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GCSE BUSINESS STUDIES
Other Guidance Unit 1, June 2013, Exemplar Student Answers
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GCSE Business Studies Please note that the students’ responses have been typed exactly as they were written. 1
Item A
Pet Food Supplies Paul and Arianna loved working with animals. Two years ago, they set up a dog walking service. Several of their customers told them that the pet food they bought from local supermarkets was increasing in price and decreasing in quality. Now, in their last year at school, Paul and Arianna wondered whether they should set up their own pet food business. The business would buy pet food in bulk and then package this into smaller bags for delivery. They had seen an advertisement to run a pet food franchise. To buy the franchise for their local area would cost them £5000. The advertisement also said that the pet food was popular because it was produced using methods that were ethical and sustainable. This meant that customers would be willing to pay a high price. The franchise would allow the two friends some freedom over how they promoted their products. Neither Paul nor Arianna had much business experience. They thought that their first priority should be to write a good business plan. They also decided to visit the local bank to discuss a possible start-up loan to buy the franchise.
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1 (a) State two advantages of setting up as a franchise. (2 marks) Response A
2 valid advantages identified. 2 marks awarded. Response B
Both valid points but over answered for a ‘state’ question. 2 marks awarded. Response C
Arguments reversed. 0 marks awarded.
1. Gives you freedom to run your business the way you want to. 2. You are in charge over what your prices are and the decision making in the business.
1. They will be able to use the name of an established business that may have a good reputation so reducing the risk of seting up.
2. The franchise’s will benefit from support and advise from the Franchisor and maybe running the business easier and more likely to succeed.
1. Reduces risks 2. Reduces promotion costs
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1 (b) Explain two benefits to Paul and Arianna of writing a good business plan. (4 marks) Response A
2 valid points but not explained as to how they relate to a business plan. 2 marks awarded. Response B
Two valid points with some explanation, clearly related to the context given. 4 marks awarded. Response C
Both reasons points but no attempt at context for the first but just enough for application in the second.
3 marks awarded.
1. It gives a clear idea of what needs to be done letting them focus on important tasks. 2. Makes it easier to identify potential start up costs allowing them to know how much
money would be needed to start up the business.
1. They will find it easier to get a bank loan which is important as they are still at school and need £5000 to buy the franchise.
2. They will find that a business plan will help with their decision making because they are still young and inexperienced in running a business.
1. They will know what they are able to aim for - they will know what to do and how to do it. 2. They will be able to see how much they’ll have to spend they will be able to budget.
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1 (c) Explain how Paul and Arianna’s business would benefit from selling pet food that has been produced using methods that are ‘ethical and sustainable.’ (6 marks)
Response A
First sentence shows some understanding and a benefit. Remainder of the answer is very confused. 3 marks awarded. Response B
Two valid points but no explanation related to the product being ethical and/or sustainable. Second part of the answer confuses these terms with quality. 2 marks awarded. Response C
Both terms are clearly understood and are well developed with a reasonable attempt to apply them to the case study. 6 marks awarded.
Ethical methods of production is likely to mean that the target market think Paul and Arianna’s business has a conscious. Ethical production is therefore likely to improve the reputation of the business because customers will think that P + A care about the environment where they work. This means that word of mouth is likely to improve trade as more customers will buy pet food from their business because of the ethical reputation. Therefore the increased customers will increase sales revenue and profit (L3). Sustainable production is also likely to help them as it meets the government’s demands which may mean they receive benefits such as lower taxes or grants as well as more customers who are environmentally concerned (L3).
This will benefit them because they’ll be able to charge higher prices (L1). By charging higher prices they’ll be able to get a bigger profit each week (L1). Customers would be happy to pay these prices because they know that they are getting a good quality product. This could increase sales as people would want to be giving their pets the best food possible.
They may get new customers as some customers may believe in fair trade and if the product is not fair trade it may put customers off buying the product (L2). If the foods are unsustainable then it may causes animal to fall ill which would give the business a bad name and will stop other customers buy the product. Paul and Arianna may wait to set up a business in a diverse part of a country and if fair trade is not in place the customer will get offended .The animals will want nice food not an inbalance of nice and disgusting.
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1 (d) Paul and Arianna would have some freedom in the way they promoted their pet food products to local households. They are considering two options:
professionally designed and printed posters to be displayed in the 5 animal hospitals in the surrounding area for a year, these would cost £500
small advert in the local newspaper, which sells 10 000 copies, this would cost £250 a week.
Advise Paul and Arianna on which is likely to be the better option to make customers aware of their new business. Give reasons for your advice. (9 marks)
Response A
Some reasonable analysis of both options (including a relevant calculation in the last paragraph). Evaluation is clear, developed and well supported. 9 marks awarded (L3 = 4 and E2 = 5).
Marketing and introducing the product is important in attracting the Customers. Since marketing has its own costs and a small business might be short of finance (due to numerous costs they have) they should be careful on advantages and drawbacks of each method (L1).
A small advert in a local newspaper has 10,000 copies, so reaches a wider reader and more people will be aware of the business (L1). Also it is cheap for a week (L2). However in the long-term the costs get more (why?) which may not be profitable for Paul and Arianna. Also local paper can be read by anyone – even people who do not have pets therefore a major amount of the costs paid will be wasted (L3).
On the other hand, a professionally designed poster might be expensive but lasts for one year (the £500). Although it is only displayed in 5 hospitals it reaches an audience which is more likely to purchase their product (L3).
Overall I believe the local newspaper is a more suitable choice. Although it is costly it reaches a wider range of local people therefore there is more chance of attracting customers (E1). Also they do not need to continue advertising for a long time since lots of newspapers are read later. The £500 can be spent on 2 weeks of advertising on newspapers which is 20,000 copies (lots of people) (L3, E2) increasing the possible customers, sales and therefore profits (E2).
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Response B
Advantages and disadvantages of methods are descriptive not analytical. Judgement is supported and there is a small amount of development of the judgement. 5 marks awarded (L3 = 2 and E2 = 3). Response C
Starts with a judgement and consistently supports that judgement with analysis in favour of that option and analysis (including calculations) against the alternatives. 9 marks awarded (L3 = 4 and E2 = 5).
I would suggest that Paul and Arianna (P+A) invest in the posters.
Firstly these posters will appear in places that their target market visit (L2) so there is a higher chance of will that their target market will see these posters and buy the dog food as a result because P+As target market is pet owners (E1). As well as this with the posters the business is given a yearly advertising strategy which is likely to attract more customers over a sustained period (L3) than a one week advertising strategy in a local paper (E1). What is more because the posters will be professionally designed P+A’s business is likely to benefit from customers feeling that the business is more professional and therefore more reliable. (E2).
Whilst I accept that the posters cost £250 extra (L3), I think that that the business will gain more exposure throughout the year and £250 is not hard to obtain from an overdraft. I also think that a small advert would be lost in a paper and therefore be a pointless waste of resources. Furthermore for a year’s advertising the advert will cost £13,000 (L3) which would be ridiculous to achieve the same sustained exposure that a paper would (E2).
Therefore I recommend invest in the years printed poster.
Both examples of these advertising have advantages and disadvantages. Many more people would see the advertisement in the paper as opposed to the animal hospital (L2), however the people who see the advertisement in the animal hospital would be much more relevent to them. (L2). All people going to the animal hospital clearly have an Interest or association with animals so the advertisement will definitely be more of an interest to them. (L2). All the people going to the animal hospital clearly have an interest or association with animals so the advertisement will definitely be more of an interest to them. Furthermore, due to the fact that Paul and Arianna are both still at school they may want to seek the cheapest possible option due to the fact they do not have great funds. (L2 – no link to method). However in my opinion the professionally produced posters in the animal hospitals would be the best option even though it is more expensive. This is because they will be of a high quality (E1) and will be an environment where there are relevant to the people around (Just E2 – builds on previous analysis).
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2
Item B
Neat and Smart Ltd Neat and Smart Ltd was set up two years ago to provide good quality uniforms at reasonable prices to local schools. Each pupil is measured and the measurements for the uniforms are emailed to a manufacturer in India. The manufacturer uses job production to make each uniform and then sends the products back to the schools. The manufacturer insists on being paid with the order but the Neat and Smart Ltd is finding it difficult to make parents pay when they pick up their orders. Sometimes, the parents do not collect or pay for their orders. Neat and Smart Ltd has a small number of full-time staff in the UK who sort out the orders. The staff need to be paid all the year round. The company has an overdraft limit at the bank of £25 000 but this has a high rate of interest. The shareholders are worried about low profits. The quality of the service provided by the manufacturer is causing problems. A recent delivery had several mistakes in the clothes sent. Orders have also not been arriving on time. Teachers at the schools are unhappy that pupils are unable to start the school year with the correct uniform. Parents are threatening to go back to other local uniform shops.
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2 (a) State two advantages for Neat and Smart Ltd’s supplier of using job production.
(2 marks) Response A
Two valid points in the 1st answer but the 2nd point also correct. 2 marks awarded. Response B
Neither answer is correct. 0 marks awarded. Response C
Understanding of the method is shown and the 2nd point sufficiently different from 1st to be credited. 2 marks awarded.
1. They can produce the product how the customer wants 2. Can produce different colours or different designs
1. It cuts costs. 2. It makes the process quicker.
1. Highly skilled workers therefore the product will be of a higher standard. 2. Each uniform can be specific.
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2 (b) Using Item B, explain one benefit to Neat and Smart Ltd of being a private limited
company. (4 marks) Response A
No understanding of the question. 0 Marks awarded. Response B
Detailed knowledge which is well explained but no attempt to apply it to the situation of Neat and Smart Ltd, so only L2 awarded. 2 Marks awarded. Response C
Makes a real effort to apply good well explained knowledge to the context of Neat and Smart Ltd. 4 Marks awarded.
Being a private limited company is beneficial to Neat and Smart because it means that the business and their house are valued as separate legal sales so they have limited liability and don’t have to sell personal assets to pay for business debts (L2). This is probably important to Neat and Smart Ltd at the moment as they have an overdraft of £25,000 plus interest and their low profits might decrease (L3) so they might become in more debt due to slow payments and manufacturing defects as well as slow delivery. Therefore if they go into debt the business owners do not have to sell personal belongings to pay for these debts (L3).
A private limited company benefits from limited liability (L1). This means that should the business become insolvent and default any debts do not need to be paid by the owners selling their personal assets (L2) this is because the business is incorporated with its own legal identity (L2). This protects the owners and allows them to expand without fearing they would have to sell their house if the business collapsed (L2).
They can only supply uniforms to the schools that they have contracts with them. They have their own staff and the business is all theirs. Which means that they don’t have other people telling them what to do with their business. They also have a factory where they have other staff that they employ.
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2 (c) Explain the importance of Neat and Smart Ltd providing a good service for its customers. (5 marks)
Response A
Not very detailed in regards to customer service, but explains a factor in context. 3 marks awarded. Response B
Keeps in context and looks at the impact on the shop. 5 marks awarded. Response C
Most of the answer is not linked to customer service although there is good use of context. 1 mark awarded.
The importance of Neat and Smart Ltd providing a good customer service is they will have repeat customers (L1) that will play when they order the uniform so that Neat and Smart Ltd can pay their staff and the manufacture in India as the manufacture insists on being paid with the order, having the customer to pay when they order can help to reduced low profit so that the business can begin to pay back their overdraft.
It is very important as customers won’t come back to buy more uniform if service is bad (L2). Also if they don’t come back then they will only have temporary customers leading to less profit (L2). If they are not happy they will tell other parents to get their uniform for other shops whereas happy customers will spread good word of mouth leading to higher uniform sales and profit (L2).
It is essential for Neat and Smart to provide a good quality service as if they fail to do so it may result in parents threatening to go back to other local uniform shops as they will get a better service there (L2). However if they offer a good service it will attract more customers to buy from the business resulting in a higher profit.
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2 (d) Neat and Smart Ltd has just produced its cash-flow forecast for the next four months. It
will have a cash flow problem in July and August. It is considering a 10% reduction in price to customers who pay in full when they order the uniforms.
All figures in £
July August September October
Cash in from sales 10 000 15 000 27 000 21 000
Cash outflows:
Manufacturer 35 000 10 000 0 0
UK salaries 4 000 4 000 4 000 4 000
Advertising 2 000 2 000 1 000 1 000
Other expenses 1 000 1 000 1 000 1 000
Total cash outflows 42 000 17 000 6 000 6 000
Net cash flow (32 000) (2 000) 21 000 15 000
Opening balance 5 000 (27 000) (29 000) (8 000)
Closing balance (27 000) (29 000) (8 000) 7 000
( ) indicate a negative amount
By referring to Item B and the table above, recommend to Neat and Smart Ltd whether a 10% reduction in price would be the best solution to the cash flow problem. Give reasons for your recommendation. (9 marks)
Response A
Shows understanding and a good use of context. Some analysis made with a supported conclusion with some development. 7 marks awarded (L3 = 4 and E2 = 3).
Neat and Smart will be having a problem with cash flow in July and August as this is the time they are ordering all the uniforms ready for the new school year. Although a 10% price reduction may encourage more people to by uniforms from them it is unlikely it would have an effect on customers as uniform is essential for their children (L3). On the other hand, the teachers and customers are not satisfied with them due to mistakes and time of orders, so a price decrease may be relevant to get customers back and return their satisfaction (L3). It is key that the products are of a high quality as if they are too reduce the price they will be required to sell more. However this will not turn over £32,000 worth of money (E1) so therefore in my opinion the best solution to increase cash flow would be to takeout a bank loan in August. This would immediately improve the cash flow and although they will have to pay interest they can pay it back gradually (E2).
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Response B
Uses context but becomes a descriptive list of possible options. Conclusion is brief with only limited support. 4 marks awarded (L2 = 2 and E1 = 2). Response C
Starts analytically but then becomes list like. Quotes numbers but does little with them. Conclusion mainly restates previous points, but there is clear justification of the advice given. 7 marks awarded (L3 = 4 and E2 = 3).
In many ways a 10% reduction is the best idea for the business as in July they will make a loss of £27,000 and the month after £29,000. So by offering a 10% reduction it gives the business more cash in flow as it encourages parents to pay in full when ordering uniforms (L2) this will help their problems as they can pay the manufacturer for orders straight away (L3). However in many ways this isn’t the best way to solve the problem. Instead they could leave it how it is as they have a projected profit of £7,000 in October and many new businesses have high start to costs (BOD L3). Also in September is the time school starts so their debt of £29,000 is slashed to more than £8,000. They could also cut other costs such as expenses of £1000 a month and pay the manufacturer later or cut down on wages and advertising (L2). To conclude I think they should stay how they are as start up costs are always high and after 4 months they are in profit so a 10% reduction although it might increase sales is not the best thing they can do (E2 just).
The 10% reduction would be the best solution because in the month of July they have an open balance of £5000 from the last opening balance of £5000. There for their revenue would increase. How ever there are other solutions for example spending less on advertising (L1). This will reduce cost and save money (L2). However it might affect the promotion of the business (too vague). Their other unnecessary expenses could also be reduced. For the manufacturer of the clothes they can pay in monthly instalments. This sill save money in the first 2 months and prevent them having a negative cash-flow (L2). The business could also cut staff wages or pay them in yearly salaries (L2?). Overall I believe that the business should try a 10% reduction. This will create more sales because of affordable prices (E1).
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Item C
After leaving school Jim Smith was employed in a garage for four years before setting up his own business servicing and repairing vehicles. He found a suitable workshop which he rented for a five-year period. The business started well as many of the customers from his previous employer came to him. Five years later, Jim has a good number of customers and is now employing an untrained assistant to do the more basic work. However, his rent is increasing and profits have fallen. His assistant has recently been to see him because he is unhappy. He says the job is boring and that he is expected to work long hours in crowded and unpleasant conditions with only minimum pay. Jim would like to make more profit and to build up his business. In last week’s local paper he saw an advertisement offering a larger and more modern garage for sale in another area of the town which could attract a good passing trade. The garage would be expensive to buy and he would need to borrow a large sum of money. He is also worried whether his existing customers would be willing to travel to the new location.
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3 (a) Explain two ways that his assistant is protected by the law when working at the garage.
(4 marks) Response A
Two methods of protection identified, but neither are explained or applied. 2 marks awarded. Response B
Sufficient responses, just in context and with enough explanation. 4 marks awarded. Response C
Both methods clearly explained and more than sufficient for maximum marks. 4 marks awarded.
1. His assistant is protected by the Minimum wage act means he is guaranteed a baseline of £5.51 which means he cannot seriously be underpaid for hard work.
2. His assistant is also protected by the Health and Safety Act which means the garage must have a level of safety to protect the assistant from any serious injuries at work.
1. Minimum wage law means the assistant’s wage cannot drop below £6.50 (BOD amount)
2. Health and safety act means the garage must have safe conditions for the assistant to work.
1. His assistant must receive the minimum wage. 2. The conditions must be safe.
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3 (b) Jim cannot afford to give his assistant a wage increase. Explain how non-monetary
benefits could be used to improve his assistant’s motivation. (6 marks) Response A
Very well developed answers. Clearly applied to the context and addressing the issues outlined. 6 marks awarded. Response B
Limited explanation and not explained in the context of the assistant as outlined in the item. 3 marks awarded. Response C
No method identified. 0 Marks awarded.
Jim could give non-monetary benefits to his associates. This would be good because he may feel more motivated to do a good job. He could also be motivated to stay with Jim’s business. Jim, could easily motivate the assistant, this would improve his workload and prevent his job from becoming boring.
By giving him more hours and gifts to him now and again will help him benefit his motivation. If he gives him a day off (L1) but still pays him that will motivate him. By taking him out and socialising more as colleagues will definitely make their relationship stronger (L1). this will motivate him as he is being well looked after (L2 just).
He could use training to teach the assistant new skills that will allow him to do more than the boring, basic work (L3). He could teach him how to fit wheels, for example, so the assistant will feel valued.(L3) He could use responsibility to give the more-skilled repairs to the assistant. He could also give him a chance to run the garage when Jim is on lunch break so that the assistant feels that Jim trusts him which would motivate him to prove Jim right (L3). Working conditions should also be improved as his assistant has complained of crowded conditions. Making the garage more pleasant would motivate the assistant to work harder (L3).
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3 (c) Jim is concerned about his low profits and unhappy assistant. He is now considering buying a larger and more modern garage in another area of town. Advise Jim on whether this would be a good idea. Give reasons for your advice. (9 marks)
Response A
Clearly in context and some valid points made with weak analysis. Judgement has some development but could do more. 6 marks awarded (L3 = 3 and E2=3). Response B
Very weak context with only limited explanation. No description of argument and weak QWC with a weakly supported judgement. 3 marks awarded (L1=1 and E1=2).
I believe that Jim should move because he is now experienced at what he does and experienced in his business as has been working At his business for five years and his rent is increasing and there is now a good opportunity to get more customers in the new location although the premises cost more (E1/L1).
If Jim buys a larger more modern garage more customers will be attracted to his business (L2). This will increase his revenue and profit (L3). However he would need to receive a bank loan. The bank will make him pay interest. However the bank might not grant him the loan because of his poor profits (L3) meaning he will be unable to payback the loan with interest. His assistant might benefit from the modern garage because he might receive more customers. This might result in a pay rise because of a good flow of revenue. How ever this might not motivate the worker. Expanding the business might make the assistant do work longer hours on a minimum wage (L2). In conclusion Jim should not expand his business because he might not be able to pay back the loan. Also it might not help his assistant happiness. It might make it worse because of more work to be done (E2). His assistant needs to be motivated.
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Response C
Very detailed response with good detailed analysis rooted in the case. Evaluation is very well developed and builds on preceding analysis. 9 marks awarded (L3=4 and E2=5).
In many ways buying the new garage is a good idea as he will allow his assistant to become more motivated and less cramped as the new modern garage is big (L2). Also by buying this new garage he will own it as an asset rather than renting which is associated as a temporary thing in his line of work(L2). He would be able to reduce costs by not having to pay rent and he would be able to have more work on as it is a bigger garage.(L3) However by buying this garage he may lose his local customers he has at the moment as they might not want to travel to the new garage (L2). He will also have to borrow a large sum of money to be able to buy this new garage which could mean he is in debt for a long time, this debt could have interest so he would have to pay back more than he borrowed (L3). Also by buying this new garage he is not solving his assistant’s problem with his low wages so he may become increasingly unhappy increasing costs further advertising for a new worker leading to less profits (L3). To conclude I believe Jim should consider buying the larger and more modern garage but he needs to find out if he can afford it and also more importantly if he can get a loan or an overdraft from the bank to fund the move (E1). If he could get this then he should move as he could stay in the new premises for a long time as they are large (E2). He will be able to use these new premises as a place where he can accept more trade as the new garage is large and modern so he will be able to do this job quicker with the new equipment (E2).
