CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Exam-style questions and sample answers have been written by the authors. In examinations, the way marks are awarded may
be different.
Coursebook answers
Most of the answers are in ‘outline’ form indicating the appropriate points and skills that learners need
to include in their answers. They provide the necessary guidance to allow learners to develop and extend
the points for a fuller answer that contains the relevant skills. In many instances, there may be other valid
approaches to answering the question.
Chapter 1
Business in context
Learners’ discussion might include:
•
•
•
•
Less competition for customers; differentiation from competitors; unique selling points.
However, the presence of a gap in the market may be evidence that there is no demand.
Business knowledge will help a business: plan and manage the use of resources, apply for business
finance, avoid cash flow problems, conduct market research, develop appropriate marketing strategies,
maintain accounts, recruit employees and manage employees effectively.
Ambition is important to provide the determination to succeed, inspire others, set challenging goals
and attract finance.
Activities
Activity 1.1
1
a
Taking raw ingredients such as locally grown foods and turning them into a high-quality evening
meal. The meal would have a much higher value than the total cost of the individual ingredients.
OR
Offering high-quality customer service to guests: combination of bedrooms, 24-hour reception, a
concierge to provide information to customers, leisure facilities and a restaurant will increase the
difference between the cost of purchasing materials and the price at which the hotel room is sold.
b Purchase second-hand cars at one price and sell them on to the customer at a higher price by
improving the appearance and condition of the original car (e.g. repairs to bodywork, mechanical
repairs, valeting).
OR
Offering a package of after-sales care including a guarantee or service agreement.
c Taking materials such as cloth, sewing materials, dyes and accessories, and turning these into a
finished product (e.g. a dress or trousers).
OR
Developing a brand image through advertising as customers will be willing to pay a higher price
for branded designer goods.
d Taking basic food ingredients such as meats, vegetables, breads and grains and turning these into a
meal or snack that can be sold to customers.
OR
1
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Training employees to offer a high standard of customer service, including meeting customer
orders quickly.
Activity 1.2
1
An entrepreneur is someone who takes the financial risk of starting and managing a new venture.
• Willingness to take risks. Businesses are unlikely to develop if risks are not taken. In this case
Pedro risked his own savings to start up his business, having identified a gap in the market.
He also took a risk when purchasing the African rose-growing business.
• Motivation and hard work. Establishing a business often demands single-minded commitment and
determination. Pedro was prepared to work long hours to make his business a success.
• Self-confidence. Pedro’s confidence in his business venture encouraged other investors to back
him. Without other investors Pedro may not have been able to expand the business due to
insufficient capital.
• Multi-skilled. All-round business skills helped in setting up the business, exporting flowers and
growing the business rapidly.
Activity 1.3
1
2
Learners’ answers might include:
• Securing finance to set the business up. Although Farah has savings and her mother is willing to
invest, it is evident that her finances are limited as she needs to get a bank loan to raise the rest of
the $15 000 she estimates is necessary.
• Finding suitable premises. With limited capital, she believes that a city-centre location is too
expensive and has to consider less desirable out-of-town locations.
• Acquiring the necessary skills to run her business. She lacks the financial skills to keep the
accounts for the business. Therefore, she either has to pay for an accountant or attend classes at a
local college in the evening. A college course would be time-consuming and add to the burden of
work likely to result from setting up her business.
Learners’ answers might include:
• Identifying a good business opportunity. Farah recognises the importance of differentiating herself
from the competition. Her intention to offer dressmaking lessons as well as selling finished dresses
is an effective way of providing something different and is based on her knowledge of the market
acquired in her previous job.
• A range of skills. Although Farah clearly has good dressmaking skills, she appears to lack other
business skills such as accounting and awareness of the business environment (e.g. she was
surprised how expensive the city-centre locations were). She was also unaware of the amount of
paperwork involved in setting up a business. However, she is determined and is not put off by her
lack of experience, showing a willingness to go to college to learn accounting skills.
• Leadership skills. The case indicates little about her possible leadership skills; however, she has
argued with her previous manager. This may suggest that she finds it difficult to get on with others
or it may be an indication of her enthusiasm for dressmaking.
• Determination. It appears that, although she has been surprised and disappointed at discovering
that setting up a business is difficult, she is undaunted by the setbacks and remains determined to
proceed.
Evaluation may focus on:
•
•
2
If her idea is a good one and there is enough demand, Farah’s dressmaking skills certainly provide
the foundation for success.
Success also depends on external factors outside her control, and whether she can secure
sufficient finance.
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
Activity 1.4
1
2
3
Learners’ answers might include:
• Employment creation. Set up a factory to produce the sauce, created jobs for people to work in
the factory.
• Exports. In talks with a company to export the UK-produced sauces to the Caribbean, increasing
the value of the UK’s exports and the country’s international competitiveness.
Learners’ answers might include:
• Finance. Banks rejected Levi’s applications for a loan. Without finance, he could not expand
the business.
• Securing a customer base. Having invested in production facilities, Levi needed to develop his
customer base so that there would be sufficient cash inflows to pay for costs and prevent liquidity
problems. Distributing his product to a supermarket brought his product to a wider customer base,
enabling an increase in sales.
These (or other relevant points) should be analysed and judgements made about their relative
importance:
• Having a good product. Levi has a ‘unique’-tasting sauce which had been tested on the public at
music festivals and was sufficiently good to attract a large supermarket.
• Personality. Levi’s enthusiasm and confidence in his product were central to persuading the
businessman to invest £100 000. Securing finance enabled large-scale production to be set up.
These same qualities were essential in securing a contract with a leading UK supermarket.
With the backing of a national supermarket, Levi was able to bring Reggae Reggae Sauce to a
national audience.
• Media publicity. Levi had failed to secure backing from high-street banks so his appearance on
Dragon’s Den was critical to the success of his business. Without sufficient finance, the growth of
his business would have been severely constrained in the short term. His appearance on British TV
also provided an ideal opportunity to promote his business to a much wider public; his personality
was, again, important in making an impact on the British public.
• Commitment and determination. Levi did not give up on his dream despite the setback of banks
refusing to give him a loan. Being able to bounce back in the face of adversity is an important
characteristic of many successful entrepreneurs.
Activity 1.5
Learners’ own answers based on the main features outlined in Section 1.3.
Exam-style questions
Short answer questions
1
2
3
4
5
3
Selling goods and services for a higher price than the cost of bought-in materials.
Someone who takes the financial risk of starting and managing a new venture, and combines factors of
production to turn inputs into outputs.
Learners’ answers will vary, e.g. successful entrepreneurs are self-motivated so willing to work long hours
to make the business a success, despite the fact that income or profits might be low, at least initially;
multi-skilled so able to undertake a range of tasks from marketing to accounting, which means that the
business does not have the cost of appointing specialist managers.
Learners’ answers will vary, e.g. building a customer base quickly to earn enough revenue to allow the
business to survive.
Opportunity cost is the cost of one decision in terms of the next best alternative, e.g. paid employment
versus the setting up of a new business.
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
6
7
8
9
10
11
12
13
14
15
Learners’ answers will vary, e.g. increase in economic output (GDP) leading to rising living standards;
exporting goods to earn foreign currency to pay for imports; higher tax revenues to spend on
government priorities such as infrastructure.
An intrapreneur provides creative ideas to innovate products and processes, which can result in
improved business competitiveness and differentiation.
Learners’ answers will vary, e.g. business plan will contain a marketing strategy such as details of why
the entrepreneur thinks customers will buy the product and how the business will sell to customers,
including details on pricing and promotion.
Learners’ answers will vary, e.g.:
• Financial forecasts are based on estimates of future costs and sales. For a new business it is
difficult to make estimates as there is no past data to use.
• Entrepreneurs may become inflexible if they try to follow the business plan too closely. This is
a problem as the business environment is dynamic and businesses should be able to respond to
threats and take advantage of opportunities.
Learners’ answers will vary, e.g. the business will need labour – hairdresser; capital – fixtures and
equipment; enterprise – idea.
Learners’ answers will vary, e.g. finance to pay for premises from which to trade.
Learners’ answers will vary, e.g. food packaged into convenient packs; establish a brand name that
customers can identify with, which might make them more prepared to pay higher prices.
Learners’ answers will vary, e.g. they provide a personal service that gives competitive advantage to
small businesses in which the owner is in direct contact with customers; businesses can start small and
the finance required when starting up is relatively little.
Learners’ answers will vary, e.g. external sources of finance through a bank loan as a result of
providing a detailed business plan to the manager; crowd funding.
Learners’ answers will vary, e.g. it helps economic growth, so national output increases, which helps to
raise living standards.
Essay questions
1
a
Added value comes from processing materials, aspects of customer service, advertising and
branding and convenient opening times. It allows goods and services to be sold for a higher price
than the cost of bought-in materials.
Learners’ answers will vary, e.g. reduce material costs, including purchasing lower-cost flour, sugar,
salt etc.; offer a paid-for delivery service to customers; make takeaway sandwiches; decorate cakes;
provide a seating area for customers to eat in.
For the two suggestions made, explain how each one could increase the difference between selling
prices and the cost of material bought in by the bakery.
b The typical qualities of a successful entrepreneur include:
• Leadership skills, including finding and motivating people.
• The ability to take risks.
• Innovation, self-confidence and the ability to learn from mistakes.
• Commitment and self-motivation. Hard work usually plays a significant part in business
success. Entrepreneurs are often highly focused and determined.
• Marketing and communication skills.
However, in evaluation, luck is often very important: attracting media attention or celebrity
patronage; being in the right place at the right time; lack of competition; support of friends and
family. Develop the point that, perhaps with the aid of an example, luck might influence the
success of an entrepreneur’s new business.
4
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
2
a
Any two of the following applied to new business start-ups and explained in detail:
• Economic growth, increasing GDP, which raises living standards.
• Jobs, which increase spending power, leading to greater demand.
• Reduction in government expenditure on welfare.
• Increase in export earnings to pay for imports.
• Greater social cohesion, as unemployment can lead to higher crime and personal problems.
b Barriers include:
• Access to finance. This may be a particular problem in developing countries where financial
institutions may be less developed.
• Bureaucracy, e.g. complex paperwork that has to be completed in order to trade.
• Insufficient protection of property rights, increasing the risks of investment.
• Corruption requiring bribes or preventing access to public-sector contracts.
• Geographically dispersed markets increasing the costs of distribution.
• Poor infrastructure, from roads to education and health. This will increase business costs and
affect labour recruitment.
• High rates of taxation, which reduce retained profits and capital available for investment to
grow the business.
Evaluation will use the country context to identify which are the most significant barriers to
business activity.
Data response questions
1
Rivelino
a iCommitment.
ii
Costs of a decision in terms of the next best alternative that has been given up.
b Any two points from: Rivelino is self-motivated, has spotted more than one business opportunity
and is willing to take risks to set these up. He has a desire to succeed and belief in his business
ideas. He is willing to work hard, giving up his time to ensure that the business is a success.
He shows enterprise and initiative. He is passionate and knowledgeable.
c Any two points from: Rivelino may have lacked the relevant knowledge and skills to make
a success of the business opportunity by himself. By forming a partnership he was able to
complement his own marketing skills and business contacts with those of the other two partners.
The second partner was trained in marketing and had many business contacts. The third partner
had financial skills and software design experience. Therefore, the three partners had the potential
to identify market opportunities, manage the development of software applications and develop
appropriate marketing strategies whilst ensuring that the business had sufficient finance. TFS
would also benefit from the start-up capital available from the three partners, thus reducing the
need for debt finance.
d TFS operates in a dynamic business environment. The technology industry is fast moving,
with new innovations coming out regularly. This will affect both new and repeat customers.
As technology develops, businesses will be looking for more sophisticated e-commerce and e-trade
facilities. It is a competitive market that will attract other entrepreneurs with similar skills.
This can pose a threat to TFS, although patents could protect their own software designs.
However, TFS cannot stop competitors from entering the market with potentially better software.
Evaluation could include: TFS will succeed in a changing business environment if Rivelino and his
partners and intrapreneurs continue to be creative and show a willingness to change in response to
IT developments and competitive pressures.
5
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021
CAMBRIDGE INTERNATIONAL AS & A LEVEL BUSINESS: TEACHER’S RESOURCE
2
Wesley’s laundry
a iCapital.
ii
The individual consumers or businesses that a company sells its goods or services to.
b Learners’ answers might include:
• Financial management. Keeping accounting records, predicting cash flow, efficient
management of debtors. Wesley has allowed his accounting records to become out of date
and consequently he has failed to collect payments from debtors, which has contributed to his
cash flow problems.
• Managing operations. Ensuring that service commitments are maintained. The failure of the
business to return laundry to customers the next day will be expensive in terms of lost revenue.
c Learners’ answers might include:
• Wesley has limited finances and time available so the decision to purchase a computer-based
accounting system will mean the business cannot spend that money on something else (e.g. a
new marketing campaign).
• When making decisions, Wesley must take into account the opportunity cost so as to consider
alternatives and ensure that he is making the best decision for his business.
d Benefits
• Without being provided with a detailed business plan, the bank would not have been willing to
lend Wesley the capital he needed to start his business.
• Wesley’s business plan forecast that there would not be many customers at first. This
highlighted that the business needed to secure other sources of cash inflows to meet its needs.
Limitations
• Forecasts were inaccurate, possibly as a result of a lack of previous data. This resulted in the
business quickly reaching capacity and being unprepared for the level of demand.
• Due to Wesley’s lack of accounting expertise, the plan did not prevent the business running
short of cash and reaching the overdraft limit by the end of month four.
Evaluation: A business plan does not guarantee success, as markets are dynamic and the
entrepreneur may lack all of the skills necessary for running a business. Wesley did not identify the
right labour resources to employ and consequently customers were dissatisfied by late deliveries.
Wesley also lacked the leadership qualities to prevent employees arguing and he failed to allocate
jobs effectively. Therefore, the plan failed due to Wesley’s weaknesses.
6
Cambridge International AS & A Level Business – Stimpson & Farquharson © Cambridge University Press 2021