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Cambridge International Examinations

Cambridge International General Certificate of Secondary Education

BUSINESS STUDIES 0450/11

*7197256577*

Paper 1 October/November 2017

1 hour 30 minutes

Candidates answer on the Question Paper.

No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your Centre number, candidate number and name in the spaces at the top of this page.
Write in dark blue or black pen.
You may use an HB pencil for any diagrams, graphs or rough working.
Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

The businesses described in this question paper are entirely fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
The total number of marks for this paper is 80.

The syllabus is approved for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 9 printed pages and 3 blank pages.

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1 Ella has just left college and wants to start up her own business. She has designed a new bicycle
light with a safety feature not found in any rival products. Ella knows obtaining finance will be difficult.
She plans to have the lights produced in another country. Each light will cost $8 to produce. Ella
cannot decide whether to use price skimming. She said: ‘I have received orders for 300 lights and
I have not even started promoting them’. Ella wants to be a successful entrepreneur.

Table 1: Information on possible promotion options for Ella’s bicycle light.

Option 1: Set up her own website Option 2: Advertise in specialist

magazine

Cost information $500 for web page to show product $300 for full page colour
specifications and contact details advertisement

Other information For extra $750 website would allow One of the most popular cycling
customers to order online magazines in the country.

(a) Identify two characteristics of a successful entrepreneur.

Characteristic 1:.................................................................................................................

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Characteristic 2:.................................................................................................................

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(b) Identify two possible reasons why Ella plans to produce the lights in another country.

Reason 1:..........................................................................................................................

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Reason 2:..........................................................................................................................

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(c) Identify and explain two reasons why obtaining finance might be difficult for Ella’s business.

Reason 1:..........................................................................................................................

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Explanation:.......................................................................................................................

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Reason 2:..........................................................................................................................

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Explanation:.......................................................................................................................

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(d) Identify and explain one advantage and one disadvantage to Ella of using price skimming.

Advantage:........................................................................................................................

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Explanation:.......................................................................................................................

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Disadvantage:....................................................................................................................

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Explanation:.......................................................................................................................

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(e) Recommend which promotion option Ella should choose. Justify your answer using the
information in Table 1.

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2 NMBJ makes a range of cookies (biscuits) using batch production. Last year profit increased by
$1.5 million. The directors think this is because of an increase in productivity and better management
of working capital. NMBJ has a low level of inventory. NMBJ plans to increase the wages of all 300
employees by $50 per month from March. The Finance Director is worried: ‘This decision will add
$15 000 to wages each month. Many employees are leaving. Is paying higher wages the best way
to improve motivation?’

Table 2: Cash flow forecast for the period January - March 2018 ($ 000)

January February March

Cash inflow 560 520 600

Cash outflows:

Wages 60 60 X

Other costs 500 480 520

Total cash outflows 560 540 595

Net cash flow 0 (20) Y

Opening balance 5 W (15)

Closing balance 5 (15) Z

(a) What is meant by ‘productivity’?

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(b) Identify two reasons why a business might need working capital.

Reason 1:..........................................................................................................................

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Reason 2:..........................................................................................................................

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(c) Calculate the following values shown on the cash flow forecast.

W : ......................................................................................................................................

X : .......................................................................................................................................

Y : .......................................................................................................................................

Z : ....................................................................................................................................... [4]

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(d) Identify and explain one advantage and one disadvantage to NMBJ of having a low level of
inventory.

Advantage:........................................................................................................................

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Explanation:.......................................................................................................................

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Disadvantage:....................................................................................................................

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Explanation:.......................................................................................................................

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(e) Do you think paying higher wages is the best way for NMBJ to improve employee motivation?
Justify your answer.

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3 GDC is a transport delivery business in country Z. It operates in a competitive market. GDC has
5000 employees and 1000 delivery vehicles. GDC’s organisational structure has many levels of
hierarchy with a long chain of command. The managers use an autocratic leadership style. Last
year GDC delivered 2 billion parcels for businesses. The Managing Director said: ‘Having a good
reputation is important. We have also benefited from economies of scale’. GDC wants to expand
its operations to another country, but cannot decide the best way to do this.

(a) What is meant by ‘economies of scale’?

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(b) What is meant by ‘autocratic leadership style’?

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(c) Identify and explain one advantage and one disadvantage of GDC’s organisational structure.

Advantage:........................................................................................................................

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Explanation:.......................................................................................................................

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Disadvantage:....................................................................................................................

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Explanation:.......................................................................................................................

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(d) Identify and explain two reasons why a good reputation might be important to GDC.

Reason 1:..........................................................................................................................

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Explanation:.......................................................................................................................

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Reason 2:..........................................................................................................................

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Explanation:.......................................................................................................................

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(e) Recommend the most suitable way for GDC to expand its business to another country. Justify
your answer.

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4 CHONS is a public limited company. The directors want to open a new coal mine. All the coal will
be exported. The Managing Director is hopeful that the Government will allow the coal mine to be
opened. She said: ‘CHONS always meets legal controls. In an area of high unemployment surely
creating jobs is more important than protecting the environment. Most stakeholder groups including
shareholders and suppliers are happy. CHONS will not be asking for any Government support.’

Table 3: Information about the proposed coal mine

Planned output 50m tonnes per year

Number of years coal mine will operate 60 years

Jobs created 10 000

Level of waste products causing pollution High

Risk of traffic problems High

(a) What is meant by a ‘stakeholder group’?

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(b) Identify two ways (other than legal controls) that a government might use to influence business
decisions.

Way 1:................................................................................................................................

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Way 2:................................................................................................................................

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(c) Identify and explain one advantage and one disadvantage of CHONS being a public limited
company.

Advantage:........................................................................................................................

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Explanation:.......................................................................................................................

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Disadvantage:....................................................................................................................

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Explanation:.......................................................................................................................

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(d) Identify and explain two ways in which legal controls might affect CHONS.

Way 1:................................................................................................................................

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Explanation:.......................................................................................................................

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Way 2:................................................................................................................................

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Explanation:.......................................................................................................................

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(e) Do you think the Government should allow CHONS to open the coal mine? Justify your answer
using the information in Table 3.

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