Female Company. Any arguments
made are generally unsubstantiated.
Award [5 – 6 marks] for an answer that shows an understanding of the demands of the question,
but these demands are only partly addressed. There is some relevant and accurate use of
business management tools and theories. There is some relevant use of information from the
stimulus material that goes beyond the name of The Female Company. The arguments are
substantiated but are mainly one-sided.
Award [7 – 8 marks] for an answer that addresses most of the demands of the question. On the
whole, there is mainly relevant and accurate use of business management tools and theories.
Information from the stimulus material is generally used appropriately to support the arguments,
 although there is some lack of clarity or relevance in some places. The arguments are
substantiated, and the answer provides some balance
Award [9 – 10 marks] for an answer that shows clear focus on addressing the demands of the
question. There is relevant and accurate use of business management tools and theories
throughout the response. Relevant information from the stimulus material is integrated effectively
to support the arguments. The arguments are substantiated and balanced, with an explanation of
the limitations of the case study or stimulus material.

Paper 2, Section B - Helena-Myers Ski School

Mark scheme
(a) Define the term unique selling point/proposition (USP). [2 marks]
USP refers to any aspect of the organization, the brand, or its products that allows customers to
differentiate it from competitors in a positive way.
Accept any other relevant response.
Award [1 mark] for a basic definition that shows some understanding,
Award [2 marks] if the student provides a clear and accurate definition including reference to
being different/distinctive from competitors.

(b) Explain two advantages of market segmentation for HM. [4 marks]

Segmentation is the process of dividing customers into groups that have similar characteristics.
Students should refer to any two advantages of market segmentation, written in the context of
HM, such as the following:

 Market segmentation allows HM to better understand the needs and wants of its different
customer groups. HM has identified that there are four market segments for its services. For
example, children need shorter ski lessons with more breaks, whereas schools from England
may need instructors who speak English.
 Effective market segmentation can help HM to identify existing gaps in the market and new
opportunities in Germany and abroad.
 Small businesses like HM can specialize in one or two market segments in order to improve their
profitability.
 The marketing mix and different types of promotion could be modified to meet the needs and
wants of the different segments that HM targets.
 Different marketing strategies can be used to focus on the different target markets. This helps to
make HM’s marketing more cost effective.
 Market segmentation can increase the loyalty of customers for a particular brand, This is because
having a more specific and targeted marketing strategy can build a long-term relationship with
 HM. For example, HM can offer a tailored ski trip for specific schools with students who attend
the resort every year.
Mark as 2+2
Award [1 mark] for an explanation of each appropriate advantage, with a further [1 mark] for
application to HM.
Award up to a maximum of [2 marks] per advantage.

(c) Using all the values in Table 1 and Figure 1

(i) calculate the mean, and (ii) calculate the mode. [2 marks]
(i) Mean= Sum / 21 = $1,220,000 / 21 = $58,095.238
Accept = $58,095.24
(ii) Mode = 0 (which appears five times in the data set).
For each question, award [1 mark] for each correct answer.
Accept answers rounded to one decimal place.

(iii) Describe the fluctuations in HM’s sales revenue. [2 marks]

Possible points could include:

 HM’s sales revenue has been affected by the COVID-19 pandemic from Q2 2020 to Q2 2022.
 Sales for Q4 2022 and Q1 2023 were also lower due to the adverse weather conditions.
 The sales in Q3 in all the five years is 0 due to the summer season and the low altitude of the
Lenggries resort.
Award [1 mark] for an answer that shows some understanding of the fluctuations in the sales
data.
Award [2 marks] for an answer that refers to the sales figures in the different quarters and
reasons behind this, such as COVID-19, high temperatures, and seasonal variations. HL
students could refer to random variations (such as COVID-19) and seasonal variations.

(d) Using the data provided in Table 2, in Table 3, other information in the stimulus, and a
decision tree, recommend which growth option HM should choose. [10 marks]
 Decision tree calculations

 Option 1: ($500 000 × 0.7 + $200 000 × 0.3) – $300 000 = $110 000
 Option 2a: ($600 000 × 0.6 + $250 000 × 0.4) – $500 000 = ($40 000)
 Option 2b: ($800 000 × 0.6 + $350 000 × 04) – $600 000 = $20 000
Candidates should construct a decision tree to identify the best option, on financial grounds.
Based on the financial data, the best option for HM will be to open the ski school in Austria, i.e.,
Option 1.
Using the information in the case study and in Table 3, students should discuss arguments for
and arguments against each of the growth options:

Option 1
Arguments for:

 Provides the best financial return of $110 000

 It is the cheaper option at $300 000 yet has the higher probability of success.
 The cost of living is lower than in Switzerland, so it will be cheaper for most customers.
 There are more hospital beds per 1,000 inhabitants, so this is better for customers if they have
ski accidents and have to be hospitalized.
 It has more airports for tourists travelling by air.
 The ski season is open from October to May (whereas it is only open from November to April in
Switzerland).
 There are 408 km of slopes, whereas the site in Switzerland only has 155 km of slopes.
Arguments against:

 It can get very busy.

 Austria has a lower GDP per 1,000 inhabitants than Switzerland and hence a lower average
income, i.e., local people are not as well off as in Switzerland and may not be able to afford
skiing. This could affect some of the market segments. HM may therefore have to rely on tourists
from overseas.
 There are higher CO2 emissions than in Switzerland, which can affect environmentally conscious
customers.

Option 2
Arguments for:

 It has long runs and provides a great experience for beginners, families with children, and
seasoned skiers, i.e., the market segments identified by Helena.
 As Switzerland has a higher GDP per 1,000 inhabitants than Austria, people have a higher
average income so local people will be more able to afford skiing.
 There are lower CO2 emissions than in Austria, so environmentally conscious customers may
prefer to ski in Switzerland.
Arguments against:

 The financial returns for growth options (a) and (b) are lower than for Option 1.
 Option 2 is a more expensive growth strategy.
 There are fewer beds in hospitals, so customers may be affected if they have ski accidents and
have to be hospitalized.
 It has fewer airports for tourists travelling by air.
 There are only 155 km of slopes, compared to the 408 km of slopes in Austria.

Based on the information provided, Option 1 is clearly more favourable for HM. However, do not
penalise if students choose Option 2 as long as there are clear arguments for and against each
option provided in the answer.
Candidates should refer to the limitations of the case study to achieve the top marks. For
example, the case study does not provide information about the prices Helena will charge for its
services in both locations / options. The case study does not mention if Helena has more
knowledge of Austria or Switzerland mountain terrains which will allow her to maintain her USP
of being a highly knowledgeable ski instructor. Intuitive decision making may supersede scientific
decision making based on quantitative techniques such as the decision tree.
Marks should be allocated according to mark bands shown on pages 44 – 45 of the Business
Management Guide.

Additional guidance:
HL students could also refer to the opportunities and threats of entering an international market
(Unit 4.6 HL only) and could refer to some of the STEEPLE factors using the data in Table 3.
Some students may also refer to Ansoff matrix and identify a market development strategy for
Option 1 and Option 2a and related diversification for Option 2b.
For one relevant issue that is one-sided, award up to [3 marks].
If the candidate makes no reference to the data provided in Table 3, then the maximum mark to
be awarded is [4 marks] even if there is some balance.
If the candidate discusses only one option (with balanced and substantiated arguments) then
award a maximum of [5 marks].
To reach the [7 – 8 marks], the candidate must construct the decision tree correctly and
calculations should be accurate. They should refer to the data in Table 3, consider both options
in a balanced way, and substantiate their arguments.
Candidates cannot reach the [9 – 10 marks] if they do not consider the limitations of the case
study or to the stimulus material.

Exam Practice Question - Artisan Woodcrafts (AW)

Answers
(a) Prepare a cash flow forecast for AW for January to April. [4 marks]
Cash flow forecast for Artisan Woodcraft for January to April

All figures in $ January February March April

Opening balance 10,000 6,000 (3,500) (6,000)

Cash inflows

Cash sales 10,000 12,500 15,000 17,500

Credit sales 15,000 10,000 12,500 15,000

Total cash inflows 25,000 22,500 27,500 32,500

Cash outflows

Rent 4,000 4,000 4,000 4,000

Salaries and wages 10,000 10,000 10,000 10,000

Cost of sales 10,000 10,000 11,000 11,000

Loan repayment 3000

Other expenses 5,000 5,000 5,000 5,000

Total cash outflows 29,000 32,000 30,000 30,000

Net cash flow (4,000) (9,500) (2,500) 2,500

Closing balance 6,000 (3,500) (6,000) (3,500)

 Award [4 marks], if the cash flow forecast is constructed following the IB format and is correct in
all respects (see Figure 10, page 63 of the Guide).
Apply own figure rule (OFR) where appropriate.
Award [3 marks] of the cash flow forecast has two errors (in format or calculation).
Award [2 marks] if the cash flow forecast has three or more errors or has a largely inaccurate
format.
Award [1 mark] if the candidate shows some understanding of what a cash flow forecast is, but
the actual account constructed is not in the IB format and has numerous errors.

(b) Outline one way to improve the cashflow position at AW. [2 marks]
Possible strategies can include an outline of any of the following:

 Increase cash inflows – AW can remove credit sales. This would mean requiring customers to
pay in cash, rather than giving some of them one month’s credit to pay their bills. Requiring cash
payments will mean that January’s cash inflow would increase to $35,000 (i.e., the $15,000 owed
from December plus the sales of $20m000 in January. This would enable AW to have a positive
net cash flow for January, March, and April.
 Decrease cash outflows – Delay the loan repayment. This would mean negotiating with the bank
to extend the length of the loan and paying it back at a later date. For AW this would improve net
cash flow by $3,000. As the closing balance in April is ($3,500), this solution would improve its
cash flow position, but not solve their problems entirely.
Note: asking suppliers for extended trade credit is not a relevant option for AW, as the case study
states that the company’s credit score has been damaged, making this an unlikely way to
improve the cashflow position at AW.
Accept any other relevant suggestion, written in the context of the case study.
Award [1 mark] for an explanation of the solution with no application.
Award [2 marks] for explanation of the solution with application.

(c) Define the term business angel. [2 marks]

Business angels are highly affluent individuals who provide financial capital to start-ups or small
to medium sized enterprises in return for ownership equity in these businesses.
Award [1 marks] for a basic definition that conveys partial knowledge and understanding.
Award [2 marks] for a full definition that conveys knowledge and understanding similar to the
answer above.

(d) Calculate the following for Machine A and B (show all your working):
(i) the payback period. [4 marks]
 Cost of Machine A (45,000) Cost of Machine B (30,000)

Year Net cash flows $: $ Net cash flows $: $

1 15,000 (30,000) 8,000 (22,000)

2 16,500 (13,500) 9,500 (12,500)

3 13,500 0 10,000 (2,500)

4 23,000 17,700

Payback 3 years Payback (2,500 / 17,700) × 12

= 3 year and 1.69

months

Therefore, the payback period for Machine B = 3 years and 2 months

Mark [2] + [2]
For each option, award [1 mark] for appropriate working and [1 mark] for the correct answer.

(ii) the net present value (NPV) using a discount rate of 6%. [4 marks]

Net Prese
Ye cash Discount nt Net cash Discount Present
ar flows factor 6% value flows ($) factor 6% value ($)
($) ($)

14,15
1 15,000 0.9434 8,000 0.9434 7,547.20
1

14,68
2 16,500 0.89 9,500 0.89 8,455
5

11,33
3 13,500 0.8396 10,000 0.8396 8,396
4.60

18,21
4 23,000 0.7921 17,700 0.7921 14,020.17
8.30

Present 58,38 Present

38,418.37
value 8.90 value

45,00
Cost Cost 30,000
0

13,38
NPV NPV 8,418.37
8.90
Mark [2] + [2]
 For each option, award [1 mark] for appropriate working and [1 mark] for the correct answer.

(e) Using your results from (d) (i) and (ii) and the stimulus material, explain which option
AW should choose. [4 marks]
Possible point to consider include an explanation of the following:

 Students should recognize that Machine A has a shorter payback period and a higher NPV which
makes it more attractive according to these quantitative methods.
 The explanation should refer to the liquidity issues that the company is currently facing and why a
quicker payback is therefore desirable.
 However, at $45,000, Machine A will require a higher initial cash outlay. Though the payback is
shorter, it is only by 2 months, yet the initial outlay is 50% more than that for Machine B.
 Accept any other relevant explanation, using the stimulus from the case study.
Award up to [2 marks] for only a partial/unclear explanation with no application.
Award up to [4 marks] for a clear explanation with reference to the results from both (d) (i) and
(ii) and from the stimulus material.

(f) Define the term working capital. [2 marks]

Working capital can be defined as the money needed to pay for the day-to-day running costs of a
business. Examples include wages, utilities, and raw materials. It can be calculated as follows:
Current assets – Current liabilities.
Award [1 mark] for a basic definition that conveys partial knowledge and understanding.
Award [2 marks] for a full definition that conveys good knowledge and understanding, similar to
the answer above.

(g) Prepare a balance sheet for AW as of 31 December. [4 marks]

Statement of financial position for AW as at 31st December (figures in $)

Non-current assets

Property, plant, and equipment 110,000

Accumulated depreciation 10,000

Non-current assets 100,000

Current assets:

Cash 10,000

Debtors 15,000
 Stock 50,000

Current assets 75,000

Total assets 175,000

Current liabilities:

Bank overdraft 0

Trade creditors 30,000

Other short-term loans 25,000

Current liabilities 55,000

Non-current liabilities:

Borrowings (long term) 50,000

Non-current liabilities 50,000

Total liabilities 105,000

Net assets 70,000

Equity:

Share capital 50,000

Retained earnings 20,000

Total equity 70,000

Award [4 marks] if the candidate constructs an accurate balance sheet (that balances) according
to the IB prescribed format (see pages 61 – 62 of the Guide).
Award [3 marks] for a largely accurate balance sheet that balances, according to the IB format.
Allow up to one error but apply the Own Figure Rule as appropriate.
Award [2 marks] if the candidate constructs a largely recognizable balance sheet but it does not
balance, or it has two major problems of classification.
Award [1 mark] if the candidate conveys some basic idea of what a balance sheet is.
For full marks, the balance sheet must be dated. Failure to date the balance sheet is an error
and, therefore, the maximum award that an undated balance sheet could receive is [3 marks].

(h) Using the additional information above and the results of your balance sheet,
calculate the following (no working out required):
 (i) acid-test ratio. [1 mark]
[(75,000 – 50,000) / 55,000] =0.45
Acid test ratio = 0.45 : 1
Award [1 marks] for the correct answer (no working out required).

(ii) debtor days. [1 mark]

= (15,000 / 345,000) × 365 =15.86 days
Debtor days ratio = 15.87 or 16 days
Award [1 mark] for the correct answer (no working out required).

(i) Outline the results of the ratio analysis for AW in Question (h) above. [2 marks]
The candidate should recognize that the acid test ratio of 0.45 is significantly below the desired
1:1 ratio and that this could lead to insolvency if the company cannot pay its short-term debts on
time.
It takes the business an average of 16 days to collect its debts. The candidate should recognize
that this is a reasonable length of time for AW. Having such a low debtor days ratio may
encourage customers to seek out alternative suppliers who will give them better credit terms.
Mark [2] + [2]
For each ratio, award [1] for an understanding of the ratio results and [1 mark] for clear and
appropriate application to AW.

Paper 2 Exam Practice Question - Gel Nails (GN)

Answers
(a) State two features of multinational companies. [2 marks]
Features of multinational companies could include:

 Having operations in two or more host countries.

 Typically having the company’s headquarters based in the home country, i.e., the country of
origin.
 Naturally large in size, as they usually have operations in many locations.
 Centralized ownership and control in the home country (headquarters), although very large MNCs
may have regional offices / headquarters.
 Accept any other feature of MNCs, e.g., MNCs dealing with multiple currencies as they have
operations in different overseas markets.
Award [1 mark] for each appropriate feature, up to the maximum [2 marks].

(b) Construct a fully labelled decision tree, showing the predicted outcome for each option faced
by GN. [6 marks]
Working out:

Chanc Potent Total Foreca

Expecte
e ial expecte Cost st
Option Outcome d yield
return d yield ($m) return
(%) ($m)
($m) ($m) ($m)

Success 45 25.0 11.25

Unchange
Vietnam 30 20.0 6.0 20.250 12.5 $7.75
d

Failure 25 12.0 3.0

Success 55 22.0 12.1

Indones Unchange
20 12.5 2.5 16.725 10.5 $6.225
ia d

Failure 25 8.5 2.125

Success 50 20.0 10.0

Thailan Unchange
25 10.0 2.5 12.0 14.5 -2.5
d d

Failure 25 -2.0 -0.5

Award [1 mark] if the answer shows some understanding of a decision tree, but otherwise the
response is largely inaccurate, incomplete, or illegible.
Award [2 – 3 marks] if a decision tree is constructed, but either it is untidy (so illegible in places)
and/or the forecast contains three or more errors or omissions.
Award [4 – 5 marks] if the decision tree is constructed essentially correctly and neatly in a
generally accepted format (including the use of a key), but there is one error for [5 marks] or two
errors for [4 marks].
Award [6 marks] if the decision tree is constructed accurately and neatly in a generally accepted
format (including an appropriate key), and is error free (including striking out Indonesia and
Thailand – the two options that should not be pursued on financial grounds).

(c) Outline one non-financial factor that GN should consider before choosing any of these
locations to expand into. [2 marks]
 Possible non-financial factors could include an outline of any one of the following:

 Management preferences, e.g., familiarity with the different locations and potential language
barriers (as Malay and Singaporean Mandarin are not widely spoken in Vietnam, Indonesia or
Thailand).
 The possible impacts on staffing, e.g., will employees be resistant to change (such as having to
relocate from Singapore)?
 Existing competition in overseas markets, such as manufacturers of nail and beauty products in
Vietnam, Indonesia, and Thailand.
 Political stability (or volatility) and its impact on local currencies for example (i.e., Vietnamese
dong, Indonesian rupiah, and Thai baht) because fluctuations in the exchange rate will affect the
profits of Gel Nails.
 Accept any other valid financial or non-financial factor that is explained.
Award [1 mark] if the answer briefly outlines one non-financial factor. There is some use of
appropriate business management terminology.
Award [2 marks] for an answer that clearly outlines one non-financial factor that Gel Nails needs
to consider before choosing any of three options for overseas expansion. Appropriate business
management terminology is used.

09 - Vanilla Miel
Markscheme
(a) Define the term unique selling point (USP). [2]
This refers to any aspect of a product that makes it stand out positively from other products
available on the market, e.g., the provision of customizable desserts.
Award [1] for a definition that shows some understanding of the term USP.
Award [2] for a definition that shows good understanding of the term USP, similar to the example
above.
 (b) Identify two benefits to Vanilla Miel of using social media marketing. [2]
Possible benefits could include:

 Helps to build connections and relationships with Vanilla Miel’s customers who share their
experiences on social media platforms.
 Creates greater brand awareness.
 Great brand engagement can help to develop consumer loyalty.
 SMM is comparatively cheap form of marketing for small businesses like Vanilla Miel.
 It enables Vanilla Miel to get consumer feedback, from “Likes” and “Shares”, for example.
 Accept any other relevant point.
Award [1] for each valid benefit for Vanilla Miel, up to the maximum of [2].

(c) Outline one advantage of forming a partnership for Mansi and Isha. [2]
Possible advantages could include:

 Specialization and division of labour as both partners have unique expertise which enables the
partnership to benefit from synergies. This allows for a more holistic approach to running the
patisserie, ensuring that both the artistic and managerial facets are well taken care of by Mansi
and Isha.
 Increased financial strength in the business as there are two co-owners. This shared financial
responsibility can provide more funds for Vanilla Miel, facilitating the purchase of high-quality
ingredients, marketing efforts, and overall business growth.
 Risk sharing as uncertainties and competition in the market means that having a partner to share
both the workload and risks can be a crucial advantage.
 Accept any other relevant advantage, written in the context of Vanilla Miel.
Award [1] for identifying a valid advantage and [1] for outlining why this is advantageous to
Vanilla Miel.

(d) Explain the differences between the two production methods used at Vanilla Miel.
[4]
Batch production is a method of production in which items or products are manufactured in sets
or groups. A set of related products is called a batch. Operations are performed on a batch of
bakery products and the entire batch moves together to the next stage in the production process.
Vanilla Miel uses batch production to manufacture its cakes and tarts, for example. It is possible
to gain some cost savings (economies of scale) by using this production method.
Job production is also used by Vanilla Miel while manufacturing hand-painted and customized
desserts. Each dessert is uniquely designed and made as per the specific requirements of the
client. These are one-off products and made on a much smaller scale than batch produced
bakery products. It is not possible to have economies of scale and hence prices charged are
higher.
Award up to [2] for an answer that shows some understanding of the demands of the question,
although the answer may lack a clear distinction between batch and job production and there is
limited, if any, application of the Vanilla Miel case study.
Award up to [4] for an answer that shows good understanding of the demands of the question,
with a clear distinction between batch and job production. There is effective use of appropriate
terminology and application of the Vanilla Miel case study throughout the answer.

Paper 2 Exam Practice Question - Samsung

Answers
(a) (i) Define the term multinational company. [2 marks]
A multinational company (MNC) is any business organization that has operations in oversea
marketss, irrespective of whether it produces or sells goods and/or provides services, i.e., MNCs
operate in two or more countries.
Award [1 mark] for a response that shows some understanding of the term multinational
company.
Award [2 marks] for a response that shows a clear understanding of the term multinational
company, similar to the response above.

(a) (ii) Define the term market leader. [2 marks]

A market leader is the firm with the greatest market share in a market or industry. As Samsung
outsells its rivals in the smartphone manufacturing sector (i.e., it has the largest market share),
the company is the industry's market leader.
Award [1 mark] for a response that shows some understanding of the term market leader.
Award [2 marks] for a response that shows a clear understanding of the term market leader,
similar to the response above.

(b) Describe what it means to be a sustainable business. [2 marks]

A sustainable business is an organization, like Samsung, that can thrive and grow (via profits)
whilst being ethical to the needs of society and environmentally friendly. These businesses have
a positive overall impact on their stakeholders and their operations ensure the survival of the
firms in the future, i.e., economic, social, and ecological sustainability.
Award [1 mark] for a response that shows some understanding of what is meant by a sustainable
business.
Award [2 marks] for a response that shows a good understanding of what is meant by a
sustainable business, making reference to ecological, social, and economic sustainability.

(c) Explain two reasons why Samsung might choose to operate in a sustainable way. [4
marks]
Despite the costs associated with striving for sustainability, some businesses choose to operate
in a such a way because:
 It is the ethical / morally correct thing to do - what is right for the environment and society / the
community is also good for the business in the long run.
 It can help to enhance the corporate image (reputation) of Samsung in a highly competitive
industry.
 It can help to improve the morale of Samsung employees, as well as satisfy the interests of other
key stakeholder groups of the company.
 Operations that minimize waste and pollution are beneficial to Samsung in the future, as higher
environmental costs would also harm the company's profitability in the long run.
 Accept any other relevant reason that is explained in context.
Mark as 2 + 2
For each point, award [1 mark] for a valid reason and a further [1 mark] for a clear explanation,
written in the context of Samsung.

(d) Using relevant business management tools and theories, discuss how a business,
such as Samsung, might become a more sustainable organization. [10 marks]
Note: students can refer to any relevant tool or theory, such as Elkington's triple bottom line
and/or circular business models.
Sustainable business activity is achieved through combining social, economic, and ecological
considerations and practices in order to operate in a technically efficient and environmentally
friendly way that ensures profitability for the owners.
Possible social considerations and practices of sustainability include:

 Activities that generating less pollution and waste, such as the Samsung Recycle initiative.
 Policies to promote greater gender equality in the workplace.
 Fairer and more transparent operations with suppliers.
 Contributing to local communities such as sponsoring local events, supporting local businesses,
and working with local charitable organizations.
 Accept any other relevant social factor written in the context of the case study.
Possible economic considerations and practices of sustainability include:

 Producing new products that are desirable to customers but created in a sustainable way that
enable waste minimization and ease of recycling or upcycling.
 Providing work opportunities to local people (not necessarily only in South Korea, as Samsung is
a large multinational conglomerate company with operations across the world). This helps to
reduce problems associated with unemployment.
 Fair remuneration packages and employment benefits to all Samsung employees.
 Establishing knowledge-sharing and training programmes for Samsung employees.
 Accept any other relevant economic factor written in the context of the case study.
Possible ecological considerations and practices of sustainability include:

 Use of energy efficient processes, such as Samsung's investments in solar energy programmes.
Such practices also help to reduce greenhouse gas emissions caused by Samsung's
manufacturing processes.
 Business operations that conserve natural resources, forests, and habitats for endangered
animals and plants
 Implement efficient waste management systems in order to reduce pollution levels caused by
Samsung's business activities, such as the use of recycling, reducing waste, and finding markets
where waste from one area of the business can be used for other areas of the business.
 Avoiding or reducing the use of plastic chemicals that produce toxic waste as well as non-
biodegradable materials.
 Reduce packaging that also contributes to waste. This can be achieved by using reduced
materials that can be further reused, recycled, or upcycled.
 Avoid unnecessary travel by promoting a culture of work from home (WFH) wherever possible,
with the use of teleworking and homeworking technologies.
 Accept any other relevant ecological factor written in the context of the case study.
To achieve feasible sustainable practices, Samsung needs to integrate and weigh up the social,
economic and ecological impacts of all of the company's diverse business operations.
Award [1 - 2 marks] for an answer that shows a limited understanding of the demands of the
question.
Award [3 - 4 marks] for an answer that shows some understanding of the demands of the
question, with an examination of at least one aspect of sustainability, although there is limited
application of the case study material.
Award [5 - 6 marks] for an answer that shows some understanding of the demands of the
question, with an examination of at least one aspect of sustainability. There is some use of
relevant business management terminology and some application of the case study material.
Award [7 - 8 marks] for an answer that shows understanding of the demands of the question,
with a discussion of at least two aspects of sustainability. There is good use of business
management terminology and good application of the case study material. Some judgements are
substantiated.
Award [9 - 10 marks] for an answer that shows good understanding of the demands of the
question, with a discussion of all three aspects of sustainability (social, economic, and
ecological). There is effective use of business management terminology throughout the
response, and consistent application of the case study material. Judgements are well
substantiated throughout the response.
Candidates cannot reach the [9 – 10] mark band if they do not consider the limitations of the
case study or to the stimulus material.
Candidates should refer to the limitations of the case study to achieve the top marks. For
example, the case study does not provide costs or revenues for Samsung. Despite it being South
Korea’s largest exporter, the stimulus material is limited in providing quantitative data and
information, so an in-depth discussion about might how Samsung might become a more
sustainable organization is somewhat limited. A further example is that case study does not refer
to Samsung’s mission statement or strategic goals in the next few years, so it is not known
whether the company intends to have sustainability of a key strategic priority.
Marks should be allocated according to mark bands shown on pages 44 – 45 and 47 – 48 of the
Business Management Guide.

Paper 3 HL Only
 Change Please - Coffee, Change, and Cause
Answers (mark scheme)
(a) Using an appropriate business management theory, describe a human need that
Change Please meets by providing people with a way out of homelessness. [2 marks]
Possible answers include a description of any of the following:

 Physiological needs in Maslow's hierarchy of needs - These are basic needs for human survival,
so are those thought to be the most important in Maslow's theory. Such needs include warmth
and shelter - needs that are not met for those who are homeless; the case study mentions that
Change Please supports its employees to find their own accommodation.
 The need for affiliation (n-Aff) in McClleland's theory of needs - This describes a person's need to
feel a sense of involvement and "belonging" within a social group or society as a whole. Those
with n-Aff are essentially motivated by social connections. People who are homeless lack a sense
of affiliation, not necessarily through any fault of their own, yet may have the need or desire to
reintegrate back into society; the case study mentions that Change Please helps its workers to
"rediscover their sense of community."
 Accept any other human need linked to business management theory, such as Deci & Ryan's
self determination theory (relatedness in particular, as this refers to our connections with other
people in society).
Mark as [1 + 1].
Award [1] for using an appropriate business management theory, e.g., Maslow’s hierarchy of
needs or McClelland’s theory of needs, and [1] for describing the human need in the context of
the case study, e.g. physiological or love and belonging needs.

(b) Explain two possible challenges facing Change Please. [6 marks]

There are numerous approaches to this question. Students can explain the challenges using
internal and/or external factors. For example, internal challenges facing Change Please could
include, but are not limited to, the following:

 Human resource challenges - Change Please may lack the necessary resources to hire and
retain staff. Although the company hires and trains homeless people to become baristas, they
often lack the skills, experience, and willpower to continue in their roles, so often revert back to
homelessness. This creates a labour turnover challenge for Change Please.
 Financial challenges - Change Please has a "very limited marketing budget" so has to rely on
"below the line promotional techniques". The business also only offers a very limited range of
products for sale, although coffee is where Change Please gains most of its revenues. The lack
of revenue streams creates financial challenges for the social enterprise.
 Furthermore, as part of its “plans to expand operations to Sweden and Japan”, Change
Please may lack sufficient liquidity to fund its plan of action to ensure the sustainability of the
business for the next 5 years.
 Marketing challenges - Change Please only has a few small outlets in the UK, and even fewer
elsewhere. Having a “very limited marketing budget” restricts what the business can do in order
to entice and retain customers to support its social cause.
External factors that create challenges for Change Please include:
 Competition - The larger, commercial coffee chains (Starbucks, Costa Coffee, and Caffè Nero) all
have a larger customer base, established customer loyalty programmes (and hence a higher rate
of customer retention), as well as larger budgets to implement their own plans of action including
“large budgets for enacting corporate social responsibility (CSR)”. Hence, the intensity of
competition can limit the market share of Change Please. It can also be argued that Change
Please faces competition from other organizations (such as The Big Issue and Shelter) that
support the same social cause.
 Growth - Expanding its operations in the UK, Australia, and France can put huge strains on the
finances of the social enterprise. Furthermore, the growth of Change Please is insignificant
compared with the escalating problems of homelessness (homelessness is reported to have
“doubled between 2010 and 2021 in the UK”). The problems of “underreporting of homelessness”
means the challenges are even more of an obstacle for Change Please.
 The coffee retail market in the UK is saturated with well-established market leaders who enjoy
brand loyalty. This limits potential growth and profitability for Change Please operating in a highly
competitive market.
Challenges can also be explained through aspects of a STEEPLE framework. For example, the
economic environment in the UK presents challenges for Change Please:

 The Bank of England has raised interest rates to 3% - the biggest hike in the cost of borrowing
since 1989. This raises the cost of living for those with overdrafts, credit card debts, bank loans,
and mortgages, Hence, this reduces the amount of money that people have at their disposal to
buy coffee and/or make donations to organizations such as Change Please.
 The “longest recession for the UK economy since records began” will reduce both consumer
confidence (and hence consumer spending) and business confidence (and hence investment
expenditure); both of which will create economic challenges for Change Please, especially during
a prolonged period of an economic downturn.
 "The cost of living crisis" in the UK economy, with its higher rates of inflation and interest rates, all
combine to reduce the disposable incomes of customers, thereby limiting the amount of coffee
they can purchase from Change Please. Individuals also feel less generous during times when
their own quality of life deteriorates.
 The COVID-19 pandemic has intensified the problems and challenges of homelessness in
London and other major cities. The situation is probably more of a challenge in reality as "the
statistics are likely to be an underestimate" of the scale of homelessness, thereby creating
further obstacles for Change Please .
Mark as [3 + 3].
For each challenge, award [1] for identification of an appropriate challenge, [1] for the
explanation, and [1] for application to Change Please.

(c) Using all the resources provided and your knowledge of business management,
recommend a possible plan of action to ensure the sustainability of Change Please for the
next five years. [17 marks]
The plan of action will depend on the two challenges identified and explained in the previous
question. Recommendations include, but are not limited to, the following:
Marketing plan of action
 Product positioning strategy, in regard to the intense competition from commercial coffee
companies such as Starbucks, Costa Coffee, and Caffè Nero. This could address Ary
Ganeshalingham’s argument that Change Please needs to determine its position in the market.
Essentially, the company needs to focus on its unique selling point of a really good-tasting coffee
that does good for society too.
 Distribution strategy, e.g., partnering with other retailers to sell Change Please coffee drinks,
such as in local supermarkets and cinemas.
 Review the prices and pricing methods used by Change Please, e.g. reducing prices during the
economic recession, although this would reduce its profit margins.
 Social media marketing (SMM) strategy, e.g., using social media platforms to make the brand
purpose more prominent, such as allowing employees to “share their own inspirational stories” as
well as sharing customer feedback about the great coffee drinks at Change Please. This would
help to raise brand awareness too.
 Review the prices and pricing methods used by Change Please, e.g., reducing prices during the
economic recession, although this would reduce its profit margins. Alternatively, Change Please
might consider the use of a subscription-based pricing model, similar to other coffee chains. This
would help to retain customers and increase sales revenues.
 Develop a customer loyalty programme to attract and retain more customers. This could also help
Change Please to improve its competitiveness in the market as the larger coffee chains have
their own well-established customer loyalty programmes.
 Develop a customer loyalty programme to attract and retain more customers. This could also help
Change Please to improve its competitiveness in the market.
 Broadening the product range offered by Change Please in order to increase its sales revenue
and various revenue streams (currently, it only has six different products in its portfolio).
However, this could prove to be expensive especially if there is no market research to assess the
likelihood of success.

Human resources plan of action

 Continuing Professional Development (CPD) to train and upskill the baristas at Change Please,
such as offering improved customer services. The employees become more confident and
competent, thereby meeting their esteem needs (Maslow), their need for achievement
(McClleland), or self-determination (Deci & Ryan). However, this could be time consuming and
costly for Change Please (especially during periods of inflation in the economy).
 Developing an entrepreneurial mindset is essential for the survival, sustainability, and success of
Change Please. This would involve developing human resource strategies to provide ongoing
support for employees who have suffered the traumas of homelessness as well as training for
managers to deal with challenging personnel issues. If this is not given priority, the purpose or
vision of Change Please can be easily forgotten. However, there are no data or information
provided about the organization’s finances and liquidity position.

Finance plan of action

 Donations - Investing in technologies such as QR codes and smartphone apps would mean it
becomes easier for people to make their donations to Change Please. This would address Ary
Ganeshalingham’s observation that “no one carries cash anymore”.
 Seeking alternative, cheaper suppliers can help Change Please to have better cost control and
improves profit margins. However, the business needs to be careful about quality, given that it is
known for its good-tasting coffee drinks. Similarly, Change Please could investigate cost savings
in its supply chain management process. The business is ultimately a for-profit social enterprise,
so profit is essential for the sustainability and survival of Change Please.

Other considerations for a plan of action

 Fine-tune the company’s mission statement, emphasising positive connotations (such as

empowering people with social and economic mobility) rather than negative associations (such as
homelessness and unemployment). It may also want to reconsider the expansion plans in
Sweden and Japan, given that "homelessness is not a major issue in these countries".
 Application of relevant components of the Business Management Toolkit (BMT). This could
include elements of SWOT analysis, Ansoff’s growth matrix and Porter’s generic strategies.

The effectiveness of (and sustainability of) the plan of action will depend on numerous factors,
including but not limited to uncontrollable external factors such as:

 The available internal sources of finance that Change Please has available to invest in the
recommended plan of action.
 How much further interest rates are likely to increase in the UK. Higher interest rates make it
more challenging to obtain the required sources of finance and revenue streams needed to make
the plan of action work.

For the highest mark band, candidates are expected to consider the limitations of their plan of
action, in the context of the case study and application of the stimulus materials. As part of their
evaluation, candidates may choose to discuss the impact of the plan of action on the different
stakeholders of Change Please.

Power of Active Love (PAL)

Answers (mark scheme)
(a) Using an appropriate business management theory, describe a human need that
Power of Active Love (PAL) meets by promoting social welfare activities to local students.
[2 marks]
Possible answers include a description of any one of the following:
 Physiological needs are the basic survival needs such as food, water, shelter, and health. PAL’s
public health and well-being initiatives directly address these needs by promoting access to basic
healthcare education, providing information about first aid, and encouraging overall mental and
physical well-being.
 Social needs or affiliation need by connecting students with others as part of the various activities
run by PAL, including their summer programmes.
 The activities may also help the students to develop new interests, creativity, and leadership skills
that provide intrinsic motivation and lead to personal growth. Opportunities for personal growth
are motivators, according to Herzberg’s two-factor theory or motivation-hygiene theory.
 Sustainable development goal of quality education, and in particular social education to students
located in Wuxi and its surrounding areas. This helps to improve social welfare, mental and
physical well-being, and economic opportunities for all.
 Accept any other human need linked to business management theory and written in the context
of the case study.
Mark as [1 + 1]
Award [1] for using an appropriate business management theory, e.g., Maslow’s hierarchy of
needs or Herzberg’s motivation-hygiene theory, and [1] for describing the human need in the
context of the case study, e.g., physiological needs or social needs.

(b) Explain two possible challenges facing PAL as a relatively new social enterprise. [6
marks]
Possible challenges facing PAL include, but are not limited to, the following:

 One of the key challenges that PAL faces is the economic sustainability of its operations. It relies
heavily on Jason Shi’s own money as well as the student volunteers to help facilitate the
educational activities. This means that PAL needs to develop effective revenue streams and find
ways to generate a financial surplus in order to sustain its social welfare activities. PAL’s plans to
develop some revenue-generating summer programmes will also involve more costs and risks.
 Another challenge is marketing and stakeholder engagement. Being relatively new, PAL has
limited resources to effectively engage with its stakeholders through various marketing activities
despite this being crucial for raising public health and well-being awareness and promoting their
social educational programmes and initiatives. PAL needs to develop effective marketing
strategies to reach its target audience, create awareness about its service offerings, and build
strong relationships with stakeholders such as students, parents, schools, and the local
community.
 Resource management is another challenge for PAL. It needs to effectively manage its human
and financial resources. The business has limited financial resources, and decisions regarding
the allocation of funds, such as the cost of renewing authorizations, registration, and supporting
current projects, need to be carefully managed between the co-founders. Additionally, PAL needs
to efficiently manage their personnel, including motivating and retaining the 20 – 30 student
volunteers, to ensure smooth operations and successful implementation of their programmes.
 PAL faces the challenge of differentiating its educational courses from competitors and lacks a
unique selling proposition (USP) to attract students and parents in a potentially competitive
market. PAL intends to develop new commercial summer courses focused on sports science,
rehabilitation science, recovery spaces for disabilities, and first aid. However, it will be a
 challenge for any new business to create brand awareness and develop high-quality programmes
that align with their mission and values.
Mark as [3 + 3].
For each challenge, award [1] for identification of an appropriate challenge, [1] for the
explanation and [1] for application to PAL.

(c) Using all the information provided and your knowledge of business management,
recommend a possible plan of action to ensure the sustainability of PAL for the next five
years. [17 marks]
The plan of action will depend, to a large extent, on the two challenges identified and explained
in the previous question. To ensure the sustainability of PAL for the next five years, the social
enterprise could consider implementing any aspect of the following plan of action:

 Market research – One of the essential strategies that PAL must adopt is conducting market
research to identify the needs and preferences of its target audience as well as market trends.
This could help PAL to determine the potential market growth over the next five years. By
conducting such research, PAL can tailor its marketing plan accordingly to ensure its growth
based on the revenue generated from its commercial summer courses (Resource 1 and
Resource 4).
 Develop an appropriate marketing strategy – PAL should develop an appropriate marketing
strategy aligned with its mission and values (compassion, responsibility, and efficiency). It can
choose between a cost-focus strategy (targeting a narrow market segment with competitive
pricing) or a differentiation strategy (offering unique value-added services to attract a broader
customer base), as outlined in Resource 5. Factors to consider include the target market,
competition, and available resources. PAL should create a comprehensive marketing plan using
social media marketing, community partnerships, and collaborations with local and international
schools in Wuxi. Leveraging its affiliations with the DoE Award and CEAIE will strengthen the
brand and expand its network. Engaging with students, parents, schools, and the local
community through targeted marketing will attract clients and foster long-term relationships.
 Develop and expand PAL’s commercial summer courses – PAL should focus on developing and
expanding its commercial courses, targeting students in the local community as outlined in
Resource 2 and 4. Attracting customers to PAL’s new summer programmes (such as sports
science and emergency medicine programmes) can help to ensure the survival of the social
enterprise. The tuition fees for these courses can go towards funding PAL’s social welfare
activities, fund initiatives such as installing automated external defibrillators (AEDs) in the
community, as well as make contributions to the development of new free events. Essentially,
PAL needs to attract fee-paying participants in order to generate revenue.
 Enhance financial sustainability – PAL should focus on generating a surplus for its long-term
viability. Besides revenue from its commercial summer courses, PAL can seek additional sources
of finance from donations, grants, sponsorships, and partnerships with organizations that align
with their mission. Resource 1 highlights the importance of partnerships like the DoE Award and
CEAIE. Furthermore, diversifying revenue streams through additional services and collaborations
while maintaining social welfare activities is advisable. Partnerships with schools, universities,
and non-profit organizations can offer additional tailored services. Careful expense management
 (Table 1), including registration and renewal costs, and reasonable salaries for the co-founders,
should be prioritized.
 Develop a unique selling point (USP) – It is crucial for PAL to raise brand awareness and
differentiate itself from competitors. The mascots in Figure 1 may not effectively promote the
organization and lack direct relevance to PAL. Instead, PAL should consider a strategy that
focuses on developing a distinctive niche service tailored to the preferences of its target audience
in Wuxi. Creating a unique selling proposition (USP) aligned with PAL’s mission and values can
build trust and customer loyalty. The new commercial summer courses mentioned in Resource 5
support this strategy by offering unique and appealing services to PAL’s target audience.
 Stakeholder engagement – Effective stakeholder management is vital for PAL’s success. It must
engage and communicate with its stakeholders effectively. As per Resource 3, stakeholder
engagement is needed to ensure effective implementation of PAL's plan of action. Therefore,
PAL must create effective communication channels and continually evaluate feedback from its
key stakeholders, including students and parents (customers), teachers, mentors, the student
volunteers, sponsors, and partners. Stakeholder engagement also requires PAL to develop
courses and initiatives that align with the needs and preferences of its stakeholders, thereby
ensuring customer satisfaction and stakeholder involvement in the decision-making process.

In conclusion, sustaining PAL for the next five years requires balancing various priorities.
Focusing on developing its commercial summer courses and implementing a clear marketing
strategy can generate much-needed revenue. By expanding offerings in sports and healthcare,
PAL can attract fee-paying participants to fund improvements and support community initiatives.
A cost-focus strategy maintains PAL’s competitiveness, although differentiation enables growth
and a broader customer base. However, the latter may not be a key priority given PAL is a newly
established business.
Nevertheless, as a social enterprise, it is crucial for PAL to balance commercial pursuits with its
mission and values. Prioritizing social welfare activities and supporting those in need should
remain paramount. PAL should align commercial ventures with its core mission and consider
social and environmental responsibilities. Integrating sustainable practices ensures a positive
impact on society and the environment while pursuing financial sustainability.
Ultimately, PAL needs to integrate commercial endeavours with its social mission through a
comprehensive plan of action. This involves resource management, prominent marketing, and
stakeholder engagement strategies. Balancing revenue generation with social welfare activities
will help to secure PAL’s long-term sustainability and make positive impacts on students,
parents, and the community.

Marks for this question should be allocated according to the assessment criteria on pages 48 –
50 in the Business Management guide (May 2022).
For the highest mark band, candidates are expected to consider the limitations of their plan of
action, in the context of the case study and application of the stimulus materials. As part of their
evaluation, candidates may choose to discuss the impact of the plan of action on the different
stakeholders of PAL.
 Lisa Accessories – Creating treasures from plastic

Mark scheme
Marks for this question should be allocated according to the assessment criteria on pages 48 –
50 in the Business Management guide (May 2022).
(a) Using an appropriate business management theory, describe a human need that Lisa
Accessories (LA) meets by providing health care insurance to its employees and paying
school fees on behalf of their employees with young children. [2 marks]

 Maslow’s hierarchy of needs, such as the security/safety needs of LA’s employees being fulfilled.
By providing these perks, the social enterprise is ensuring that its employees have access to
essential healthcare services and that their children receive education. This contributes to a
sense of security and well-being for the employees and their families.
 According to Herzberg’s two-factor theory, the health care insurance and payment of school fees
represent hygiene factors or maintenance factors. These factors contribute to the prevention of
dissatisfaction rather than directly motivating employees. Hygiene factors are essential for
creating a baseline level of satisfaction, related to employees’ basic needs and external working
conditions, and preventing potential sources of dissatisfaction at LA such as concerns about
health and education expenses. While these factors may not directly motivate LA’s employees,
their absence or inadequacy could lead to dissatisfaction.
 Accept any other appropriate business management theory that is accurately described in the
context of the case study.
Mark as [1 + 1]
Award [1] for using an appropriate business management theory and [1] for describing the
human need in the context of the case study.

(b) Explain two possible challenges facing Lisa Accessories (LA). [6 marks]

 Inventory management issues – The malfunctioning of LA’s inventory management system

creates a significant challenge. Manual counting of inventory is time consuming and may lead to
human errors. The delay in resolving this issue negatively impacts LA’s labour productivity,
potentially affecting production efficiency and the timely fulfillment of orders. It can also have a
negative impact on the motivation of employees (Resource 2).
 Increased water consumption – The notable 50% increase in water consumption is a financial
and environmental concern for LA. Addressing this challenge involves not only managing costs
but also implementing sustainable practices. The lack of induction or on-the-job training for new
staff may contribute to inefficient water usage in the production workshop , requiring immediate
attention to mitigate further increases (Resource 2).
 Short-term financial strain – The need to secure additional short-term sources of finance indicates
that LA faces financial challenges. The urgency to find new investors or immediate sources of
finance to cover February’s expenses suggests potential cash flow issues. Addressing this
challenge requires strategic financial planning, exploring investment opportunities, and possibly
negotiating with existing stakeholders (Resources 2 and 3). Lisa’s salary seems very high in
 comparison to the salaries paid to employees (despite the website stating the firm pays fair and
living wages to its employees (Resource 1).
 Market expansion risks – While the deal with 10 retail outlets in the Middle East presents growth
opportunities for LA, it also creates new challenges. The need for a new marketing mix tailored to
the preferences and expectations of customers in the Middle East, coupled with additional export
and marketing costs, requires careful planning. Furthermore, . Managing these costs and
potential cultural differences, while ensuring profitability, poses a challenge for LA’s market
expansion strategy.
 Possible conflict in the workplace – There is potential conflict between the Human Resources
manager and the employees if LA’s financial situation is not resolved, especially if the salaries will
not be paid by the end of February (Resource 2 and Resource 3). This situation is also likely to
lead the employees to feel demotivated. In particular, employees may feel that it is unfair for the
CEO to receive a high annual salary and a significant amount of the profits is paid as dividends to
the shareholders, while they do not receive a fair wage (Resources 1, 2, and 3).
 Possible conflict between the CEO and the Management team – The significant difference in pay
of the CEO and the rest of the Management team (the Finance manager, Operations manager,
Human Resources manager, and Marketing manager) can cause another challenge (Resource
3). The pay differential can create some friction or conflict as this creates a cognitive dissonance
based on J.S. Adams’ equity theory.
 Accept any other appropriate challenge that is explained in the context of the case study.
Mark as [3 + 3]
For each challenge, award [1] for identification of an appropriate challenge, [1] for the
explanation, and [1] for application to Lisa Accessories.

(c) Using all the resources provided and your knowledge of business management,
recommend a possible plan of action to ensure the sustainability of LA for the next
five years. [17 marks]

 Financial plan of action:

o Seeking appropriate sources of finance is an immediate priority, such as taking out an overdraft
or a short-term loan (the advantages and drawbacks of these two sources of finance should be
discussed). Internal sources of finance cannot be considered at this point in time since LA’s
retained profit is negative (Resource 3).
o LA could seek alternative funding sources, such as actively seeking new investors to address the
social enterprise’s short-term financial strains.
o LA could seek to implement cost-cutting measures where possible without compromising product
quality or employee well-being.
o Seeking finance for the long-term is a priority for LA, such as looking for new investors (business
angels and / or new shareholders) to raise more share capital and/or equity (Resources 3 and 4).
o The new initiative to enter the Middle East region with 10 retail outlets also requires a detailed
financial plan (Resources 2 and 4), such as a thorough investment appraisal.
 Operations Management plan of action:
o The faulty inventory management system needs to be repaired or replaced imminently,
depending on whether the Operations manager can find the right supplier (Resource 2), although
this needs top priority. The Operations manager needs to explore modern, efficient, and reliable
 inventory management software solutions to streamline LA’s operations and reduce or eliminate
manual errors.
o LA can introduce quality management measure prior to entering new markets in the Middle East.
This could include conducting regular audits and system checks to ensure the smooth functioning
of the inventory management system.
o Discussions about LA’s plastic management system need to take place. For example, LA could
consider implementing a “resource recovery model” (a type of circular business model) which
also aligns with its mission statement (Resources 1 and 2).
o Sustainable practicesaddress the increased water consumption concern and promote
sustainabilityLA could also explore eco-friendly packaging options to align with environmental
values and reduce its overall ecological impact. LA could also examine ways to improve the
upcycling process for efficiency and sustainability.
 Human resources plan of action:
o LA needs to implement a comprehensive training programme for existing and new employees to
address the manual inventory counting issue and improve its water consumption efficiency.
o This would entail LA investing in employee skills development to enhance the quality and
efficiency of the upcycling process.
o LA could establish mentorship programmes to transfer knowledge and skills from experienced
staff to new recruits. This will ensure that all new staff are properly inducted and upskilled
(Resource 2).
o Besides training and development, LA needs to improve its policy of ensuring fair wages that
align with the firm’s mission and in order to retain its workforce (Resources 1 and 2).
 Marketing plan of action:
o Developing a marketing plan is required to launch the LA’s products in the 10 retail outlets in the
Middle East. The Marketing manager needs to develop a distinctive or unique selling point,
appropriate segmentation strategies, and look into sales forecasting for the region (Resources 2
and 3).
o Market development in the Middle East requires LA to continue the collaboration with retail
outlets in the Middle East region and to conduct a thorough market analysis to tailor products to
local preferences
o LA needs to develop a targeted marketing mix for the Middle Eastern market, considering cultural
nuances and different customer expectations and inclinations. To this effect, effective market
research is also needed as a pre-requisite.
o LA could implement cost-effective international marketing strategies, leveraging digital platforms
and influencer marketing to maximize its reach. These need to be cost-effective, given LA’s
limited sources of finance.
 Other considerations for the plan of action could include application of relevant components of
the Business Management Toolkit (BMT). This could include elements of SWOT analysis,
Ansoff’s growth matrix, and force field analysis, for example.
By addressing these aspects in the marketing, human resource, finance, and operations
functions, LA can build a solid foundation for sustained growth and success over the next five
years. Regular monitoring and adjustments to the plan of action will be essential to adapt to
changing market conditions and ensure its long-term survival.
 IBakery
(a) Using an appropriate business management theory, describe a human need that
iBakery meets by focuses on providing employment opportunities for individuals with
disabilities. [2 marks]
Possible answers include a description of any one of the following:

 One relevant business management theory that can be applied to explain the human need met
by iBakery is Abraham Maslow’s Hierarchy of Needs. This theory categorizes human needs into
a hierarchical structure, with physiological needs at the base and self-actualization at the top. By
providing meaningful employment opportunities for individuals with disabilities, iBakery not only
fulfills their basic physiological and safety needs but also contributes significantly to their social
and esteem needs.
 The provision of employment opportunities can serve as both a hygiene factor and a motivator in
Herzberg's two-factor theory. On the hygiene side, the absence of meaningful employment
opportunities for individuals with disabilities could otherwise lead to dissatisfaction with other jobs.
However, by offering employment and professional development programmes, iBakery
addresses this hygiene factor, creating a baseline of inclusivity and diversity in the workplace.
The focus on skills development, professional certification, and the opportunity for individuals with
disabilities to become baristas represents motivators (such as achievement, advancement, and
recognition).
 David McClelland’s theory of needs (HL only) identifies three primary motivators that drive human
behaviour: Achievement, Affiliation, and Power. The first two are most likely to apply to workers at
iBakery:
1. Need for achievement (N-ach) – iBakery addresses the achievement need of its employees by
offering professional courses and the opportunity to become certified baristas for individuals with
disabilities.
2. Need for affiliation (N-Aff) – iBakery meets the affiliation need of its employees by creating a
supportive and inclusive community. The emphasis on collaboration, as seen in its social media
collaborations with influencers promoting inclusivity, fosters a sense of belonging and social
connection among individuals with disabilities in Hong Kong.
 Deci and Ryan’s self-determination theory (HL only) emphasizes the role of three psychological
needs in driving human motivation and well-being:
1. Autonomy – iBakery promotes autonomy by providing individuals with disabilities the opportunity
to engage in professional courses, skills development, and certification programme in the pursuit
of personal and professional growth.
2. Competence – The focus on comprehensive training, certification as baristas, and the production
of high-quality bakery items directly addresses the competence need of iBakery’s employees by
enhancing their skills and mastery in their work.
3. Relatedness – iBakery excels in meeting the relatedness need of its workers by fostering a
socially inclusive environment and creating a supportive community, e.g., the collaborative
environment, social media collaborations with influencers promoting inclusivity, and the overall
mission of the organization contribute to a sense of connection and relatedness among
employees.
Accept any other human need linked to business management theory and written in the context
of the case study.
 Mark as [1 + 1]
Award [1] for using an appropriate business management theory, e.g., Maslow’s hierarchy of
needs or Herzberg’s motivation-hygiene theory, and [1] for describing the human need in the
context of the case study, e.g., social needs or esteem needs.

(b) Explain two possible challenges facing iBakery. [6 marks]

Despite its positive social impact, iBakery faces several challenges that need careful
consideration for its sustained success. Possible challenges could include an explanation of any
two of the following points:

 Financial sustainability:
o Balancing its social impact with financial (or economic) sustainability is a common challenge for
social enterprises. Although iBakery excels in meeting its social impact goals, the case study
mentions financial losses in recent years.
o Sustaining a non-profit social enterprise can certainly be challenging, so iBakery needs to
address the financial aspects of its operations to ensure long-term viability. iBakery needs to
generate sufficient revenue to cover its operational costs, salaries, and expansion plans while
staying committed to its mission.
 Market demand and competition:
o The competitive landscape in Hong Kong is diverse, with other social enterprises and
independent bakeries (like Café 8 and Rén) offering similar services. iBakery faces the challenge
of having to differentiate itself effectively with “around 70 Hong Kong eateries” operating as social
enterprises in the market.
o iBakery’s social media outreach is limited with only 1,300 followers and its Instagram account
only available in Chinese language. This limits brand exposure and the potential number of
customers.
o must continuously evolve to meet or exceed changing expectations of its customers in a highly
competitive market. Examples include the customer reviews about unreliable Wi-Fi (Review Y),
excess waste packaging (Review W), no Vegan choices (Review Z), slow service (Review V) and
limited seating capacity (Review X).
o Without an online presence, and with the shift of independent bakeries to online platforms,
iBakery faces the challenge of competing with rivals that have lower operational costs and wider
customer reach.
 Employee well-being and development:
o While iBakery focuses on empowering individuals with disabilities, ensuring their ongoing well-
being and development can be challenging. This will involve addressing potential workplace
issues whilst fostering a positive work environment in a sustainable manner. Human resource
issues such as recruitment, appraisals, disciplinary action, or dismissals are more sensitive given
the nature of the social enterprise. This will require specialized training for iBakery’s managers.
o Different employees may have diverse needs and ensuring that they receive the necessary
training and support requires careful planning and resources.
 Societal attitudes and perceptions:
o Dealing with societal attitudes towards people with disabilities may pose a challenge for any
single social enterprise the size of iBakery. Prejudice, misconceptions, and misinformation can
negatively impact the acceptance of iBakery’s workforce, potentially leading to reduced customer
patronage or negative perceptions, such as “slow service” (Review V).
 Accept any other relevant challenge, explained in the context of iBakery.
Mark as [3 + 3]
For each challenge, award [1] for identification of an appropriate challenge, [1] for a clear
explanation, and [1] for appropriate application to iBakery.

(c) Using all the resources provided and your knowledge of business management,
recommend a possible plan of action to improve the competitiveness of iBakery. [17
marks]
The plan of action will depend, to a large extent, on the two challenges identified and explained
in the previous question. To ensure iBakery remains competitive in the market, the social
enterprise could consider implementing any combination of the following of part of its plan of
action so as to continue making a positive difference to the lives of individuals with disabilities in
Hong Kong:

 Financial sustainability – Strategies may include any aspect of the following:

o Given there is no financial data included for iBakery in the stimulus material, the social enterprise
should conduct a thorough financial analysis to identify cost-saving opportunities and areas for
operational efficiency.
o iBakery can explore broader revenue streams, such as expanding its catering services,
introducing new product lines, or collaborating with other organizations. For example, iBakery
could offer discounted purchases to workers in nearby offices. It could work with local schools by
expanding its instructional bakery classes (Resource 1) or caring workshops to generate
additional revenue.
o As a non-profit social enterprise, iBakery can develop a comprehensive fundraising strategy,
including engaging with potential donors, sponsors, social media influencers (Resource 2), and
the government to support its financial sustainability. This can create opportunities and finance
(such as government grants) for iBakery.
 Market demand and competition – Strategies may include any aspect of the following:
o Refining iBakery’s unique selling proposition by leveraging its social impact story more
strategically in marketing efforts. Whilst there is competition from the likes of Café 8, iBakery can
exploit its unique “3-in-1 entity” (Resource 1) as part of its marketing campaigns. For example,
iBakery could implement a customer loyalty programme or sales promotions to encourage repeat
business across its product offerings.
o Implementing effective marketing strategies, diversifying product offerings, and maintaining high-
quality standards can help iBakery to stay competitive and attract a broader customer base.
 Adapting to changing consumer behaviours and preferences (Resource 4), such as increased
reliance on online platforms (Resource 3), requires iBakery to invest in e-commerce to cater for
the growing trend of consumers preferring online purchases, delivery services, and digital
marketing. This helps iBakery to remain relevant and accessible to its target audience.
 Strengthening iBakery’s brand identity and brand awareness by effectively communicating its
social impact story through broader channels, beyond Instagram (Resource 2), and emphasizing
the positive contributions to the Hong Kong community.
 Conducting primary market research to identify the needs and preferences of iBakery’s
customers. This could involve using focus groups to determine emerging trends and adapt the
social enterprise’s product offerings accordingly.
 Employee well-being and development – Strategies may include any aspect of the following:
o Investing in more comprehensive training programmes and fostering a supportive work
environment. For example, iBakery could explore opportunities to expand its collaboration with
disability advocacy groups in Hong Kong. This aligns well with its objectives of promoting social
inclusion and the facilitation of skills development for its employees (Resource 1).
o Implementing regular feedback mechanisms and performance evaluations to identify areas for
improvement and ensure ongoing employee development. This may require iBakery to hire
specialist trainers or consultants.
o Strengthening iBakery’s employee support programmes (Resource 1), including mental health
initiatives, to enhance and maintain the positive work environment and to ensure the well-being of
the workforce. This will help with improving motivation and productivity, thereby improving the
competitiveness of the social enterprise.
 Societal attitudes and perceptions – Strategies may include the following:
o Engaging in community outreach (such as working with IB World Schools in Hong Kong as part of
their CAS programme), awareness campaigns, and storytelling to highlight the abilities and
contributions of iBakery staff with disabilities. This can help challenge stereotypes and foster a
more inclusive and supportive community.
o Collaborations with government agencies can also help to raise awareness and work towards
changing societal attitudes and perceptions. This may be a cheaper option than the one above,
especially given the financial losses in recent years that iBakery has been facing (Resource 3).
 Sustainability initiatives are also important to maintain iBakery’s competitiveness. Strategies may
include the following:
o Exploring and implementing eco-friendly packaging options to align with consumer preferences
for sustainable practices (Resource 4, Review W).
o Communicating iBakery’s commitment to sustainability through marketing and public relations
efforts, appealing to environmentally conscious consumers.
o Developing partnerships with local sustainability-focused organizations in Hong Kong to further
enhance iBakery’s impact on environmental and cultural (social) sustainability.
By addressing these key areas and developing a comprehensive plan of action to address its
challenges, iBakery can enhance its competitiveness in the market, attract a broader customer
base, and reinforce its position as a socially responsible and sustainable business in Hong Kong.
The plan of action emphasizes a holistic approach that integrates financial, marketing, employee
development, and sustainability strategies to improve its overall competitiveness.
As part of their evaluation, candidates may choose to discuss the impact of the plan of action on
the different stakeholders of iBakery.
For the highest mark band, candidates are expected to consider the limitations of their plan of
action, in the context of the case study and application of the stimulus materials.
Marks for this question should be allocated according to the assessment criteria on pages 48 –
50 in the Business Management Guide (May 2022).