Cambridge IGCSE and O Level Business Studies
1 Business activity
Answers to Coursebook activities
Activity 1.1 (page 10)
Student’s own answer.
Activity 1.2 (page 10)
1 Total required needs for population:
Water: 500 × 100 litres = 50 000 litres
Food: 500 × 25 kilos = 12 500 kilos
Clothing: 500 × 20 units = 10 000 units
Housing: 500 × 1 = 500 houses
Enough water, but not enough food, clothing or housing, to satisfy the needs of the population.
2 Those with a higher income than the rest will want to satisfy their basic needs and will be able to afford
to pay the prices charged by suppliers. As food, clothing and housing are scarce, this is likely to cause
prices to rise. Those able to afford to pay higher prices may decide to buy more than they need to ensure
that they always have supply of their basic needs. This will reduce the supply of basic needs for the rest
of the population, so fewer families will be able to satisfy their needs.
Activity 1.3 (page 12)
1 Land – natural resources, such as wheat for flour used in cakes.
Labour – the number of people available to work in Fatima’s business.
Capital – machinery, equipment and finance needed to make cakes.
Enterprise – Fatima being prepared to take risk in setting up her business.
2 The wage she earns from working in the bakery.
3 ‘Needs’ are things that people need to survive. ‘Wants’ are things that people would like, but are not
essential for living. Fatima produces cakes for special occasions. Although cakes are food, they are
luxury items so are ‘want’ rather than ‘need’.
Case study (page 13)
a Specialised machinery
b The production process is divided into five stages and each employee only completes one of those
stages. For example, some employees will only cut out panels from sheets of leather.
c Employees become skilled in just one task so they are able to produce more. Also, because employees
are skilled at what they do there will be fewer mistakes so the quality of footballs produced will be
better.
d One benefit to Global Sports is that employees will produce more footballs. This reduces the cost of
producing each football. Global Sports will earn more profit for every football made, or it will be able to
lower its prices below competitors and sell more footballs. The benefit for consumers is that they will be
able to buy high-quality footballs at a lower price.
Case study (page 15)
a 600 000 + (30% × 600 000) = 780 000
b Consumer goods are sold to the public for their use; they can be divided into durable and non-durable.
Printer cartridges are non-durable consumer goods as once ink has been used to print it cannot be
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Cambridge IGCSE and O Level Business Studies
used again. Capital goods are sold to other businesses for them to use in the production process, e.g.
computer-controlled equipment to manufacture printer cartridges used by RTP.
c Division of labour is where each member of RTP’s workforce will specialise in one area of the
production process. They will become very skilled at doing the same task and this could increase RTP’s
labour productivity. However, the employees may become bored if they are only doing simple repetitive
tasks and this might cause problems for RTP. (Although not expected at this stage in the course, moreable students may identify some of these problems, e.g. lower productivity, poor quality, increased
absenteeism and an increase in labour turnover.)
Student’s answer must include suitable justification.
Activity 1.4 (page 17)
Student’s own answer.
Activity 1.5 (page 17)
•• By taking raw materials, e.g. ingredients and food items, and converting these into meals for diners.
••
••
••
The owners may also decorate and furnish the restaurant so that it is a nicer place for diners to eat.
Taking leather and converting this into shoes for people to wear.
By converting materials such as wood, cement, or bricks into houses that people can live in.
By taking flowers and combining these into bouquets or other displays for customers to buy.
Case study (page 18)
a Enterprise, e.g. Mitike Paulos and her younger sister; Land, e.g. workshop; Capital, e.g. equipment;
Labour, e.g. ten employees.
b It is the process of producing goods and services to satisfy consumer demand. Mitike’s business
produces leather bags and belts that are sold to customers.
c The business employs workers who are paid a wage. They can use money from wages to buy basic needs,
e.g. water, food, clothing and housing.
d Mitike’s business takes raw material – leather – and converts this into bags and belts that it sells to
customers at a higher price than the business pays for the leather.
e Add special features to products that will make them different or better than similar products offered
by competitors; create a brand image for products through advertising or persuading a local celebrity to
buy products – celebrity endorsement.
Test yourself (page 18)
1 A ‘need’ is something that is essential to living, e.g. food, water, clothing, shelter. A ‘want’ is something
that people would like but is not essential for living, e.g. mobile phone, holiday.
2 It is impossible to produce enough goods and services to meet consumers’ needs and wants.
3 Unlimited wants cannot be satisfied because there are limited factors of production. This creates scarcity.
4 Specialised machinery may help a business to increase productivity, lower costs of production and
produce a wider range of products.
Exam-style practice questions (page 19)
1 a Jonah has identified that consumers want to buy wooden toys; Jonah buys raw material and other
resources needed to produce wooden toys; Jonah converts raw materials into finished products which
satisfy consumer wants. [2]
b The cost of the next best alternative given up. [2]
c Land, labour, capital and enterprise. 1 mark for each correct factor identified. [Total: 4]
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Cambridge IGCSE and O Level Business Studies
d Answers might refer to branding, special features, personalised service and convenience, as shown
below (1 per relevant point identified up to a maximum of 2). Jonah could add special features or
design new wooden toys (1). This will make his products better (1). Customers will be prepared to
pay more (1). Jonah could create a brand for his toys (1) through advertising (1). Customers will be
more aware of Jonah’s toys and buy his toys rather than competitors’ toys (1). Jonah could provide
a specialised service (1). He might paint toys in the colours asked for by the customer (1). This will
make Jonah’s toys unique (1). [Total: 6]
e Identification of benefits only (maximum 2). Answers might include: reduces costs of production;
more efficient; reduces waste; improves quality; lowers price. Possible answers might include: Jack
will be able to build houses more quickly (1) and the work completed will be better quality (1). This
will help him to sell more houses (1). Or, employees will be more efficient (1). This reduces the costs
of building each house (1). Jack can lower prices and this will increase sales (1). [Total: 6]
2 a Land, labour, capital, enterprise. [2]
b Something that is essential to life, e.g. water and food. [2]
c When people and businesses concentrate on what they are best at doing (1). Company X is better
at producing pottery products than other types of products (1). There is division of labour in the
company (1). Production is divided into nine different processes and each employee only performs
the tasks in one of these processes (1). [Total: 4]
d Taking clay and shaping this into plates and bowls (1) is likely to be labour intensive (1) and require
a high level of skill (1). Taking the clay plates and bowls and putting them into an oven (1) is not a
skilled process (1) and is capital intensive (1). [Total: 6]
e The company takes raw materials and converts these into plates and bowls (1), which it sells to
consumers at a price that is higher than the cost of the raw materials used in the production process
(1). The manager can add value by: improving the branding of Company X’s products (1), e.g.
through increased advertising or promotion of the company’s products (1); improving service to
customers (1); offering personalised service to hotels and restaurants that the company sells products
to, e.g. by visiting them in person and making sure that they receive the products that meet their
specific needs (1). [Total: 6. Note: to be awarded maximum marks the suggestions must be related to
the products Company X produces and their main markets of hotels and restaurants.]
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Chapter 1 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
2 Classification of businesses
Answers to Coursebook activities
Activity 2.1 (page 20)
Student’s own answer.
Activity 2.2 (page 21)
Student’s own answer.
Activity 2.3 (page 22)
Student’s own answer.
Case study (page 23)
a i Extraction of natural resources, e.g. mining diamonds.
ii Converting natural resources into products for sale, e.g. making jewellery using diamonds.
iiiSupplying service to consumers and other businesses, e.g. Browns sells jewellery to consumers
through its retail stores.
b Chain of production from primary to secondary to tertiary sector businesses. Petra Diamonds supplies
Mark Solomon with natural resources that his business converts into jewellery that is then sold by
Browns in its stores.
c Both businesses being able to guarantee supply and quality of products to their stores. They will earn
higher profit margins on their jewellery because they are able to cut out middlemen.
Activity 2.4 (page 24)
1 Bermuda
2 Zimbabwe
3 No, because both Rwanda and Zimbabwe have tertiary sector activity that is greater than the other two
sectors in their country, but these are both developing economies.
4 The primary sector business activity of developing countries is much larger than it is in developed
countries.
Test yourself (page 25)
1 Any suitable answers, e.g. primary: farming; secondary: car manufacturing; tertiary: tourism.
2 Primary sector – extraction of natural resources from the land, e.g. mining, fishing. Tertiary sector –
provision of services to consumers and other businesses, e.g. banking, hairdressing.
3 Processing and manufacturing of natural resources into goods for consumers and other businesses, e.g.
food processing, petrol refining.
4 The activities of each sector are often connected – this is known as the chain of production. For
example, the supply of a natural resource such as oil by a primary sector business to a secondary sector
business that converts this into a good, for example petrol, which is then made available for sale to
consumers through petrol filling stations.
5 Developing economies usually have very high levels of primary sector business activity compared to the
very low levels of primary sector business activity of developed economies.
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Chapter 2 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Test yourself (page 26)
1 Sole trader, partnership, private limited company, public limited company.
2 Student’s own answer.
3 The private sector has profit as an objective. Provision of services, often free at the point of delivery, is
the main objective of public sector organisations. Private sector businesses are owned and controlled by
private individuals. Public sector businesses are owned and controlled by the state.
4 An economy that has both private sector and public sector organisations.
5 Private sector: consumers decide through the choices they make. Public sector: the government decides.
Exam-style practice questions (page 27)
1 a Partnership (Paul and John); limited company (Pisces Products (PP)). [2]
b Organisations in an economy that are financed, owned and controlled by the state. [2]
c What to produce is influenced by consumer choices/consumer demand (1); private sector businesses
will only produce these goods and services if they can earn a profit (1); how to produce is decided by
the private sector businesses (1); they will try to produce a product at the lowest possible cost so that
they make a profit (1). [Total: 4]
d Primary sector is the extraction of natural resources (1); secondary sector is the manufacture of
goods from natural resources (1); Paul and John extract fish from the sea (1); PP processes fish and
puts them into cans for sale to consumers (1); the primary sector provides the resources for the
secondary sector (1); Paul and John provide the fish used in PP’s canning process (1). [Total: 6]
e Might provide Paul with an opportunity for selling more fish to his friend’s company if he invests
(1). Depends on whether investment will give Paul any say in business decisions (1). Is the company
successful/profitable (1)? Will Paul get a good share of the profits to ensure that his investment was
worthwhile (1)? Would he be better off investing money in expanding his own business (1)? Statement
as to whether Paul should invest or not based on the points made (1). [Total: 6]
2 a 40 million × 15% = 6 million [2]
b Business activity that involves extraction of natural resources from land, e.g. fishing, farming,
mining. [2]
c Private sector owned and controlled by private individuals (1); public sector owned and controlled
by the state (1). Private sector has profit as its main objective (1); public sector provides goods and
services, often free at the point of delivery, to the population (1). [Total: 4]
d The primary sector of Country X is much larger than the primary sector of Country Y (1). The
tertiary sector of Country Y is much larger than the tertiary sector of Country X (1). Figures suggest
that Country X is a developing economy and Country Y is a developed economy (1). Country X’s
public sector is much bigger than its private sector (1). The private sector of Country Y is a bigger part
of its economy than the private sector in Country X (1). In Country X the government makes more
decisions about what to produce, how to produce and for whom than the government in Country Y
(1). [Total: 6]
e Country X is probably a developing economy as its primary sector is much bigger than its other
two sectors (1); its public sector is three times the size of its private sector (1). The private sector
in Country Y is larger than its public sector (1). People in developed economies usually earn
more money from work than in developing economies (1). A good private sector will earn high
tax revenues for the government to spend on better public sector services (1). Statement agreeing/
disagreeing based on the points made (1). [Total: 6]
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Chapter 2 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
3 Enterprise, business growth and size
Answers to Coursebook activities
Case study (page 30)
a Primary, secondary.
b She had a business idea and took risk by investing her own money in the business.
c She was able to identify who her potential customers were. She could estimate how many customers she
might have for her business.
d She did have some elements of a business plan. She knew what her idea for a business was and carried
out market research to identify if there was a market and what size it might be. A complete business
plan would have set clear objectives, identified competitors and the potential for market growth and
produced financial forecasts. This would have helped Naisiadet to identify the resources required by
her new business such as finance, number and skills of employees needed and how best to market her
business. Financial forecasts would have provided targets for her business and a measure to compare
how well her business was performing. Even though she did not have a business plan, her business
seems to have been successful; she employs ten workers, which means that her business has grown.
Activity 3.1 (page 31)
Student’s own answer.
Test yourself (page 31)
1 Innovative/has ideas, risk-taker, not afraid of failure, results driven, etc.
2 Describes business opportunity, market, financial forecasts, etc.
Activity 3.2 (page 35)
1 Because there are different methods for measuring the size of a business and, depending on which
measure is used, each company in the table could be said to be the largest.
2 Might be hi-tech industry that does not require a large number of employees, e.g. computer software
design.
3 Could argue that Company C is biggest because it has the highest revenue and number of employees
and the second highest capital employed. No right answer – depends on reasons given.
Test yourself (page 35)
1 Revenue, capital employed, market share, value of output or number of employees. Note: NOT profit.
2 Different measures may give different results, e.g. a capital intensive business might be small if the
number of employees is used to measure its size, but large if capital employed is used.
Case study (page 37)
a By adding more aircraft to its fleet, by looking to expand into new markets.
b Take over or merge with another airline.
c It has invested in the latest model of passenger aircraft, which will improve the quality of services it
provides. The company is looking to enter new markets across a wide geographical area.
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Cambridge IGCSE and O Level Business Studies
Activity 3.3 (page 38)
1
Form of integration
Forward vertical
Conglomerate
Horizontal
Backward vertical
Conglomerate
Forward vertical
Business activity
Oil refining
Carpet retailer
Large car manufacturer
Supermarket
Fast food outlet
Overseas holidays
Business activity
Petrol filling station
Restaurant
Small car manufacturer
Fruit canning
Supermarket
Travel agency
2 Has ready-made customers for its output.
3 Spreads risk. If the market for one product decreases then the business has products in other markets
that continue to do well.
4 Has a retail outlet that will market and sell its holidays.
5 Small manufacturer might benefit from some of the economies of scale that are beneficial to large
manufacturer. Might give large manufacturer access to a profitable niche market.
Test yourself (page 40)
1 To increase profits that belong to the owner, to protect the business from takeover – more difficult to
take over a large business than a small one.
2 Internal growth is achieved through a business expanding output by entering new markets, developing
new products or investing in new technology. External growth is achieved through merger or takeover
of other businesses.
3 Market size, owner’s preference, industry is dominated by a large producer or lack of capital to expand.
Case study (page 41)
Article A: Prices it was charging were not high enough to cover costs. Unable to increase prices due to
competition.
Article B: Lost passengers because of safety concerns and eventually revenue was less than costs so it was
making losses and no longer able to pay its debts.
Article C: Too much competition in a fairly small market so not possible for the company to compete
profitably with other airlines.
Article D: Not earning enough revenue to cover all of its costs. Cash shortage eventually resulted in the
airline being unable to pay its debts.
Activity 3.4 (page 43)
1 People are losing their jobs so do not have money to buy luxury designer wedding dresses. Competitors
are producing cheaper dresses, which consumers are able to afford even with the lower income levels.
2 Misaki’s revenue has decreased below total costs. Operating costs are fixed so even though she is selling
fewer dresses she still has to pay the same amount of rent and other overheads.
3 If economic recession continues and more people lose their jobs then this could further reduce Misaki’s
revenue and increase her losses. Eventually the losses that Misaki makes will mean that she does not
have enough cash to pay all of her costs and business debts and the business will fail/close down.
Misaki might decide to make cheaper non-designer dresses and this could help to increase revenue; she
might move to smaller premises to reduce costs. Any increase in revenue or decrease in costs could help
Misaki’s business to survive until economic conditions improve.
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Chapter 3 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Test yourself (page 43)
1 Liquidity problems, poor planning, poor management, competitor action, change in economic
conditions, etc.
2 Liquidity problems, poor marketing, lack of clear objectives, poor management, etc.
Exam-style practice questions (page 44)
1 a Primary, tertiary. [2]
b Someone who has an idea for a business and is prepared to risk their own capital. [2]
c Self-motivated; confident; innovative; inititative; risk-taker; results driven; multi-skilled. Any four
relevant characteristics for 1 mark each. [Total: 4]
d A business plan contains information about a business, its market, objectives and financial forecasts
(maximum 3 for identifying features). Market research will help identify the size of the market and
growth opportunities (1). Objectives will give the business a sense of direction (1). Financial forecasts
will help her to secure finance from lenders and investors (1). [Total: 6]
e Is the market large enough (1)? Are people interested in buying the product (1)? She has not carried
out any market research (1). Will consumers pay a price for her product which is greater than the total
cost (1)? Will competitors enter the market with similar products (1)? Will she have enough capital to
start supplying her product (1)? Factors considered most important with justification linked to points
made (1). [Total: 6]
2 a Value of output, capital employed. [2]
b Businesses that provide services to consumers or other businesses. [2]
c Method of business growth (1) that provides a business with its own outlet for the sale of its produce
(1). Easier to bring products to market (1). Should increase profits that can be reinvested in the
business to fund future growth plans (1). [Total: 4]
d Lack of capital to finance growth plans (1). Banks/other lenders are often not keen to lend to small
businesses (1) because of the high risk of failure and inability to repay the amount borrowed (1). The
market already has many competitors in the retail sector for farm produce (1). The market is not
big enough to support another retailer (1). Consumers are loyal to the shops they currently use (1).
[Total: 6]
e There is a risk that if they borrow money to finance expansion they will not earn enough revenue
from increased sales (1) to be able to pay the interest on the loan (1). Business could fail (1). If they
have a good business plan (1) then there is a good chance of their growth plans being successful (1).
Statement for or against supported by points raised (1). [Total: 6]
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Chapter 3 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
4 Types of business organisation
Answers to Coursebook activities
Activity 4.1 (page 48)
Advantages and disadvantages of partnerships – shown below – to be put into context given in activity.
Advantages of partnership
•• Usually greater access to finance than
sole traders as there is more than one
person investing capital in the business.
•• Decision-making is shared and can often
lead to better decisions.
•• Management and day-to-day running of
the business are shared, which reduces
the workload for individual owners.
•• Easy to set up. Partners may sign a
legal agreement known as a Deed of
Partnership.
Disadvantages of partnership
•• Partners usually have unlimited liability for the debts
of the business. May have to use personal wealth to
pay these if the partnership is unable to do so.
•• Partners must share profits.
•• If a partner leaves then the business ceases to exist
and will need to be re-formed if other partners want to
continue trading.
•• Business decisions are binding on all partners, even if
they don’t agree to them.
•• Often are fairly small businesses and, like sole
traders, find it difficult to raise additional finance to
expand.
Activity 4.2 (page 50)
1 Both will have limited liability for any debts of the new company. They only risk losing the amount they
invest in the business and cannot be forced to sell personal belongings or use personal savings to finance
business debts.
2 Advantages: Chata and Juma will have the additional finance they need to finance expansion plans
without borrowing. This is a much cheaper source of finance as they do not have to pay interest or
repay the amount invested by Chata’s father and Juma’s sister. Converting the business will provide both
Chata and Juma with limited liability for business debts. As a partnership they have unlimited liability
for the debts of the business. They could be forced to use personal savings or sell personal belongings
to finance business debts. If the business becomes a private limited company then their liability will be
limited to the amount they invest in the business. Chata’s father or Juma’s sister might bring skills or
experience to the business that neither Chata nor Juma has. This could help the business to expand and
become more successful.
Disadvantages: A legal process is required when setting up a private limited company – cost involved.
End of year financial statements must be produced and submitted to the correct authorities. Chata and
Juma will have to share the profits of the business with other shareholders. They may no longer have
control over business decisions – new shareholders will be able to vote on major business decisions.
Activity 4.3 (page 51)
Student’s own answers.
Case study (page 51)
a Two or more businesses agree to work together on a project and set up a separate business for this
purpose.
b Risk for each business is reduced and costs are cut. Each business brings different expertise to a joint
venture. Market and product knowledge is shared.
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Chapter 4 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
c Yes, because Chery is a well-known car manufacturer in China so knows and understands the market.
Consumers know the Chery brand so will be more likely to buy products of joint venture, which
reduces JLR’s risk of failure. JLR’s costs of entering new market will be much lower than if it were to try
to enter market on its own. Chery has experience of manufacturing and marketing smaller cars than
JLR. No, because if Chery’s reputation were to be damaged because of something it did in China, e.g.
produced faulty cars, then this could also damage JLR’s reputation. Chery might learn from JLR how
to produce better, more luxurious cars, and in the future decide to produce its own luxury car in direct
competition with JLR in China and the rest of the world.
Test yourself (page 55)
1 One owner, makes all business decisions, keeps profit.
2 Owner(s) of the business are liable for business debts. Have to use personal savings or sell personal
belongings to settle the debts of the business.
3 Source of finance: each partner invests capital in the business. More skills and experience: each partner
brings their own skills and experience to the business – should improve effectiveness and efficiency.
4 Unincorporated businesses unlimited liability; incorporated businesses limited liability.
5 Ownership: private sector businesses owned by private individuals; public sector organisations owned
by state. Finance: private sector businesses financed by investment from private individuals and
external sources, e.g. borrowing; public sector organisations financed by taxes. Control: private sector
businesses controlled by private individuals; public sector organisations controlled by government or
government bodies.
6 Legal process in setting up a private limited company. Profits must be shared among all owners
(shareholders).
7 Articles of Association, Memorandum of Association.
8 Private limited companies cannot sell their shares to the general public; public limited companies can.
9 Less chance of business failure because the product and brand are well established. Franchisor often
provides advice and training to the franchisee as part of the franchise agreement. Franchisor finances
promotion of the brand through national advertising; checks quality of suppliers, so the franchisee is
guaranteed quality supplies.
10 Reduces risk for each business and cuts costs. Each business brings different expertise to a joint venture.
Market and product knowledge can be shared.
Exam-style practice questions (page 56)
1 a Owned by private individuals. Financed by private individuals or through borrowing. Controlled by
private individuals. Main objective to earn profit for owners. [2]
b Organisations that are financed and owned by the state and controlled by government. [2]
c Advantages: additional capital; share workload; more ideas; better range of skills. (1 mark per
advantage)
Disadvantages: unlimited liability; lack of business continuity; disagreements; share profits. (1 mark
per disadvantage) [Total: 4]
d Spreads risk (1): if the property renovation element of the business is not doing well they will still
earn revenue from property maintenance (1). Increased revenue/profit (1): entering a new segment
of the market increases the opportunity to increase sales (1). Economies of scale (1): as the business
grows they could benefit from bulk-buying discounts, etc. (1) [Total: 6]
e Explanation of the advantages of a private limited company, e.g. limited liability, access to more
capital from investors, continuity of business if one of the owners leaves/dies (2). Explanation of
the disadvantages, e.g. sharing profits with other owners, possible loss of control, legal formalities
in setting up a private limited company (2). Decision based on evaluation of the advantages/
disadvantages of a private limited company for An and Bo (2). [Total: 6]
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Chapter 4 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
2 a Limited liability and business continuity even if the owner leaves/dies. [2]
b Part of the economy that has businesses financed, owned and controlled by private individuals with
the main objective of earning profits. [2]
c Limited liability (1): owners/shareholders risk losing no more than their investment in the company
even if the business fails and has unpaid debts (1). Access to capital (1): a public limited company will
find it easier to raise capital through sale of shares to the general public (1). [Total: 4]
d Lack of sales in Country X: (1) might not be enough demand for road construction in Country X,
(1) Mactar might face too much competition in Country X from other construction companies.
(1) Benefits of entering new market: (1) Country Y’s government wants a new motorway to be
constructed, (1) increase Mactar’s revenue and profits. (1) [Total: 6]
e Yes, because: Mactar has no experience of Country Y (1). Joint venture will make it easier to enter the
new market (1), KC Diggers knows the market in Country Y (1), already established business with
a brand image in the country (1). Mactar can benefit from KC Diggers’s experience and expertise
(1). KC Diggers owns machinery Mactar will need for construction of the motorway – reduces costs
(1). Government of Country Y might look more favourably on a joint venture because KC Diggers is
based in Country Y (1).
No, because: Mactar will have to share revenue and profits with KC Diggers (1). Does KC Diggers
have a good reputation in Country Y (1)? How might the reputation of KC Diggers affect Mactar’s
reputation in Country Y (1)? (Maximum 5 for reasons) Statement for or against joint venture based
on points discussed (1). [Total: 6]
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Chapter 4 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
5 Business objectives and stakeholder
objectives
Answers to Coursebook activities
Activity 5.1 (page 57)
Student’s own answer.
Activity 5.2 (page 60)
1 Greater risk of failure in early years because PPAS was new to the market so did not have a customer
base. Takes time to attract customers and persuade them to use services.
2 Quality service, profit, market share, growth.
3 Important for PPAS to survive and become established in the market in early years even if not making
profit. However, all businesses must eventually earn profit so that they can reward owners and provide
finance for replacing/buying new non-current assets.
4 Owners’ preferences, i.e. want to remain small so can provide personalised service to customers and
keep full control of business; business has a small market, which would not support a larger business.
Case study (page 61)
a Had idea for business, prepared to risk own money.
b Like private sector business, profit is the objective, but profit is used to finance social projects (not
for owners) or is reinvested in the business to finance growth so that more people can be employed.
Canyou Group uses profits to benefit its employees, their families and the wider community. Social
enterprises have social objectives such as Canyou’s objective of providing employment for people with
disabilities.
Test yourself (page 62)
1 A specific target to be achieved by a business.
2 Important part of planning process, provides business with a sense of direction. Can be used to
measure performance and motivate managers.
3 Profit: Business aims to produce and sell a level of output where there is the greatest difference between
revenue and total costs. Market share: As a business grows it may achieve a larger share of the market.
Increased market helps develop a strong brand image, which makes it easier to sell the product
to consumers. Corporate social responsibility (CSR): Where a business takes an interest in social,
ethical and environmental issues and the impact that its decisions/activities may have on employees,
customers, the community and the environment. Businesses that ignore their social responsibility
run the risk of bad publicity and possible legal action, which can affect reputation, sales, revenue and
profits.
4 They have social objectives, i.e. to benefit society. They have a profit objective, but the profits are
reinvested to benefit society at large.
Activity 5.3 (page 64)
1 Customers, shareholders, employees, suppliers, community.
2 Managers, lenders, government.
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3 Shareholders: profit – profit of a limited company belongs to its shareholders. The larger the profits
earned by a company, the higher the dividends are likely to be and the market value of shares will
increase. Employees: growth – as a business grows this often provides promotion opportunities for
employees and greater job security. Suppliers: growth – if a business grows, output increases. The higher
the output, the greater the need for the business.
Activity 5.4 (pages 65–66)
Statement A:
1 and 2 Shareholders – lower dividends today but higher dividends in future if the new technology
increases profits. Employees – work might be easier but more boring with the new technology. Some
employees will lose their jobs because tasks they perform now will be completed by the new technology.
3 Managers/shareholders – managers want to use profit to finance investment in new technology but this
will reduce dividend payments to shareholders.
Statement B:
1 and 2 Customers – greater choice of products/more convenient. If the in-store bakery results in closure
of local bakeries then reduced competition may result in the supermarket charging higher prices for
bakery products. Lenders – receive interest on money they loan, which increases their revenue. Risk
that supermarket may not earn enough profit in future to repay the loan.
3 Lenders/managers – lenders want to receive interest due on the loan but this may reduce the retained
profits available for financing the purchase of non-current assets.
Statement C:
1 and 2 Local community – new factory provides job opportunities for local people. Factory may cause
problems for the community, e.g. noise, traffic, air pollution. Owners – new factory will use the latest
technology so will be very efficient, which increases the competitiveness of the business. This may
increase revenue and profits and the return to owners.
3 Government/local community – government wants to encourage the location of the factory as this will
reduce unemployment in the area but the local community may be affected by pollution.
Statement D:
1 and 2 Employees – some employees will lose jobs. If the business is able to be more competitive after
producing goods in another country then this improves job security for employees who remain.
Customers – lower prices, but quality might not be as good.
3 Employees/customers – employees want to keep jobs but customers want lower prices.
Test yourself (page 66)
1 Any individual or group that has an interest in the activities of a business.
2 Owners/shareholders, managers, employees, customers, suppliers, lenders, the local community,
government.
3 Employees – job security and higher wages. Shareholders – dividends and increased market value of
shares. Customers – lower prices, increased choice, quality products.
Test yourself (page 66)
Provision of affordable services – providing services to the public at lower prices than they would be if
they were being provided by the private sector. Provision of accessible services – services available to
everyone regardless of location or income.
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Exam-style practice questions (page 67)
1 a Partnership, limited company. [2]
b Individual or group who has interest in activities of a business. [2]
c Set targets (1), which can be used to measure business performance (1). Motivate managers (1) as
objectives are targets that have to be achieved (1). [Total: 4]
d Keeps all profits (1). Aisha will not have to share profits (1) as she is the sole owner (1). Control (1). Aisha
has complete control over business decisions (1). She can do what she thinks is best for the business (1).
[Total: 6]
e Advantages: more capital available (1), increases skills and expertise (1), share decision-making
(1). Disadvantages: share profits (1), still has unlimited liability (1), no continuity of business if one
partner leaves (1) (maximum of 2 marks for advantages and 2 marks for disadvantages). Student
agrees/disagrees and supports their decision (1) within the context of Aisha’s business (1). [Total: 6]
2 a Business owned by shareholders (1) who have limited liability (1), shares cannot be sold to the general
public (1), often small/medium size owned by family and friends (1). [2]
b Business activity that converts resources supplied by primary sector business into goods for other
businesses or consumers. [2]
c 1 mark per stakeholder such as owners, employees, customers, suppliers, the local community,
government, etc.
Note: do not accept managers and employees or owners and shareholders as separate stakeholders.
[Total: 4]
d Profits (1). Private sector businesses have profit as objective (1); public sector organisations are not
profit driven, more concerned with providing services that are affordable to everyone regardless of
income (1). Survival (1). Private sector businesses often have survival as their objective, especially in
early years (1); public sector organisations do not need to have this objective as they will continue to
exist even if they operate at a loss (1). [Total: 6]
e If shareholders do not receive dividends they are happy with then they could vote at the Annual
General Meeting to remove the Board of Directors (1) or to increase dividends above the level
recommended by the Board (1). If existing shareholders are unhappy with the level of dividend then
they might not invest further in the business (1). Employees have helped Company Z to earn profits
so they should receive some share of this through higher wages (1). Higher wages might motivate
employees – could increase future profits (1). Trade union might take industrial action if members
do not receive a pay rise (1). Student makes a decision that is supported through the points above.
[Total: 6]
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6 Motivating employees
Answers to Coursebook activities
Activity 6.1 (page 74)
1 Many employees leaving the business – increase in labour turnover; absenteeism at an all-time high;
production levels – productivity – fallen; increase in customer complaints; poor quality.
2 Work became boring – less interesting than it used to be; bonus targets are too high; pay is lower than
that of similar businesses.
3 Answers should focus on the effect motivation has on labour turnover, productivity, quality.
4 Answers should discuss the importance of financial motivators v non-financial motivators. Answers
that identify a benefit or a drawback of the new pay system to ZHAF will demonstrate analysis.
An answer that has the student making a judgement about the likely success of the new pay system
supported by evidence from the case study or relevant theories would be evidence of evaluation.
Activity 6.2 (pages 75–76)
Level of need
Physical needs
Safety needs
Social needs
Esteem needs
Self-actualisation
How business helps individuals to satisfy their needs
1 Pay received is high enough to buy basic needs.
9 Employees are given free meals at work.
13 Employees receive payment during periods of illness.
3
Employees are given a contract of employment setting out their pay and
working conditions.
5 Employees are provided with protective clothing.
7 The business is very profitable.
15 Employees are trained how to use equipment correctly.
4 Employees are organised into teams or groups.
12 Social activities are organised for employees.
2 The manager praises employees.
8 Employees are given responsibility for completion of tasks.
11 Employees are given the opportunity for promotion.
14 Respect from other employees.
6 Work is challenging.
10Employees are given the opportunity to develop new skills to increase
their potential.
Activity 6.3 (page 79)
1 Productivity is much lower than average for FF’s other factories; absenteeism is more than double the
average for FF’s other factories; labour turnover is more than double the average for the other factories.
2 40/500 × 100% = 8%
3 Answers should consider the data given in the table, which shows that the average weekly wage in
Factory A is higher than the average for FF’s other factories but productivity is lower, and labour
turnover and absenteeism are higher. This would suggest that money is not motivating employees and
the poor motivation is due to non-financial reasons such as the leadership style of the factory manager,
poor working conditions and what employees see as ‘silly rules’. Students could link these points to
relevant theories to support their answer.
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4 Answers should outline Herzberg’s two-factor theory and explain the importance of hygiene factors and
motivators, how a knowledge of these might be used by senior managers to improve the motivation of
employees and why this could lead to improvement in productivity. Better answers will link the theory to
the present situation of the employees and how some of the hygiene factors are present, e.g. high wages,
but others are not, e.g. poor working conditions. Answers should recognise that an improvement in these
factors will not motivate employees but that they need to be present to satisfactory standard in order
to prevent job dissatisfaction. Focus should then be on how senior managers might use ‘motivators’ to
improve employee motivation and productivity. Influence of the leadership style of the factory manager
might also be considered. Senior managers might also consider why the productivity of employees in
their other factories is higher than Factory A, i.e. what is so different between the factories?
Test yourself (page 79)
1 Physical, safety, social, esteem, self-actualisation.
2 Hygiene factors are those factors, such as pay and working conditions, that need to be present in order
to prevent job dissatisfaction, but they will not motivate employees. Motivators, e.g. responsibility and
recognition, are important influences on the motivation of employees.
Activity 6.4 (page 81)
1 A: 40 × $4.75 = $190; B: 2000 × $0.10 = $200; C: (40 × $4.50) + $15 = $195
2 There is no ‘right’ answer. Students need to choose a company and justify their choice, e.g. Company B
because the harder I work, the more pay I will receive; Company A because I am guaranteed $190 per
week even if I don’t work very hard!
Activity 6.5 (pages 82–83)
1 Director: salary + performance-related bonus + fringe benefits; receptionist: hourly.
2 42 × $6 = $252
3 Financial rewards received by an employee in addition to money wage or salary. Include company car,
health insurance, company pension. Note: Relocation expenses are not a fringe benefit because they are
a ‘one-off’ payment used to attract better-quality applicants.
4 To attract the very best candidates. There are fewer people with the required skills and expertise to
carry out the duties of a director so fringe benefits help attract these to apply. No experience is needed
for the receptionist – many more people will be interested in applying so fringe benefits are not
required to attract applicants. Competitors will likely be offering similar benefits.
5 Any appropriate answer that the student can justify, e.g. free membership of health and fitness club.
Activity 6.6 (page 83)
1 Increased automation/new technology; work has become boring and less challenging; employees are no
longer using their skills.
2 Increased productivity – reduces average cost/cost per unit; reduced labour turnover – reduces
recruitment and training costs; reduced absenteeism – increases productivity; better-quality products
– increases sales/reduces waste/reduces customer returns or complaints/improves company image or
brand image.
3 Answers should explain job redesign, i.e. job rotation, job enlargement and job enrichment, and how
each of these might solve some of the problems identified, e.g. reduce boredom, make work more
challenging, provide employees with greater responsibility. Link to relevant theory/theories such as
Maslow or Herzberg. No mention of financial motivation but answer could consider the importance
of money as a motivator. Students need to make a judgement about the likely effect of job redesign on
solving the problems and support it with relevant theory or application.
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Activity 6.7 (page 84)
There are many possible answers – the following are some suggestions.
1 Offer bonus for achieving a certain level of sales, or commission based on amount of sales.
2 What is causing the increase in faulty products? Is the work boring? Will job rotation help reduce boredom?
3 Bonus paid on efficient delivery of pizzas. Pay the driver using the piece-rate system based on number
of deliveries made.
4 Salary + performance-related pay based on sales, fringe benefits, e.g. company car.
5 Training so able to gain promotion to manager.
6 Bonus based on the number of cars they sell. Commission-based salary, i.e. the more they sell, the more
they earn.
7 Hourly wage. Safety equipment.
8 More responsibility.
9 Salary. Profit sharing. Laissez-faire leadership style.
10 Performance-related pay based on the examination results of their students.
Test yourself (page 85)
1 Financial incentives involve paying money for work done, e.g. hourly wage, piece-rate, salary, bonuses,
or providing a benefit that saves employees from spending their own money, i.e. fringe benefits such
as company cars and health insurance. Non-financial methods include job redesign, giving employees
greater responsibility, recognition and opportunities for reaching their full potential.
2 Job rotation – employees move around different tasks to increase the variety of work they do
and reduce boredom. Job enrichment – giving employees other tasks that increase their level of
responsibility. This can motivate employees by helping to satisfy esteem needs (Maslow), or provide
a motivator (Herzberg).
Activity 6.8 (page 86)
1 Environment that employees are working in, e.g. noise levels, cleanliness, temperature, bathroom
facilities, restrooms, health and safety procedures.
2 In addition to a wage based on number of hours worked, employees receive payment based on how well
they perform their tasks. Might be based on achieving production targets, or quality targets.
3 Advantage: employees perform tasks quickly and to a high standard – improves productivity and
quality. Disadvantage: employees become bored with performing the same task, which demotivates
them – reduces productivity and quality, increases absenteeism and labour turnover.
4 New factory pays wages based on hours worked rather than using the piece-rate system. Employees
have greater certainty about how much they will earn each week – not based solely on how hard they
work/how many units they produce. Working conditions in the new factory are much better and
employees might feel healthier and have a safer environment in which to work. New factory probably
uses better technology and is more automated than MFC so the work is easier.
5 Answers should discuss advantages/disadvantages of the piece-rate system. Some employees might
prefer the system if they are hard-working and able to produce a high level of output. However,
employees do not know from one week to the next what their wage will be as it depends on how many
units they produce. Some employees might not be able to earn as much as they would like because their
output is affected by slower employees. Better answers will also consider advantages/disadvantages
to the employer. MFC only pays employees for the work they do; however, employees might pay less
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attention to quality if they are trying to produce as many units as possible. Changing from piece-rate
to another system, e.g. hourly rate, might improve quality, could reduce productivity. Decrease in
productivity will increase average costs and this would need to be balanced against any reduction in
average costs as a result of improved quality/reduced wastage.
Exam-style practice questions (pages 87–88)
1 a Non-cash incentives (1) to recruit or retain employees (1). Could reward relevant examples, e.g.
company car, pension, employee discounts, etc. [Total: 2]
b $200/40 = $5 per hour [2]
c Piece-rate (1) based on output (1) – the more employees produce, the higher their wage. (2) [Total: 4]
d Bonus (1), Company A could set production targets (1) – employees will receive additional payment
for reaching target (1). Profit sharing (1), employees will receive payment at end of year based on
profit earned by Company A (1), the higher the profit, the more each employee will receive (1).
[Total: 6]
e Use of relevant motivation theories. For example, according to Taylor, money is most important
motivator (1). Other theorists such as Maslow and Herzberg disagree (1), employees motivated by
other needs such as security, social, esteem or self-actualisation (1), Herzberg’s two-factor theory
identified money as hygiene factor, i.e. needs to be of a satisfactory level but does not motivate
(1), other factors such as responsibility and recognition are more important as motivators (1).
[Maximum: 4] Answer disagrees with Company B management because although they use piece-rate
to motivate employees, they do not stay more than one year, which may suggest not motivated by
money (2). [Total: 6]
2 a Additional payment to employees on top of weekly wage (1) for reaching production target (1). [Total: 2]
b Factors that influence behaviour of employees (1) towards achieving set business goals (1). [Total: 2]
c Financial motivators (1). Managers will work harder (1). Fringe benefits help to recruit the best
managers (1). Improves the quality of ABC’s management (1) or helps to retain managers (1), which
reduces recruitment and training costs (1). (maximum of 4) [Total: 4]
d Maximum 2 marks for identifying non-financial methods of motivation, such as job rotation, job
enrichment, delegation, team working, training, opportunities for promotion. (2 marks each for
explaining how methods identified might be used to motivate employees.) For example, job rotation
(1) introduces variety into their work (1), the work becomes less boring / more interesting (1); ABC
might introduce job enrichment (1), as it gives employees more responsibility (1). It satisfies their
esteem needs (1). [Total: 6]
e Production workers are easier to replace so not necessary to provide them with the same fringe
benefits as the manager (1). More important to retain the manager or use fringe benefits to attract
the best manager to ABC (1). Too costly to give all employees a company car (1). Giving all employees
the same fringe benefits would increase ABC’s costs and reduce profits (1). However, if production
workers receive fringe benefits this will reduce labour turnover (1), reduce recruitment and training
costs (1). Production workers should receive a share of the profits (1) because they, not only the
managers, have worked hard to help ABC earn profits (1). (maximum of 6) [Total: 6]
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7 Organisation and management
Answers to Coursebook activities
Activity 7.1 (page 91)
Any two of the directors.
Activity 7.2 (page 91)
4: The recruitment manager is directly responsible to the human resources director.
Activity 7.3 (page 92)
The supervisor of Factory B.
Activity 7.4 (page 94)
Student’s own answer.
Test yourself (page 97)
1 Shows formal relationships within an organisation.
2 Set objectives, motivate employees, make sure employees have resources needed to complete tasks.
Answers might also identify roles or functions of management.
Activity 7.5 (page 97)
1 Person responsible for a certain group of tasks or area of a business, e.g. the manager of each restaurant
is responsible for making sure that all tasks for that restaurant are completed and employees have the
resources needed to complete tasks.
2 a Number of levels in business. Four levels in Mohinder’s business.
b Number of subordinates who report directly to the supervisor/manager. Chef in restaurant C has a
span of control of six.
c Route through which authority is passed down in an organisation. In Mohinder’s business it is from
Mohinder to the restaurant managers to the chefs and finally to the other employees.
3 Shows their position in the organisation, who they report to and who they are responsible for.
4 Answers should discuss advantages/disadvantages of centralisation. Advantages: faster decisionmaking; Mohinder can make decisions for the whole business; benefits of economies of scale; easier for
Mohinder to control business. Disadvantages: centralisation might demotivate restaurant managers
who are not able to make decisions; communication is slower; restaurant managers are unable to
respond quickly to local factors – opportunities missed. Answers should include a decision on whether
advantages outweigh disadvantages or vice versa.
Activity 7.6 (page 99)
1 Giving authority to subordinates to perform certain tasks.
2 Answers should explain ‘organising’ and ‘commanding’ as these are functions of managers at local
level. The other three functions of managers are probably specific to senior management, e.g. reference
to the planning function of a country director.
3 Advantages: local managers can respond to factors that are local to their offices; used to motivate
managers; used to prepare managers for promotion; gives the country director more time to
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concentrate on more important decisions. Disadvantages: local managers might not have the skills
or experience needed to make ‘good’ decisions; communication problems; loss of control by senior
managers; decisions taken might not support the overall objectives of the business.
Test yourself (page 99)
1 Planning, organising, commanding, coordinating, controlling.
2 Fear loss of control, lack trust in the abilities of subordinates, feel threatened by subordinates who
might do the job better, have an autocratic leadership style.
Activity 7.7 (page 101)
1 Laissez-faire
2 Autocratic
3 Democratic
4 More autocratic than democratic
5 Laissez-faire
6 Democratic
Students might disagree with the suggestions above. Purpose of the activity is to encourage students to
learn how to justify a particular choice.
Case study (page 102)
a Secondary and tertiary sectors.
b Someone who has responsibility for a group of tasks or an area/department of a business.
c Because of the nature of the work and the fact that an installations manager is responsible for health
and safety issues, it could be argued that a more autocratic style is the most appropriate. However, a
democratic leadership style might also be used if there is a need to discuss with others the health and
safety issues and how best these might be implemented and communicated to all employees.
Test yourself (page 102)
1 Styles are complete opposites. Autocratic leaders make all the decisions without discussion with
subordinates. They tell employees what to do and expect orders to be obeyed without question.
Communication is one-way. Might threaten or punish employees if they do not follow instructions.
Democratic leaders encourage participation in decision-making by subordinates. Communication is
two-way.
2 A crisis situation that requires an immediate decision, e.g. if a product is found to have a serious fault
that could endanger the life of users.
Activity 7.8 (page 104)
1 Organisation formed and financed by employees to protect their interests and negotiate with employers
on their behalf for improvements in pay and conditions of work.
2 Union will negotiate with employer to try to get pay increase for employees. Easier for trade union to
negotiate with employer than individual employees.
3 Strike would mean employees do not go to work and this would stop production of sugar and could
affect sales and profits of companies who are MSPA members.
4 Physical environment of the workplace and how well it meets the health and safety needs of employees,
e.g. temperature, noise, cleanliness, washroom facilities, rest areas, drinking water, canteen facilities.
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5 Answers should consider how important dock workers and the work they do are to the economy of
Argentina. According to the article they are very important and, because of this, it is likely that any
strike action could have a damaging effect on the economy. Government will want to avoid this.
However, it will also depend on the cost of improving working conditions and whether employers can
afford this. Some idea of the strength of the union because of the type of employee it represents and
their importance to the economy, but balanced against the cost of meeting the union’s demands.
Test yourself (page 104)
1 To represent the interests of members when dealing with employers to get improved pay and working
conditions.
2 Employee may not be able to pay the fee needed to join a union.
Exam-style practice questions (page 105)
1 a Someone in charge of a group of tasks, or an area or department of business, e.g. marketing
manager. [2]
b The formal, internal framework of a business that shows how it is managed and organised. [2]
c Planning, controlling, coordinating, organising, commanding. (1 mark each) [Total: 4]
d Helps develop the skills of GL’s employees (1), which gives GL a more flexible workforce (1).
Employees will be able to cover for absent colleagues (1). GL’s managers can focus on more important
tasks (1), which improves the management of GL (1). Better and quicker decision-making (1).
[Total: 6]
e Autocratic leaders make all the decisions without consultation (1) and expect orders to be followed
without question (1). Some evidence in the text suggests that Gopal is an autocratic leader. Gopal
likes to know what all the directors and managers are doing (1) and has blocked the pay rise agreed
by the local manager (1). However, Gopal has delegated authority for marketing, finance and HRM
(1), which suggests that he does not want to make all decisions for every area of business, which
implies that Gopal is not autocratic (1). [Total: 6]
2 a Appointed or elected member of the Board of Directors of the company who has responsibility for
setting and implementing the company’s policy. Some directors have a management role too, e.g.
Bimla’s uncle is responsible for management of RF’s finance. [2]
b Planning, organising, controlling, coordinating, commanding. [2]
c When employees join together in a trade union they have greater power (1) to negotiate with their
employer for improved pay and conditions (1). Trade unions provide free legal advice to members
who are being unfairly treated or injured at work (1). Individual employees would probably not be
able to afford this legal help themselves (1). [Total: 4]
d Features might include chain of command, span of control, levels of hierarchy (up to 2 marks).
Further 2 marks for each feature explained. The award of 2 marks requires students to use the
organisation chart provided. For example, RF has a tall structure (1), there are five levels in the
hierarchy (1), this might slow down decision-making (1). The two supervisors have a span of control
of 12 (1), which is wider than the marketing manager who has only a narrow span of control (2), the
wider span of control might make it more difficult to communicate with and control the production
workers (1). [Total: 6]
e The Board of Directors are the most senior managers of RF (1) appointed or elected by shareholders
(1). They are responsible for setting strategy (1), making sure resources are available to achieve
objectives (1), providing the leadership for the success of RF (1). Justification of importance (1).
[Total: 6]
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Cambridge IGCSE and O Level Business Studies
8 Recruitment, selection and training
of employees
Answers to Coursebook activities
Activity 8.1 (page 108)
Answer should consider advantages/disadvantages of internal and external recruitment for each post and
make a decision as to which one is ‘best’. No single correct answer, but likely that a machining supervisor
might be recruited internally whereas a factory manager might need external recruitment. Answers might
take the opposite view but must be justified to demonstrate evaluation skills.
Activity 8.2 (page 110)
Student’s own answer.
Activity 8.3 (page 112)
Student’s own answer.
Test yourself (page 114)
1 Internal recruitment – person appointed to post already employed by the business in a different role.
External recruitment – employment of someone from outside the business.
2 Job title, main duties, responsibilities and accountability, etc.
3 Offers greater flexibility; increases skills and experience of workforce; might help to keep experienced
full-time employees who might otherwise leave; can attract skilled and experienced employees who are
only interested in working part-time; evidence suggests that part-time employees are more productive.
Activity 8.4 (page 115)
Student’s own answer.
Activity 8.5 (page 116)
Report should consider advantages/disadvantages of internal and external recruitment and apply these
to Ravinder’s business. On the basis of this analysis, the report should make a decision and justify which
method Ravinder should use. No ‘right’ answer – will depend on the quality of analysis of the factors and
making a reasoned judgement as to which method is ‘best’ in this context.
Test yourself (page 116)
1 Training provided to employees when they first join an organisation, which introduces them to the
workplace, colleagues, facilities, health and safety procedures, etc.
2 On-the-job training – employee learns by doing the job, often by working alongside an experienced
employee. Off‑the-job training – takes place away from the workplace in training centres, colleges, etc.
Test yourself (page 118)
1 Increased automation/use of technology; fall in demand for the product produced by the workforce;
relocation to another part of the country or a different country.
2 Incompetence, poor conduct.
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Chapter 8 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Test yourself (page 120)
1 Name of employee, name of employer, hours of work, pay, holiday entitlement, job title, main duties, etc.
2 Race, colour, gender, religion, age, disability.
Case study (page 120)
a Being dismissed from a job without good reason.
b Race, gender.
c Answer should discuss why employees need to be protected from employers who might act unfairly
and dismiss employees without good reason. Quality of argument is what is important, i.e. it should
consider advantages to employees and possible disadvantages to employers.
Exam-style practice questions (page 115)
1 a List of qualifications, skills, experience and personal qualities looked for in the successful applicant. [2]
b Cannot discriminate on any of the following: gender, race, colour, religion, disability, age. [2]
c Must give all employees a contract of employment (1), removes possibility of misunderstanding
about pay, hours of work, holidays, duties, etc. (1); minimum wage laws (1), Glowtech cannot exploit
employees by paying very low wages (1). (Maximum: 4) [Total: 4]
d Employees feel part of the business more quickly (1). Settled employees are likely to be more
productive (1), increases labour productivity/reduces average costs (1). Employees are given health
and safety training (1), reduces risk of accidents (1), production time not lost due to injury to
employees (1) or Glowtech will not have to pay compensation to injured employees (1). (Maximum:
6) [Total: 6]
e Internal recruitment – appointing someone who already works for Glowtech to be the new
supervisor (1). Can be a source of motivation for existing employees (1). Person appointed will
already understand Glowtech procedures and will require less training than if the company were
to use external recruitment (1), this will be less costly for Glowtech (1). However, using external
recruitment might mean appointing a better-qualified person (1), they might bring new ideas that
improve the way Glowtech works (1). Appointing someone from outside will increase training
costs and might demotivate existing employees (1). Answer must choose one of the methods and
justify why it is best, e.g. it is not a very senior position and probably plenty of suitably experienced
employees are already employed by Glowtech who could do the job. (Maximum: 6) [Total: 6]
2 a Employee tells employer that they wish to leave employment perhaps because they have found
another job or are retiring. [2]
b Job that employee does is no longer needed. [2]
c Qualifications required (1), academic qualifications or professional qualifications that Bright Sparks is
looking for from applicants for the manager vacancy (1). Experience (1), what relevant work experience
applicants for the manager’s job need, e.g. must have five years’ experience in a marketing role (1). [Total: 4]
d Maximum 2 marks for identifying the features of a contract of employment, e.g. information about
duties, working hours, pay, holidays, etc. Answers might include that a contract of employment is a legal
agreement (1), which removes the risk of misunderstandings about pay, working hours, etc. (1), prevents
employees from being exploited (1). Contract of employment provides details of an employee’s duties (1),
employees cannot be forced to do work they have not been employed to do (1), protects employees from
unfair dismissal for refusing to do work that they have not been employed to do (1). [Total: 6]
e Costs include amount paid to training organisation (1) and output lost while employee is being
trained (1). Benefits – improved productivity (1), reduced average costs (1); better-quality products
(1), reduced waste / customer complaints (1), increased sales / profits / reputation / brand image
(1); employees feel valued, which increases motivation (1), reduced labour turnover (1), reduced
recruitment costs (1). (Maximum: 5) Disagree with marketing director because benefits identified
outweigh costs, or similar statement (1). [Total: 6]
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9 Internal and external communication
Answers to Coursebook activities
Activity 9.1 (page 124)
1 Everyone knows what to do in the event of fire. If there is no notice then lives might be lost and the
business sued for compensation.
2 So there is no confusion as to what is needed. If the wrong goods are supplied this might delay
production with possible loss of sales.
3 Business should respond quickly to convince the customer that it takes their complaint seriously. If
it does not respond quickly then the customer might tell other consumers and this will damage the
reputation of the business. Customer might decide to take legal action if the complaint is not dealt with
quickly.
4 There needs to be a permanent record of warnings to be used in evidence if the employee is later
dismissed for lateness. Without evidence the employee might claim unfair dismissal.
5 So that the customer receives exactly what they want – no misunderstanding. If the wrong goods are
sent then the customer will return these and might cancel their order. Could tell relatives and friends
about poor service and this could damage the firm’s reputation and decrease sales and profits.
6 All employees should receive the same information at the same time to avoid any misunderstanding. If
the message is not communicated to all employees at the same time then some employees might think
they are not going to get a pay rise and might become demotivated/leave/threaten industrial action.
7 Businesses need accurate information about how much money they have in the bank. If they do not
have correct information then they might spend more money than they have in the bank. Overdraft
will increase business costs due to interest they will have to pay on the overdrawn balance.
8 Accurate names and addresses of customers are needed if the business wants to contact them – perhaps
to send them direct mail. If information is inaccurate then the business will waste money sending
direct mail and other correspondence that cannot be delivered or is sent to the wrong person.
9 Consumers might use the website to find out information about what the business sells. If it is out of
date or the website is difficult to use, then customers will look elsewhere and sales will be lost.
10 Advertising is probably the most important contact between the business and consumers. If not
effective then consumers will not know that the product is available, what it does or where consumers
can purchase it. Sales will be lower than they might have been if the message had been communicated
more effectively through advertisement.
Activity 9.2 (page 125)
See table in Activity 9.5 answers for ways to communicate using the spoken word (oral).
Activity 9.3 (page 126)
See table in Activity 9.5 answers for ways to communicate using the written word.
Activity 9.4 (page 127)
See table in Activity 9.5 answers for ways to communicate using technology (electronic).
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Activity 9.5 (page 121)
1
Types of communication
Oral
Written
Electronic
Conversation
Email
Email
Meeting
Fax
Fax
Interview
Memorandum
Video-conferencing
Telephone
Text message
Text message
Video-conferencing Noticeboard
Letter
Report
Visual
Bar chart
Graph
Photograph
Diagram
Note: some methods could appear in more than one column.
2 Answers might offer different responses to suggestions below – accept any sensible responses, which
will depend on the justification for the method selected.
a i Report – detail needed.
ii Bar charts, graphs – visual presentation easier to understand, detail not required.
b Letter – make sure all employees receive.
c Diagram/drawings and report – visual to show what it might look like and a report to provide
explanation and cost information.
d Memo or email – written record that can be used as a further reminder.
e Telephone – quick and easy, provides the applicant with the opportunity to ask questions.
Activity 9.6 (page 129)
Purpose of activity is to encourage students to ‘justify’ their choice, i.e. discussion is not just about
identifying the method but for students to explain why they think it is the best method. Suggestions below
are not the only methods that might be appropriate.
1 First warning might be verbal, but there should be a written record that this has been given in case
future action needs to be taken against the employee.
2 Follow-up might be a telephone call or letter depending on the seriousness of the complaint.
3 Advertisement on a noticeboard. Only need to bring this to the attention of existing employees. Cheap
and everyone has the opportunity to read the advertisement.
4 Advertisement in a newspaper/magazine – covers a wide area of the market and cheaper than a
television advertisement, which is more expensive, but has greater visual impact.
5 Telephone call or email. Need to contact the supplier quickly to speed up delivery.
6 Telephone call. Can speak directly to the customer and agree how and when payment will be made.
Reminder letter – this might be ignored.
7 Meeting with employees as a group or individually. More personal and can be used to explain the
reasons for redundancy and why they have been selected. Should be followed up with a letter as a
written record of the decision to avoid misunderstanding.
8 Meeting. Everyone gets the same message at the same time – avoids rumour and misunderstanding.
9 Report or email with data attached. Need to have written evidence to avoid any misunderstanding.
10 Minutes of meeting. Must be a permanent written record of any discussions and decisions taken to avoid
misunderstanding and to make sure that appropriate actions are taken and who is responsible for them.
Test yourself (page 130)
1 Information that is passed between two or more people with feedback to confirm that it has been
received and understood.
2 Oral, written, electronic, visual.
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Case study (page 130)
a To avoid misunderstanding and prevent mistakes, to prevent rumours. Improves morale and
motivation, decision-making.
b Answer should consider how information is passed and whether there is opportunity for feedback.
Article suggests that communication is likely to be effective because there is a regular meeting for all
employees and an open session allowing employees to ask questions.
Activity 9.7 (page 132)
Receiver might not have a mobile phone with them, or might not check their messages regularly.
Factory might be noisy and a barrier to effective communication.
Letter might not be delivered or get lost in transit.
Employee might not pass the message on or might not pass on the whole message. Might not have
understood the message and pass on what they think it is.
5 Sender and receiver might not speak the same language. Might be technical problems with the phone
line that make it difficult to hear message.
1
2
3
4
Activity 9.8 (page 133)
1 Communication where there is a permanent record, e.g. letter, memorandum, email, etc.
2 Telephone, letter.
3 Have a meeting with Indira to give her a verbal warning – should be a written record of the meeting.
Send Indira a letter as a written warning about timekeeping.
4 Written communication to suppliers might not be received so might delay the supply of raw materials.
Without raw materials, Abdul might not be able to meet orders from customers and this could lose
him sales and reduce profits. Instructions to his employees might not be understood and they might
carry out tasks incorrectly. Customers might become unhappy with the quality of work and this might
damage the reputation of the business.
5 Customers receive goods on time and as ordered – improves the reputation of the business and
increases future sales and profits. Instructions are understood and correctly carried out – reduces waste
and improves quality. Raw materials are received on time. Any problems with employees are correctly
recorded and, if dismissal is necessary, then there is less chance of it being unfair and it prevents the
business from being sued.
Test yourself (page 133)
1 Wrong communication channel is used, noise, lack of trust between sender and receiver.
2 Answers will depend on barriers identified in the previous question. More careful choice of channel,
move to somewhere quieter, more regular meetings between sender and receiver to improve
relationships and encourage greater trust.
Exam-style practice questions (page 134)
1 a Information passed between two or more people with feedback provided by the receiver confirming
to the sender that the message has been received and understood. [2]
b Tables, charts, graphs, photographs, etc. [2]
c Noise, wrong medium used, language used too complex, communication channel too long, lack of
trust between managers and other employees, demotivated employees, etc. (1 mark per correct barrier
identified) [Total: 4]
d She could hold a meeting (1) with all part-time employees involved. This will give employees the
opportunity to ask questions (1), all employees will hear the same message at the same time (1).
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e
2 a
b
c
d
e
She could write a letter (1) to them all. If she uses appropriate language then all employees will
receive the same message (1); this provides a permanent record of what decision has been made and
communicated (1). [Total: 6]
Effective communication means that instructions from the manager to employees have been received
and understood (1); if messages are not received or understood then tasks will not be properly carried
out (1). This might mean that Golden Sands Hotel’s customers receive poor service (1), they will not
return and will tell other people about the poor service they received (1). This damages the hotel’s
reputation (1), it will lose future sales (1) and profits will fall (1). (Maximum: 5) Answer should decide
the importance of effective communication to the success of the hotel and justify this with reference to
points made (1). [Total: 6]
Use of technology to send messages, e.g. email, texts, fax and video-conferencing. [2]
Meeting, memo, telephone, email, etc. [2]
Text refers to use of electronic communication methods, e.g. using a fax machine (1). Advantage of
this method is that factory managers receive an exact copy of the original document from head office
(1). Telephone (1), message is communicated quickly and immediate feedback can be obtained from
the factory managers to check that the message is understood (1). [Total: 4]
Barriers to effective communication might include noise (1), wrong choice of media (1), mistrust
between sender and receiver (1), complex language (1). (Maximum 2 for identifying barriers to
effective communication) Noise – message not heard properly or important parts of the message not
heard (1), task not completed or incorrectly completed (1). Mistrust between sender and receiver –
receiver does not listen to the message properly, or does not pass the message on to other employees
(1), tasks not completed, causing late delivery of orders to customers (1), loss of sales/damage to
reputation (1). (Maximum 2 for each explanation) [Total: 6]
Advantages and disadvantages of each method should be identified. Letter – all employees get the
same information (1), permanent record so employees can look at the message several times to check
understanding (1). However, employees in the two factories might not receive their letters at the same
time (1), could result in rumour (1) or employees in one factory thinking they are less important
than employees in the other factory (1). Meeting – all employees hear the same message at the same
time (1), opportunity to ask questions (1). However, meeting might have to be during working hours
and this will reduce output (1). Can all employees from both factories get to the meeting venue (1)?
Company A might have to hire a venue for the meeting for 600 employees and this increases costs
(1). Answers should decide which method is ‘best’ and justify this with reference to points made (1).
[Total: 6]
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Chapter 9 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
12 Marketing mix: product and price
Answers to Coursebook activities
Activity 12.1 (page 166)
Vodafone – communications technology; Shell – energy and petrochemicals; HP – information
technologies, software and solutions; Kodak – imaging and photographic equipment, materials and
services; Nike – sports footwear, clothing and equipment; Hitachi – engineering and electronics; Fedex –
international courier services; Canon – imaging and optical products; Hyundai – motor vehicles,
engineering shipping containers and tourism; Tata – communications and information technology,
engineering, materials, services, energy, consumer products and chemicals.
Success of companies relates to their culture of new product development, strong brand development,
diversification and multinationalism.
Activity 12.2 (page 167)
Student’s own answer, depending on product chosen. Answers might consider: protection, keeping
product fresh, promotion, providing information about how to use the product, etc.
Activity 12.3 (page 169)
Student’s own answer, depending on products chosen.
Test yourself (page 170)
1 To remain competitive, enter new markets, increase sales and profits, replace a product going into
decline, survival.
2 Might be used to promote a product, protect a product, keep a product fresh, or make it stand out from
competitors’ products.
3 Introduction, growth, maturity, decline.
4 To keep a product in its maturity stage for as long as possible; maturity stage is the most profitable stage
of a product’s life cycle – cash earned from the sale of mature products helps to finance research and
development of new products and marketing activities needed to support products in the introduction
and early growth stages.
Activity 12.4 (page 171)
Student’s own answers, depending on market chosen.
1 Answer might consider: profits attract firms to the market, each firm offering something slightly
different, government controls prevent one firm from dominating a market.
2 Answer might consider issues such as quality, brand image, consumers’ tastes, convenience, etc.
Activity 12.5 (page 173)
$0.40 + ($0.40 × 30%) = $0.52
Activity 12.6 (page 173)
There is no single correct answer. Answers should justify the decision based on factors such as level of
competition in the market or brand image of the company. The following are suggestions but answers
might consider other pricing methods.
1 Competitive pricing probably slightly higher than less well-known brands.
2 Skimming price based on uniqueness of product, or penetration to try to enter a very competitive car market.
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3 Penetration pricing if the market is very competitive, but competitive pricing if it is a well-known pizza
provider.
4 Psychological pricing to convince consumers of luxury service but might need to use penetration
pricing if there are already luxury hotels in the same area.
5 Promotional pricing such as loss leader to attract customers back.
Activity 12.7 (pages 176–177)
1 People need petrol so demand is relatively price inelastic, i.e. percentage reduction in demand for petrol
is less than percentage increase in price.
2 Visits to a theme park are a luxury for consumers so a small increase in price causes a bigger decrease
in demand for tickets.
3 Innocent Pfupa will spend less money on theme park tickets because they are luxury and he needs
money to be able to buy petrol for his car so he can get to work. Petrol is a necessity for Innocent so he
will continue to buy it even though the price has increased.
Test yourself (page 177)
1 Important for the producer because the difference between the price and the cost of supplying the
product is profit. Important for consumers because it will determine if they are able to buy the product,
or how much or how often they will buy it – consumers have limited incomes and must decide how best
to spend these to satisfy their needs and wants.
2 Market skimming earns very high profits for business. High profits eventually attract competitors to
the market. Increase in competition causes prices to fall.
3 Some products are needed by consumers more than others, i.e. some products are necessities, others are
luxury. Price elasticity of demand for luxury products is higher than that for necessity goods.
Exam-style practice questions (page 178)
1 a Difference between revenue and total costs, or reward to entrepreneur for risking their investment in
a business. [2]
b $80 + ($80 × 300%) = $320 [2]
c Price of dresses, price of competitors’ dresses, consumer income, taste/fashion, quality etc. (1 mark
per relevant point) [Total: 4]
d Skimming (1), if the dresses are ‘designer’ then consumers may be willing to pay a high price for
exclusive products (1). However, it depends on how many of each dress Debbie has made because too
many will not make them exclusive (1). Cost-plus (1), the same method she uses for adult designer
dresses (1). However, the price charged might be too high for the market (1). [Total: 6]
e Good idea because it is another niche market that has few competitors and high profit margins (1),
this will increase Debbie’s overall sales and profits (1). She might be able to sell dresses to existing
customers if they have children (1). Developing new products for new markets spreads risk (1).
However, will she have time to design and market them (1)? Will it reduce the number of adult
dresses she can design and make (1)? [Total: 6]
2 a Consumer demand is very sensitive to changes in a product’s price, or the percentage change in
demand for a product is greater than the percentage change in its price. [2]
b Introduction, growth, maturity, decline. [2]
c Benefit: direct sales (1), Carmel keeps all profit (1). Limitation: small market (1), Carmel’s sales are
limited to the number of customers who visit the market (1). [Total: 4]
d Advantage: website can be used to promote her products because consumers can see photographs of
products (1). Can sell to a much wider market (1), customers could order and pay for goods through
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the website (1). Disadvantage: cost of designing the website (1), cost of keeping the website up to date
(1), risk of people ‘hacking’ into the site (1). [Total: 6]
e It is easy to work out the price of each item (1). Price might be higher than competitors’ (1) very
competitive market so she might lose sales as a result of this (1). Some items might be priced too high
and others too low if the same mark-up is used for all items (1). Is 50% enough to cover costs (1)?
Statement for or against 50% mark-up linked to points mentioned above (1). [Total: 6}
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Chapter 12 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
13 Marketing mix: place and promotion
Answers to Coursebook activities
Activity 13.1 (pages 180–181)
1 a Compton because it is very small and more likely to serve a local market.
b Will not have to share profits with middlemen.
c Probably not, because to reach a larger market Compton will have to sell through middlemen such as
retailers and if his business grows very large then he might need to use wholesalers too.
2 a Good4U Foods plc because it is a large manufacturer so needs to sell its breakfast cereals to the mass
market. Needs to use wholesalers to distribute products to retailers over a wide geographical area.
b Advantage: able to reach a wider market, which increases sales and profit. Disadvantage: earns less
profit per unit sold to the wholesaler.
3 a Sunshine Holidays.
b Direct sales and agent/retail outlet.
c Some consumers prefer to deal directly with holiday companies, while others prefer to buy through
an agent/retail outlet. Sunshine Holidays can increase its sales and profits by selling to these two
different market segments. Direct sales can help Sunshine Holidays to cover a wide geographical
area, especially if it uses e-commerce.
Test yourself (page 182)
1 Do not have to share profit with middlemen.
2 Using middlemen such as wholesalers and retailers increases the number of units sold because a wider
market is reached. Selling more of an item, even at a lower profit per unit, increases overall profits. This
is why supermarkets make much larger profits than local stores even though prices in supermarkets are
often much lower than in local stores.
Activity 13.2 (page 182)
Student’s own answer.
Activity 13.3 (page 183)
Student’s own answer.
Case study (page 184)
a Can upgrade flights, use Skywards miles to purchase other goods and services, access airport facilities
such as the business lounge.
b Benefit: encourages consumers to purchase services from Emirates and its partners so increases sales
and profits. Limitation: miles exchanged for goods and services at a discount – reduces profit margin
on these goods.
Case study (page 185)
Sponsorship is a form of below-the-line promotion. If the Jordanian football team does well then this
might increase sales of Pepsi in Jordan. Football often has wide television coverage so Pepsi’s name will be
mentioned and seen when matches are televised. Pepsi’s name and logo might be on players’ shirts.
Activity 13.4 (page 186)
1 An amount of money that has been set aside for financing marketing activities.
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2 Local newspaper, local radio.
3 All promotional activities have a cost to the business. Different methods of promotion have different
costs, e.g. television advertising is much more expensive than advertising in newspapers. Knowing how
much is available to spend affects the method(s) used by the marketing department.
4 IF has new owners who have improved facilities. They need to let consumers know this to try to
encourage people to use the new fitness studio. Promotion is needed to create awareness and persuade
people to use the IF fitness studio because the owners need to increase revenue to recover their
investment in buying the business and purchasing the latest fitness equipment.
5 Money-off vouchers will reduce the price of using the fitness studio – they might encourage people to
try IF and hopefully return if they have enjoyed their discounted visit. However, some of the people
who use the money-off voucher might be willing to pay the full price so IF will lose revenue. T-shirts
will be an additional cost to IF. However, if people are given a T-shirt when they first use the studio
then IF will have earned revenue from this to help pay for the cost of T-shirts. People might wear the
T-shirt at places outside of the studio and this will be ‘free’ advertising for the business. Answer should
select one of the options and justify which method of promotion will be more effective. Answer should
recognise that there is a need to balance cost of method against potential benefit.
Test yourself (page 186)
1 To increase awareness, remind consumers that the product is still available, persuade consumers to buy
the firm’s products rather than those of competitors, and to increase sales, revenue and profits.
2 Incentives are used to encourage short-term increases in sales or repeat purchases.
3 Compare sales before and after promotional activity; compare increase in revenue and profits with
amount spent on marketing activities; has it achieved objectives set, e.g. increased the market share by 5%?
Case study (page 188)
a Use of the internet and other technologies by businesses to market and sell goods and services to
customers.
b Advantage: increased market. OLOOK can now sell its goods throughout the world. This increases
the potential number of customers, which could increase sales and profits. Disadvantage: increased
competition. Businesses in other countries are able to use e-commerce to compete with OLOOK in
Brazil and other countries. Likely to reduce prices in the market and if competitors are more successful
than OLOOK in attracting customers then OLOOK’s sales, revenue and profits will be reduced.
Activity 13.5 (page 188)
1 100/20 × $100bn = $500bn
2 Money is not wasted trying to sell to consumers who are not interested in the product. Targeting to
consumers who may be interested in the product has a better chance of increasing sales – more effective
use of the marketing budget.
3 Wider market – internet is worldwide so firms are able to sell products to a much larger market. Has
the potential to increase sales, revenue and profits. Reduces business costs because if businesses sell
online then they do not need to buy or rent retail outlets or employ staff to work in them.
Test yourself (page 188)
1 Benefits include a larger market (worldwide) so there is the potential for more sales and higher profits.
E-commerce reduces business costs because everything can be done online so there is no need to have
the cost of running retail outlets. Costs include: setting up and maintaining the website; increased
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competition; might be more difficult for new businesses to establish themselves online; some consumers
like to see, touch and try products before they buy them. Answers should decide whether benefits
outweigh costs, or vice versa, and justify the choice.
Exam-style practice questions (page 189)
1 a Small segment of a total market. Consumers want specialised products. [2]
b $30 000 × 40% = $12 000 [2]
c Advertising, sales promotion, trade fair, personal selling, direct mail, etc. (1 mark per relevant
method) [Total: 4]
d Identifies market needs (1) – produce footwear that meets customer needs (1), increase sales and
profits (1). Identifies competitors (1) – collect information about competitors’ products (1), do what
competitors do best and improve on their products’ weaknesses (1). [Total: 6]
e New segment of market spreads risk, or opportunity to increase sales and profits, or niche market
so could be very profitable (1), current market very competitive so needs to expand product range to
ensure survival (1). However, is it able to produce safety footwear with current resource (1)? If not,
is it able to finance expansion (1)? Risk that entry into this market might not be successful and that
could threaten the survival of the business (1). Statement with justifying decisions to enter or not
based on points discussed, e.g. benefits outweigh costs (1). [Total: 6]
2 a Use of the internet and other technologies by businesses to market and sell goods and services to
customers. [2]
b Any appropriate methods such as cost-plus/mark-up method and competitive pricing. [2]
c Website (1), use website to show photographs and give other details of products to customers (1).
Social media networking site such as Facebook (1), advertise on other internet sites (1). [Total: 4]
d Wider market (1), wholesalers distribute RPC’s products to a wider market of retailers (1), increases
RPC’s sales (1). Promotion (1), wholesalers will often promote products to retailers to increase their
own sales (1), reduces RPC’s promotion costs (1). [Total: 6]
e Benefits of e-commerce and social media networking include access to a wider market (1), which is
important for RPC given the nature of its products, which are likely to appeal to consumers across
the world (1). Can help to enter new markets – increases sales and profits, or more convenient for
customers looking to buy this type of product or customers can order and pay for goods online. Or
cuts out middlemen, increases RPC’s profit margin (1). Drawbacks might include cost of maintaining
the website, or increased distribution costs as RPC must despatch goods to individual customers (1),
might need to employ more employees to handle e-commerce orders – increases costs (1). Statement
for or against RPC using e-commerce and social media networking based on points raised, e.g.
benefits outweigh costs (1). [Total: 6]
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Chapter 13 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
14 Marketing strategy
Answers to Coursebook activities
Activity 14.1 (pages 190–191)
Situation A: Product and promotion
Situation B: Product and place
Situation C: Product and promotion
Situation D: Promotion
There is no ‘right’ answer. The above suggestions need to be developed by students who should justify their
choice. Activity aims to encourage students to justify their opinions to others.
Activity 14.2 (page 191)
1 To find out what customers want from this type of game and what ‘typical’ consumers think about
Matrix. Research helps to produce better products.
2 Market is very competitive so price is an important factor influencing consumer demand. Cyber
Software must be well-known in the market, which is why she has not used price penetration.
3 Children are the final users of Matrix – though not necessarily the buyers (parents). They need to attract
the attention of children to the product so that they can persuade parents to buy it for them. A poster in
shops is a visual form of communication – to attract the attention of children and their parents.
4 Budget is too small for expensive advertising media.
5 Cyber Software products are already known to middlemen such as wholesalers and retailers – will be
prepared to buy a new product.
6 Main objective of marketing strategy is to achieve sales of Matrix. Monitoring sales will be a good
indicator of how well the marketing strategy is working. If sales are poor she can analyse the reason
and alter the marketing strategy accordingly.
Activity 14.3 (page 192)
There is no single correct answer. Answers should consider how all elements of the marketing mix can be
used to increase sales in particular price reductions and promotional activities.
Test yourself (page 192)
1 A plan to achieve marketing objectives with the given level of resources.
2 Without objectives it is not possible to focus on what has to be achieved or to measure the success or failure of
the marketing strategy. Objectives need to be specific, measurable, agreed, realistic and have time dimension.
Activity 14.4 (page 193)
1 Laws that control business activity.
2 Factors such as ingredients used in products, how products are described/advertised, product safety,
minimum quality standards.
3 Product safety – ingredients used and products produced must not be harmful to consumers who use
them. Advertising of products must not make claims about them that are untrue or deliberately mislead
consumers.
Test yourself (page 193)
1 They offer protection from exploitation, dangerous products, misleading advertisements.
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2 Student’s own answer, depending on country chosen. Answer likely to focus on product safety,
protection from misleading advertisements, other attempts by producers to exploit consumers.
Case study (page 198)
a When two businesses decide to work together on a business opportunity.
b Gerdau will be able to enter the new foreign market much more easily than if it tried to do this by itself.
Kalyani – opportunity to benefit from the expertise of a much larger steelmaker. Sales and profits of
both companies should increase as a result of the joint venture.
c Reputation of each company might be damaged by activities of the other, e.g. if Gerdau were to cause
pollution in India then Kalyani’s reputation may also be damaged.
Test yourself (page 198)
1 Wider market – increases potential sales and profits; sales in own country might be falling – new
market replaces lost sales in the domestic market.
2 Consumers in the foreign country may be loyal to existing products and reluctant to buy from foreign
business; government controls in the foreign country might make it difficult for foreign companies to
enter the market, e.g. import tariffs.
Exam-style practice questions (page 199)
1 a A target – something that Sublime wants to achieve, i.e. 2 million units of sales in the first year. [2]
b Advertising, sales promotion. (Note: two different advertising media, 1 mark only.) [2]
c Competitive pricing (1), setting price similar to that of other products already on market (1).
Penetration pricing (1), setting the price below other similar products to encourage consumers to try
the product and build product loyalty (1). [Total: 4]
d Replace the products in decline (1), all products have a life cycle (1), without new products Sublime
will not survive (1). To maintain or increase market share/sales/profit (1), without new products,
market share/sales/profit will fall (1), could lose brand loyalty (1). [Total: 6]
e Product is important because if it does not meet consumer needs then it will not sell (1), no sales
means no revenue or profit (1). However, a good product might be priced too high (1), especially
important in highly competitive markets like the chocolate market, which Sublime is in (1). Answers
should recognise the importance of other elements of the marketing mix. Although product and
price are important, they would not sell a product if consumers do not know that the product exists –
promotion (1), or if consumers cannot find the product to buy it – place (1). [Total: 6]
2 a Incentives to encourage short-term increases in sales or repeat purchases. [2]
b Market research, marketing objectives, marketing budget, marketing mix, control and review. [2]
c Marketing budget is a fixed amount of money (1), determines what type of marketing activities are
possible (1). Without a budget, marketing activities might be wasted (1), a budget can be used to
measure the effectiveness of marketing activities, i.e. have the marketing objectives been achieved (1)?
[Total: 4]
d Money-off voucher (1), could reduce the amount customers have to pay to below that of competitors
(1), if they like the food they may return and be prepared to pay the slightly higher price (1). Buy-oneget-one-free (1), customers pay for one meal but get a second free (1), encourages short-term increase
in sales but hopefully will help Sung Song to build customer loyalty (1). [Total: 6]
e Marketing strategy is a clear plan for Sung Song’s business, or sets clear objectives for the business to
achieve (1), identifies resources for marketing and promotion of business (1). Strategy will give Sung
Song clear direction and a measure of how well the business is doing (1). Strategy will use market
research information to help decide on the best marketing mix (1). Should help Sung Song to increase
sales, but actions of competitors (1) and other factors outside of Sung Song’s control might prevent
him from achieving increase in sales (1). [Total: 6]
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Chapter 14 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
10 Marketing, competition and
the customer
Answers to Coursebook activities
Case study (page 140)
a Taking raw materials and converting them into goods and services that can then be sold to customers.
b Customer loyalty is when customers repeat purchase the business’s products. It is important to
maintain sales and profits. Without a loyal customer base the business would not be able to survive.
When markets are very competitive, like the mobile (cell) phone market, it is important for businesses
to have loyal customers who will continue to buy their products rather than competitors’ products.
Also easier to introduce new products into the market if there is strong customer loyalty and sometimes
possible to charge slightly higher prices than those of competitors.
c Important for a firm to meet the needs and wants of customers better than competitors do as this
will increase sales and profits and customers will become loyal to that firm’s products. Carrying out
research to identify what it is customers want from their mobile phone is a very good way of identifying
customer wants and, once these have been identified, the firm can produce products to meet specific
wants. If one firm does this better than competitors then customers will buy its product rather than
those of competitors. Involving customers in the design stage is also a very good way for a mobile
phone company to make sure that it is providing exactly what customers want.
Test yourself (page 140)
1 Identification and satisfaction of customer needs and wants at a profit.
2 Helps to maintain and improve sales and profits. Easier to launch new products into a market when the
firm has loyal customers who trust its products.
Activity 10.1 (page 142)
Student’s own answer.
Activity 10.2 (page 143)
Answers should identify and develop the following factors: product quality, quality of service, fashion,
consumer income, competitor actions.
Activity 10.3 (page 143)
Student’s own answer, as depends on country chosen.
Test yourself (page 145)
1 Changes in fashion, consumer income, price of the product and price of competitor products,
advertising and other promotional activities.
2 Government intervention in markets, e.g. legal controls to prevent one firm from dominating the market;
increased free trade – easier for companies in one country to sell goods in other countries; e-commerce –
many businesses can now sell their product over the internet to customers across the world.
3 To survive. If a business does not respond to increase in competition in its markets then it will lose
sales and eventually will not be selling enough goods to earn profit.
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Chapter 10 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Case study (page 147)
Because it is a specialised type of tourism. Consumers will pay a high price for this type of ‘holiday’. There
is less competition in this market than there is in the general tourism market.
Case study (page 147)
Because it is a very large market with millions of potential consumers.
Test yourself (page 148)
1 Niche market – a small market selling specialised goods or services to a few consumers who are
often prepared to pay a higher price to have a product that meets their specific needs. Mass market –
a market where there is a very large number of consumers who purchase similar products; more
competitive than a niche market.
2 Little scope for economies of scale; high profits might attract competition – eventually reduce prices
and profits; small fall in consumer income can often significantly reduce sales in niche markets.
3 Requires large-scale production so firms can often benefit from economies of scale; potential for high
levels of sales and profits; small decreases in consumer income have less effect on sales and profits of
firms in a mass market.
Case study (page 149)
a Uses geographic segmentation to identify different needs of consumers in different countries. Then
produces different products for consumers in these countries, such as Nigeria and Russia, which helps
to increase sales and profits.
b Changes its product to meet the specific needs of customers in different countries, e.g. jollof rice in
Nigeria, ugali in Kenya. Changes advertising in different countries to reflect local customs and culture.
c Because it identifies the needs of customers in each country it is able to make sure that products offered
in restaurants are what consumers want. This will increase KFC’s sales and profits in each of these
countries and KFC’s overall profits will be higher. Also uses geographic segmentation to make sure that
advertising and restaurants reflect the culture of each country.
d Carrying out market research for each different country is more expensive. Producing different
products for each country and designing different advertisements and restaurants is more expensive.
Will lose some economies of scale.
Activity 10.4 (page 151)
There is no ‘correct’ answer for each of the contexts provided. The activity is aimed at encouraging
students to apply their knowledge of market segmentation in a variety of different contexts and to then
justify which method they think is best and why.
Test yourself (page 151)
1 Better meet customer needs – increases sales and profits; might identify a niche market; target
promotional activity, which reduces possible waste of resources.
2 Geographic segmentation – dividing consumers in market by geographic area; demographic
segmentation – dividing consumers in market by factors such as age, gender, income, ethnic
background, social class; psychographic segmentation – dividing consumers in market by lifestyles,
personalities, attitudes.
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Chapter 10 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Exam-style practice questions (page 152)
1 a The group of customers a business sells its goods to.
b Higher prices, limited range of spectacles. [2]
c Price (1), consumers comparing the price of spectacles offered by Magda with those of her
competitors, choosing to buy competitors’ spectacles because cheaper (1). Fashion (1), many
consumers, especially the young, want to buy fashionable spectacles (1). [Total: 4]
d More competition (1) – Magda faces competition from suppliers of spectacles who sell their goods
over the internet (1). The more competitors, the lower the price (1). Magda sells fewer pairs of
spectacles because of the greater number of competitors.
Lower profit margin (1) – the greater competition from e-commerce suppliers of spectacles means
that Magda has lower sales and profits (1). In order to compete, Magda must reduce her prices and
this will reduce the profit per pair of spectacles (1).
e Magda could lower the prices of her spectacles to a level similar to that of competitors (1). Her
customers will buy from Magda rather than having to wait for spectacles to be delivered from
e-commerce suppliers (1). Customers will also buy from Magda because they will be able to see the
different spectacles and try them on to see which are best for them (1). Magda could increase her
range of spectacles (1) including spectacles that meet the fashion needs of some customers. This will
increase Magda’s inventory costs (1) but will increase sales as long as the price is also competitive (1).
[Total: 6]
2 a Small part of the total market (1) where consumers are looking for a specialised product (1) [Total: 2]
b Geographic, demographic or psychographic, or income, gender, lifestyle, location, etc. [2]
c Can achieve economies of scale (1), reduced average cost/cost per unit (1). Larger number of potential
customers (1), increased sales and profits (1). [Total: 4]
d Change in fashion (1), if GG does not produce fashion clothing wanted by consumers (1) then sales
and profits will fall (1). Change in the structure of the population (1), increase in the birth rate will
eventually increase demand for fashion clothing (1), this will increase GG’s sales and profits (1).
[Total: 6]
e GG earns profit from both segments so increases overall profit (1). If it only operated in a niche
market it might not earn enough profit to make it worthwhile (1). Niche markets usually have
high profit margins and less competition (1). Fall in sales and profits in the mass market might be
offset by sales and profits in the niche market (1). More expensive to operate in different segments
because advertising and other promotion are often different (1). Any problem with GG’s products in
the mass market might affect sales in the niche market and vice versa (1). (Maximum: 5) Answers
should include a statement for or against operating in both markets by weighing up points made (1).
[Total: 6]
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Chapter 10 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
11 Market research
Answers to Coursebook activities
Case study (page 158)
a Primary research – collecting data first-hand and for the first time for a specific purpose. Secondary
data – using data that has already been collected, often for a different purpose.
b Advantage: quicker and cheaper than primary research. Disadvantage: uses data that may be out of date
or less accurate because it already exists and was collected for a different purpose.
c To gather qualitative data that provides Kellogg’s with information about what consumers think about
its products.
d Can test a product on a small section of the market and identify any problems with the product, which
it can change before launching on to the whole market; cost of any problems is limited to the test
market so this reduces Kellogg’s’ costs.
Test yourself (page 160)
1 Because they will produce products that consumers want and this will increase their sales and profits.
Can be market-orientated by carrying out market research to find out what consumers want from icecream products.
2 Qualitative market research collects information about buyer behaviour and consumer opinions about
products. Methods of qualitative research include focus groups and observation. Quantitative market
research collects numerical data, which can be presented in different formats such as tables, charts and
graphs. Data can be analysed using statistical techniques.
3 Data might have been collected using secondary research – could be out of date; secondary research
uses data that has been collected for another reason so it might not be accurate; the sample used in
primary research might be too small – could produce unreliable results.
Activity 11.1 (page 162)
Representative number selected from the population used in market research.
Personal interviews, postal survey, telephone survey, focus group.
Candle A.
37/50 × 100% = 74%
Carrying out market research to find out from consumers what they are looking for in a product.
Joseph asked 50 people what they thought of three new candle products he was thinking of adding to
his product range.
6 Pie chart – data is shown as segments of a circle; tables – responses shown as numerical values.
7 Research tells Joseph what consumers think about three candles he is thinking of introducing to
market. Candle A was not popular with the sample so Joseph should not waste money producing
Candle A as sales are likely to be low. Candle B was very popular with the sample so it looks as if
Joseph should add this product to his product range. However, market research is less helpful to Joseph
when making any decision about Candle C because yes and no responses are very similar. Also, the
sample that Joseph used was from his existing customers and these might not be representative of the
whole population so Joseph cannot be sure that their views about the candles reflect the views of all
consumers who buy candles.
1
2
3
4
5
© Cambridge University Press 2018
Chapter 11 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Test yourself (page 162)
1 Visual impact – easier to understand for people who do not understand numerical data.
2 Circle would be divided into too many segments – difficult to compare data.
Exam-style practice questions (page 163)
1 a Process of collecting, recording and analysing data (1) about customers, competitors and market for
product (1). [Total: 2]
b Tables, bar charts, pie charts, graphs, pictograms. [2]
c Telephone survey (1), she could call people at home and use a questionnaire to collect the data she
needs (1). Focus group (1), she could get a group of mothers together to discuss her ideas for a nursery
(1). [Total: 4]
d Identifies what customers want (1), better able to meet customers’ needs (1), will help to increase sales
(1). Identifies how much customers are willing to pay (1), can work out how many customers she
needs to break even (1), and if the business is going to be profitable or not before she decides to go
ahead with her plans (1). [Total: 6]
e Answers should consider advantages/disadvantages of primary and secondary research. For example,
primary research is collected for the specific purpose of Bibi’s nursery plans (1) so is more accurate
than secondary data, which will have been collected for other purposes (1). However, primary
research is more costly (1) and takes longer to collect the data (1). Statement about which is best and
why, linked to the advantages and disadvantages discussed (2). [Total: 6]
2 a Group of consumers who discuss products to provide qualitative market research data. [2]
b Simple random, systematic random, stratified or quota sampling. [2]
c Cheaper (1), population is usually very large and would be too expensive to include everyone in the
survey (1). Quicker (1), would take too long to have every member of the population take part in
the survey (1). [Total: 4]
d Mistakes are less costly (1), only need to produce relatively small output for the test market (1), if
there is a problem then money has not been wasted mass producing the product (1). Can identify
changes needed (1), test market might reveal changes that should be made to improve the product (1)
before it is launched into the mass market (1). [Total: 6]
e Quantitative market research collects numerical data, which can be further analysed (1), easier to
interpret and compare quantitative data (1). Qualitative market research collects consumers’ opinions
and attitudes towards the product (1), can be time-consuming to collect (1), not possible to use
statistical analysis on results (1). Businesses often use a combination of methods (1). (Maximum: 5)
Statement as to which is best for Company Y. Might be qualitative because a focus group is able to
see, smell and even use the product and comment on these (1). [Total: 6]
© Cambridge University Press 2018
Chapter 11 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
15 Production of goods and services
Answers to Coursebook activities
Activity 15.1 (page 204)
Student’s own answer, based on Figure 15.1 in the Coursebook (page 203).
Activity 15.2 (page 204)
1 Skill level – training; motivation – financial and non-financial incentives; automation/technology –
obtain latest technology, how might this be financed? management decisions – training, recruit better
managers, give managers more time, e.g. delegate less-important tasks.
2 More finance available for training and purchase of technology; economies of scale, e.g. technical
economies and managerial economies.
Activity 15.3 (page 207)
1 Reduction in the cost of waste and possible reduction in employment costs.
2 Yes, if the introduction of JIT is not carefully planned, there is the risk of not having raw materials to
complete customers’ orders on time. Late delivery of orders risks damaging PPP’s reputation.
3 Computer technology – ensures immediate and effective communication with suppliers. Effective
communication between PPP and suppliers is important because it needs to be able to order raw
material supplies instantly and be sure that suppliers receive orders and know when materials must be
delivered.
4 Warehouse employees might lose their jobs because they will no longer be holding inventories.
Test yourself (page 208)
1 Process of converting inputs into saleable outputs.
2 Goods are physical items that you can see and touch, e.g. furniture, mobile phones. Services cannot be
seen or touched, e.g. banking, legal advice.
3 Improve employee motivation, improve automation/technology, better quality management.
4 Reduce waste to lower costs per unit and increase competitiveness.
Activity 15.4 (page 211)
1 Spreads risk, increases sales, revenue and profitability.
2 Niche market, which often has high profit margins and less competition.
3 Large fashion retailer – flow production; small independent clothing retailers – batch production;
bespoke wedding dresses – job production.
Test yourself (page 211)
1 Single unit of output versus mass production; highly skilled labour versus unskilled labour.
2 Size of the market/demand; product being produced; variety of goods required by consumers; costs of
production.
Case study (page 213)
a 7106 – 4490 = 2616
b (6723 − 4127)/4127 × 100% = 62.9%
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Chapter 15 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
c Inventory of raw materials and components needed for production process or part-finished goods or
finished goods awaiting sale.
d Use of computers in controlling the manufacturing process, e.g. robotics.
e Advantage: designs can be changed quickly and easily – saves time and cost. Disadvantage: cost of
technology.
f Just-in-time inventory management reduces the costs of holding inventories – will reduce car
manufacturers’ costs and reduce waste. Need to invest in technology to ensure effective communication
with suppliers. Must have reliable suppliers who will guarantee delivery of raw materials and components
when needed to prevent delays to the production process. Should introduce JIT if benefits outweigh costs.
Test yourself (page 213)
1 Use of computers to design products.
2 Advantages: quicker, more accurate, increases productivity; disadvantages: expensive, might go out of
date quickly and need replacing, maintenance costs.
Exam-style practice questions (page 214)
1 a Products move continuously along a production line. [2]
b 8000/25 = 320 units per week [2]
c Advantage: economies of scale (1), materials can be purchased in large quantities attracting bulkbuying discounts (1); automation/technology can be used to benefit from technical economies (1).
Disadvantages: machinery breakdown (1), if one part of the production line has a problem it causes
the whole production process to stop (1). [Total: 4]
d Poorly motivated employees (1), less interested in working hard/high absenteeism (1), receive a lower
wage than employees in Company A (1). Training (1), employees are not properly trained / less well
trained than employees in Company A (1), employees who are better trained have more skill and
work more productively (1), producing better-quality products with less waste (1). [Total: 6]
e New technology should improve productivity (1), which reduces costs per unit (1), increases profit
margins or enables Company B to reduce price and be more competitive (1). New technology might
replace some employees (1), which reduces costs (1). New technology is expensive (1), is Company
B able to finance the purchase (1)? Employees will need training, an additional cost (1). Employees
might be demotivated because of fear of job losses or if the work becomes boring (1). (Maximum of 5
marks) Statement for or against based on the points discussed (1). [Total:6]
2 a Inventory of raw materials, part-finished goods or finished goods. [2]
b Land, labour, capital. [2]
c Production completed one stage at a time (1), each batch of goods moves from one stage of the
production process to the next until completion (1). Specialised machinery (1). Each stage of the
process requires specialised machinery that is only used for that stage (1). [Total: 4]
d Reduces inventory costs (1), just-in-time inventory management would mean that Nice ‘n’ Spicy
would not hold raw materials inventories (1), which reduces warehouse costs (1). Fewer employees
needed (1), no inventories means that warehouse employees at Nice ‘n’ Spicy would be redundant (1),
which reduces the firm’s labour costs (1). [Total: 6]
e Arguments for: increases sales, revenue and profits (1); could lead to bigger orders after 12 months
(1); increases the geographical spread of Nice ‘n’ Spicy’s products, which improves brand image
(1). Arguments against: requires a large financial investment in a flow production line (1), can they
afford to finance investment (1)?; if the supermarket does not place future orders, the production line
becomes obsolete (1). Whether they accept or not might depend on how confident the owners are
that the supermarket will place further orders and on the attitude of the owners to risk. (Maximum
of 5 marks) Statement based on these factors and discussion of arguments for and against accepting
the order (1). [Total: 6]
© Cambridge University Press 2018
Chapter 15 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
16 Costs, scale of production and
break‑even analysis
Answers to Coursebook activities
Activity 16.1 (page 216)
Factory rent
Leather used in making some shoes
Electricity used to power machinery
Machinery maintenance
Advertising
Production workers’ wages
Operations manager’s salary
Delivery of finished goods to customers
Safety equipment for production
employees
Fixed
(✔)
Variable
✔
✔
✔
✔
✔
✔
✔
✔
Activity 16.2 (page 217)
1
Output
Fixed
Variable costs
Total
(pairs of shoes) costs $3 per pair of shoes costs
$
$
$
0
2 000
0
2 000
1 000
2 000
3 000
5 000
2 000
2 000
6 000
8 000
3 000
2 000
9 000
11 000
4 000
2 000
12 000
14 000
2 Student’s own answer.
Activity 16.3 (page 217)
1
Output Total Costs Average Costs
$
$
1 000
5 000
5
2 000
8 000
8
3 000
11 000
3.7
4 000
14 000
3.5
5 000
17 000
3.4
6 000
20 000
3.3
2 Fixed cost spread over increasingly larger levels of output so fixed cost per unit gets smaller as output
increases.
© Cambridge University Press 2018
Chapter 16 Answers to Coursebook activities
1
Cambridge IGCSE and O Level Business Studies
Test yourself (page 218)
1 Fixed costs do not change with output, e.g. it costs as much to advertise one unit of output for sale as
it does 10 000 units. Variable costs change as output changes, e.g. if output doubles, average costs also
double. Example of variable costs is raw material.
2 Cost of producing one unit of output.
3 Total cost/output
Activity 16.4 (page 219)
1 Costs which do not change with output. If the plane is empty or full, the fixed costs remain at $14 000.
2 1925/25 = 77
3 a 116 × $10 = $1160
b $14 000 + $1160 = $15 160
c $15 160/116 = $130.69
4 Revenue per passenger is $160, which is less than the average cost of $191.82. Some flights might make
a loss but others are profitable. If EasyAir cancelled flights then it might still have to pay fixed costs of
$14 000.
Activity 16.5 (page 220)
Technical economies – able to buy more machinery and better machinery for the new factory that will
produce greater output in the same amount of time as the machinery in his current factory; Bulk-buying
(purchasing economies) – buy more raw materials from suppliers so might expect to receive discount for
buying in larger quantities; Managerial economies – as the business is expanding he might employ more
managers to improve decision-making.
Test yourself (page 222)
1 Economies of scale reduce cost per unit. Help firms to increase profit margins or reduce prices to
become more competitive.
2 If a business grows too big it might have problems managing its workforce effectively, or
communication between managers and employees might become less effective. Diseconomies of scale
will increase unit costs.
Case study (page 222)
a Bulk-buying (purchasing economies) – able to buy the products it sells in its supermarkets from
suppliers in much larger quantities. Might expect to receive a discount for buying larger quantities;
Managerial economies – can employ more managers and attract better-quality managers. Will improve
efficiency and effectiveness of the business; Financial economies – likely to find it easier to borrow
money from banks and other lenders to finance expansion plans. Often be able to borrow large sums at
lower rates of interest than small businesses who might only be borrowing small amounts of capital.
b Provide consumers with a wider choice of products in their supermarkets. If it achieves economies of
scale, it will pass some of the reduced costs to consumers in the form of lower prices.
c If Nakumatt becomes too large then it might become difficult to manage effectively. Decision-making might
be slower so it might not be able to respond quickly to changes in markets. Communication between head
office and individual supermarkets might be less effective – tasks might be completed incorrectly or not
completed at all.
Activity 16.6 (page 225)
Answers are given in Coursebook, following each stage of activity.
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Chapter 16 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Activity 16.7 (page 226)
1
2
3
4
Total costs for output level of 600 pizzas = $1200
Revenue at a sales level of 600 pizzas = $1500
Molly’s profit at a sales level of 600 pizzas = $300
Molly’s profit if only sells 500 pizzas = $150
Activity 16.8 (page 226)
1 Straight line drawn from 0 to $1600
2 600
3 If Molly sells 800 pizzas per week, profit = $200
Test yourself (page 226)
1 Revenue = Total costs. Output where a business does not make a profit or a loss.
2 To calculate the level of profit that will be earned for any given level of sales. To know how a change in
costs (or revenue) will affect break-even.
3 Benefit: can easily show the effect on break-even and profit of a change in revenue or costs. Limitation:
assumes all output is sold, i.e. there are no inventory costs.
Activity 16.9 (page 226)
1 Fixed costs, e.g. manager’s salary, do not change with the number of guests. Variable costs change as
the number of guests rises and falls, e.g. costs of providing food for breakfast for each guest, or laundry
costs for washing linen used by each guest.
2 210 × 50 = 10 500 rooms
3 10 500 × 60% = 6300 rooms
4 Owners can calculate: how many rooms they need to sell in order to cover all costs; how much profit
they will make for a given level of occupancy; the effect on break-even and profit of any changes to
revenue (room rates) and costs. However, break-even assumes that all rooms are sold for the same price,
which might not be the case, e.g. might reduce the price of rooms during less busy periods. Some costs
are neither fixed nor variable – cannot be shown on a break-even chart. Break-even might provide a
useful guide about the relationship between revenue and costs, but it does not give 100% reliable data.
Exam-style practice questions (pages 227–228)
1 a A = Revenue; B = Total costs. [2]
b (200/4000) × 100% = 5% [2]
c Fixed costs (1), costs that do not change with the production of Product X, e.g. factory rent (1).
Variable costs (1), costs that change in direct proportion with the production of Product X, e.g. raw
materials (1). [Total: 4]
d Benefit: identify break-even point / output (1), how many units of Product X must sell to cover all
its costs (1), can compare the break-even output with current or forecast sales to measure profit (1).
Limitation: assumes all output of product X is sold (1), inventory costs are ignored (1), if inventory
costs are ignored and there are these costs then break-even and profit calculations are misleading (1).
[Total: 6]
e Can be used in break-even charts (1), might help when setting price (1), can see which costs must
be paid even if they do not sell any output (1), can be used in making decisions about whether or
not to continue producing a product (1). (Maximum of 4 marks for usefulness of cost information.)
However, not all costs can be classified into fixed or variable (1), or even fixed costs will change above
certain output levels (1). Statement about usefulness based on points made (1). [Total: 6]
© Cambridge University Press 2018
Chapter 16 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
2 a Point where a business is not making either a profit or a loss. Revenue = Total costs. [2]
b 18 000 + (15% × 18 000) = 20 700 units
c Fixed costs do not change with output/sales (1), SE’s fixed costs might include the accountant’s salary
(1). Variable costs do change as output changes (1), SE’s variable costs will include the raw materials it
uses to manufacture solar panels (1). [Total: 4]
d Purchasing economies (1), increase in sales will have needed SE to buy more raw materials to increase
output of solar panels (1), might have been able to negotiate bulk-buying discounts from suppliers
of raw materials (1), this reduces unit costs (1). Technical economies (1), expansion of solar panel
production might have been achieved through use of more technology/automation (1), machines can
produce a greater output than labour (1), a more capital-intensive production process increases SE’s
productivity (1). [Total: 6]
e Need to discuss the benefits and limitations of break-even charts. SE management can calculate
how many solar panels they need to sell in order to cover all of their costs (1). They can calculate
how much profit they will make for a given level of output/sales (1). They can calculate the effect on
break‑even and profit of any changes to the selling price and costs (1). However, break-even assumes
that SE sells all of its output (1). Inventories and associated costs are ignored (1). Break-even assumes
that all costs can be classified into fixed and variable (1). However, some costs are neither fixed nor
variable and these cannot be shown on a break-even chart (1). (Maximum of 4 marks for identifying
and explaining benefits and limitations of break-even charts.) Supported statement as to whether the
student agrees or disagrees with the managing director’s view of break-even – might provide a useful
guide to the owners about the relationship between revenue and costs, but it does not give 100%
reliable data (2). [Total: 6]
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Chapter 16 Answers to Coursebook activities
4
Cambridge IGCSE and O Level Business Studies
17 Achieving quality production
Answers to Coursebook activities
Case study (page 231)
a It does not know how many cars and which cars have the fault. Cannot risk not recalling a car that has
the fault because this could damage the company’s reputation and affect future sales.
b Quality is extremely important to Volkswagen. In a very competitive market Volkswagen uses factors
other than price to compete with other car manufacturers, i.e. quality. If it has a reputation for
producing high-quality cars then it will also be able to charge a higher price than its competitors.
Test yourself (page 231)
1 Providing a good/service that meets the needs and wants of consumers.
2 Consumers expect a certain level of quality in the products they buy and often pay more for better
quality. If the quality of a product does not meet the required consumer standard then the customer
will complain, or return the product. If this happens too many times, the reputation of the firm is
damaged and consumers will no longer buy its products. In very competitive markets, consumers know
that if one firm cannot provide them with a quality product, others will.
3 Increases sales/profits, improves brand image, increases customer loyalty, reduces customer complaints
and returns, reduces waste, which reduces costs, lengthens product life cycles, means that wholesalers
and retailers will stock the product and the business can often charge a premium price.
Case study (page 233)
a System of setting agreed quality standards for every stage of production.
b Employees – responsible for making the product and if well-trained and well-motivated likely to produce
quality products. Suppliers – quality of raw materials and components used in production affect the quality
of the finished product. If raw materials or components are poor quality then the finished product will also
be poor quality.
c Premium price – Toyota can charge a higher price for cars than competitors can for similar cars.
Customer loyalty – customers who buy a Toyota car are likely to buy another one when replacing their
car if happy with the quality; helps Toyota to maintain market share. Reduces costs – fewer customer
complaints or returns and less waste reduces costs and increases profits.
d Car market worldwide is very competitive. If Toyota is to maintain or increase its market share it must
satisfy the needs and wants of car buyers. If costs of quality are outweighed by benefits of producing
quality products, e.g. customer loyalty, reduced waste/customer complaints, premium pricing, etc. then
Toyota’s approach to quality and quality assurance is worthwhile.
Test yourself (page 233)
1 Checking the quality of goods through inspection.
2 Quality of the raw materials, components, labour force and capital machinery used directly influences
the quality of the finished product. If any inputs are poor quality it will affect the quality of the finished
product.
Exam-style practice questions (page 234)
1 a Minimum standard of production or service acceptable to consumers. [2]
b 2150 × 2% = 43 [2]
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Chapter 17 Answers to Coursebook activities
1
Cambridge IGCSE and O Level Business Studies
c Checking at the end of the production process (1), fault might have been made at the beginning of
the production process so resources were wasted completing a faulty product (1). Inspection boring
(1), task of inspection is repetitive and inspectors might become demotivated and take less care in
checking the quality of Component Y (1). [Total: 4]
d Introduce quality assurance (1), – raw materials and other resources used in the production process
must meet required standards (1), quality standards to be agreed for every stage of production and
employees responsible for meeting these (1). Introduce CAD and CAM (1) – use computers to design
and control manufacture of components such as Component Y (1), this improves design quality and
CAM reduces human error in the production process (1). [Total: 6]
e The percentage of Component Y found to be defective at the end of the production process increased
from 0.5% to 2% showing that production of these components is not as good in 2012 as it was in 2011
(1). Management should be concerned about this trend because it shows that quality has fallen (1). Or,
the number of Component Y returned from customers has fallen from 4 to 2, even though Zebtech
produced more of these in 2012 than in 2011 (1). Management should be pleased that the inspection
process has improved (1). However, Component Y is used in heart surgery and even one faulty
component getting through the inspection process is not good and could damage Zebtech’s reputation
(1). (Maximum 4 marks for use of data) Management should be concerned because hospitals will
look for a more reliable supplier of the component/ might not buy any other medical equipment from
Zebtech (1) if they are worried about quality. This will decrease Zebtech’s sales and profits (1). [Total: 6]
2 a Providing goods or services that meet the needs and wants of consumers.
b 46 000 × 1.5% = 690
c Improves reputation / brand image, increases sales/profits, can charge higher prices, reduces waste,
reduces customer complaints, easier to introduce new products to market. (1 mark per relevant
reason) [Total: 4]
d Quality of inputs (1), poor-quality raw materials / demotivated employees / problems with
machinery (1), if the quality of any inputs decreases it will affect the quality of PP’s products
(1). Inspection process is boring (1), quality inspectors become demotivated because the work is
repetitive (1), demotivated inspectors are less careful when checking products and allow faulty
products to be despatched to customers (1). [Total: 6]
e Present system not working as well as previously (1), could look at improving the present system (1).
Quality assurance ensures that inputs into the production process are of required quality (1),
minimum standard is set for each stage of production (1), employees are made responsible for the
quality of their work (1). (Maximum 4 marks) Cost of introducing quality assurance, e.g. setting
standards, training employees, improving machinery, etc. (1), is this outweighed by reduction in
faulty goods and customer complaints (1)? [Total: 6]
© Cambridge University Press 2018
Chapter 17 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
18 Location decisions
Answers to Coursebook activities
Activity 18.1 (page 239)
Student’s own answer.
Activity 18.2 (pages 239–240)
Student’s own answer.
Case study (page 240)
a Proven manufacturing base, skilled labour, reasonable costs of labour, good management availability,
excellent communication links, strategic positioning close to potential markets.
b Planning restrictions on location near to housing and pollution controls.
c Identified a gap in the local market for its products, which has increased sales and profits potential.
Test yourself (page 240)
1 Cost of land, availability of land for future expansion, legal controls, availability of suitable/skilled
employees and local wage rates.
2 Cheaper labour – if wage rates are lower in another country it could reduce business costs and help
make the business more competitive. Close to markets – if the other country is closer to the market for
the firm’s products it will reduce transport costs.
3 Planning restrictions might prevent location in a particular area; pollution controls might make it too
expensive to locate in another country; controls to prevent discrimination in employment of workers;
minimum wage laws may increase costs of production.
4 Employees may lose their jobs – redundancy; might have to move themselves and their families to the
new location to remain in employment.
5 Consumers’ demand for the product, e.g. a hairdresser will locate in an area with good-sized local
population.
6 Costs of land, buildings, workforce, and transporting raw materials and finished goods are important
influences on price. Price influences demand/sales. Cost is a major influence on location as virtually
every aspect of the decision has cost. However, being close to the market is more important than cost
for some businesses, especially those that provide a personal service.
7 How: offering grants, low rent for land/factories, tax breaks for new businesses. Why: to provide
employment, earn foreign exchange, improve living standards, earn tax revenues.
Exam-style practice questions (page 241)
1 a A business that is owned (1) and controlled/run by one owner (1). [Total: 2]
b Unlimited liability, limited access to finance for expansion, no-one to share problems/decisionmaking with. [2]
c To have total control, to make all decsions, to take all profits, to be her own boss, so she can decide how
long/how often to work, to have a business that uses her skills. (1 mark for relevant point) [Total: 4]
d Size of potential market (1) and how close the salon will be to the market (1). Service such as
hairdressing needs to be close to customers because people are unlikely to travel long distances to
the hairdresser (1). How many competitors are close by (1), or what services do they provide and how
much do they charge (1)? The more competitors who are already established in the market, the more
difficult it will be for Aisha to enter the market (1). [Total: 6]
© Cambridge University Press 2018
Chapter 18 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
e Location needs to be close to the market (1), needs to be demand for Aisha’s services (1), number
of competitors will affect Aisha’s entry into the market (1), she might need to employ other stylists
so needs to be located in an area where there are people with these skills (1), or in an area where
employees are able to travel to easily (1). (Maximum 4 marks for location reasons) Although the
location is important, other factors will affect the success of the business – pricing, promotion,
quality of service offered by Aisha (1). Statement that justifies view based on analysis of the location
decision (1). [Total: 6]
2 a Appointed or elected members of the Board of Directors of a company – responsible for determining
and implementing the company’s policy. Some directors might also have a management role, e.g.
marketing director. [2]
b Can sell shares to the general public, has limited liability, must publish its financial accounts. [2]
c Pollution controls (1), laws preventing TE from causing noise or air pollution (1). Planning
restrictions (1), not able to locate the factory close to houses where people live (1). [Total: 4]
d Production employees (1), may lose jobs / get may redundant (1), if employees become unemployed
and cannot find jobs will have less money to spend and standard of living will fall (1). Suppliers (1),
no longer need to supply raw materials to TE (1), reduces sales and profits of suppliers (1). [Total: 6]
e Before relocating should consider: cost of land (1), labour cost (1), skills of local employees (1),
availability of local employees (1), any financial assistance provided by the government of Country
Y (1), competitors in Country Y (1). Will relocating damage TE’s reputation with consumers in
Country X (1)? Potential communication problems between head office and the new factory in
Country Y (1), redundancy costs (1), transport costs of finished goods from Country Y to customers
(1), availability of supplies of raw materials/components in Country Y. (Maximum 5 marks for factors
for and against location in Country Y) Statement for or against relocation with justification, e.g.
benefits outweigh costs (1). [Total: 6]
© Cambridge University Press 2018
Chapter 18 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
19 Business finance: needs and sources
Answers to Coursebook activities
Case study (pages 245–246)
a
b
c
d
The capital needed when first setting up a business to purchase/rent premises and buy inventories.
Ingredients used in drinks, wages.
Money spent on buying non-current assets such as a refrigerated truck.
To expand her business. This is not available from her profits so she is borrowing money from a bank or
other lender.
Activity 19.1 (page 246)
1 Premises, machinery/equipment, raw materials, other items used in making clothing, vehicle, office
equipment, shop fittings, etc.
2 Premises, machinery/equipment, raw materials, vehicle, shop fittings.
3, 4 and 5 Student’s own answer.
Test yourself (page 246)
1 Start-up capital, expansion, temporary cash shortage.
2 Short-term finance is needed for less than one year. Long-term finance is needed for more than one year.
Activity 19.2 (page 248)
1 Land and buildings do not usually decrease in value. Buildings can be used over and over again for
different purposes. Machinery loses value over time – becomes less efficient with use and eventually
no longer works. Most machines can only be used for one purpose, and are often replaced with better
technology.
2 Computers go out of date very quickly because technology is constantly changing. A three-year-old
motor vehicle will have a useful life that is much longer than that of three-year-old computers.
3 Machinery might have a specific use and be of no use to other businesses. The machine might have
been replaced with better technology in the last three years and buyers of such machinery will want to
purchase the ‘best’ technology available if they are able to afford to do so.
Case study (page 249)
a Not made a profit in the last two years so insufficient internal sources of finance. Long-term debt that
it needed to finance, i.e. had to pay interest on loans or repay some loans. If not making profit then
borrowing needed to be financed from other sources, e.g. selling assets.
b If assets not being used then probably a good way to raise finance to pay off some debts. Assets might
have been costing Cemex money to keep them, e.g. maintenance of empty buildings. However, if assets
might have been used by Cemex in future then not such a good idea because it will have to purchase
new assets in future, which will be more expensive than the assets sold. Cemex had large debts so it
might have been very difficult to raise finance through more borrowing – selling assets perhaps only
option. However, if assets sold included land/buildings then it might have been able to borrow from
banks/other lenders and used land/buildings as collateral. Advantage for Cemex – would still own asset
for future use. Disadvantage – Cemex would have to pay interest on new loans but not likely to be able
to do this as not making profits.
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Chapter 19 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Activity 19.3 (page 250)
1 Purchase would use all the cash available and leave IE with zero cash balance to pay for day-to-day
expenses. Would need an overdraft for expenses, which would increase IE’s costs.
2 If delivery of raw materials from suppliers is late, or delivery is less than the quantity ordered or
damaged, then IE would not have raw materials needed for production. If unable to produce goods,
unable to supply customers on time – lose sales and reduce IE’s profits.
3 If IE reduces inventory and then there is an increase in demand for products, IE might not be able to
supply customers. This could lose not only this sale but also future sales.
4 IE is owed money from its trade receivables; $12 000 is from customers who have had goods for over
30 days but have not yet paid for these. Improving credit control and recovering these debts more
quickly would increase IE’s cash balances. However, this will not finance the whole $14 000 needed, so
could reduce inventories of raw materials and finished goods by a smaller amount than the directors
suggested. IE could consider just-in-time inventory management. However, this will take time to
organise so is probably a more long-term solution to improving working capital.
Activity 19.4 (page 252)
•• Lost discount will increase business costs. Might have to increase prices, which makes them less
••
••
competitive.
Refusing to deliver supplies might result in halting production. If the business cannot produce goods
then it will not have them to sell. It could lose sales and suffer lower profits.
Demanding payment when the order is placed will reduce cash that the business has to meet its other
day-to-day expenses. This reduction in working capital could result in the business needing to use an
overdraft – which increases costs.
Case study (page 255)
a Had idea for business. Always looking for other business opportunities. Presumably she finances other
business ideas from the profits of her original business, which means she is prepared to risk her own
money in business ventures.
b New businesses at much greater risk of failing and not being able to repay money borrowed. Banks
consider them to be too great a risk and are reluctant to lend money to them, especially when the
entrepreneur is not investing their own money or has no assets to use as security against bank loans.
c Yes, because she is earning profit that supports her family and has enough left over to finance other
business ideas.
Test yourself (page 256)
1 Internal finance is raised from within the business, e.g. profit, working capital and the sale or sale and
leaseback of non-current assets. External finance is obtained from sources outside of the business, e.g.
share issue, borrowing from banks and other lenders.
2 Earned by the business through activities; has no cost to the business as a source of finance.
3 Size of business, business’s legal form, amount required, existing borrowing, how long finance is needed for.
4 Find it easier to borrow money because seen as less risky than small businesses. Larger businesses often
have assets they can use as security to obtain loans. Banks often charge a lower rate of interest on loans
to larger businesses than on loans to smaller businesses.
Exam-style practice questions (page 257)
1 a External source of finance. Interest is payable on the amount borrowed and the capital amount must
be repaid at the end of the loan term. [2]
b Interest charge/cost and loan has to be repaid. [2]
© Cambridge University Press 2018
Chapter 19 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
c Recent profits of business (1), bank will need to be certain that the business is making enough
profit to be able to pay the interest on any loan and repay the loan at the end of the loan period (1).
Or forecast profit/how much profit George expects to earn from expansion plans (1). Helps bank
to measure risk of loan/will George’s plans increase profits enough to repay amount borrowed (1)?
[Total: 4]
d Leasing (1), premises and machinery could be paid for on a monthly or quarterly basis (1), the cost of
the lease is paid monthly or quarterly and George should be able to do this from internal sources (1).
Government grants (1), governments often help small businesses such as George’s by providing low
interest or interest-free grants (1), OR grants that do not have to be repaid (1). (Do not reward marks
for both). This source of finance is much cheaper than borrowing from banks (1). [Total: 6]
e Advantages: Winston brings capital to business (1), has skills needed to help in George’s expansion
plans (1), can help with the running of the business – which reduces George’s workload (1).
Disadvantages: George must share profits with Winston (1), George no longer has total control over
business decisions (1). Statement as to whether or not George should enter into partnership with
Winston based on advantages and disadvantages (1). [Total: 6]
2 a Limited liability, cannot sell shares to the public. [2]
b Spending on purchase of non-current assets, e.g. machinery, vehicles. [2]
c Retained profits (1), current year’s profit earned by BSE could be kept in the business and used to
finance the new machine (1); Sale of unwanted assets (1), BSE might have land or buildings it doesn’t
use or need, which could be sold to raise money for the purchase of the machine (1). [Total: 4]
d Existing borrowing (1), if BSE already has loans then it needs to think about whether or not it can
afford interest charges for further loans (1), banks might want collateral as security against further
borrowing (1). Does BSE want to own the machine (1)? If so then a bank loan might be the best
option, if not then it could consider leasing the machine (1), both sources have interest payments but
a bank loan has to be repaid at the end of the loan period, whereas a lease spreads the cost over the
lease term (1). [Total: 6]
e Leasing: cost is spread over the period of the lease so no large repayment at the end (1), BSE will not
own the machine (1), leasing company may be responsible for maintenance/repairs, which reduces
BSE’s costs (1). Debenture: interest charges and the amount must be repaid at the end of the loan period
(1), BSE will own the machine (1). Statement as to which is the best method and why based on points
discussed (1). [Total: 6]
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Chapter 19 Answers to Coursebook activities
3
Cambridge IGCSE and O Level Business Studies
20 Cash-flow forecasting and
working capital
Answers to Coursebook activities
Activity 20.1 (page 260)
1 February
2 Payments are greater than receipts, or outflows are greater than inflows.
Activity 20.2 (page 261)
1 May: 2; June: 7.
2 Positive cash balance in January and February becomes negative in March and April before returning
to positive in May and June. Temporary cash shortage in March and April may need overdraft facility
if it happens.
3 Knowing that there is a temporary cash shortage in both March and April, the finance manager could
look at ways of increasing cash inflows or decreasing cash outflows to improve the position. If not
possible then make sure the bank agrees to finance the shortage with an overdraft.
Activity 20.3 (page 262)
1
Month 1
$000
Month 2
$000
Month 3
$000
Month 4
$000
36
36
43
43
38
38
49
49
33
33
3
11
14
46
46
(3)
14
11
45
45
(7)
11
4
37
37
12
4
16
Cash inflow
Receipts
Total inflow
Cash outflows
Payments
Total outflow
Net cash flow
Opening balance
Closing balance
2 Monthly closing balances are all now positive – better than having a negative cash balance for month 3.
3 Yes, because it improved closing balances and removed the need for an overdraft. No, because they do
not own the vehicle and in the long run it will cost more to have the vehicle. The one month negative
cash balance when buying the vehicle would have meant using an overdraft, but only for one month.
Would have been better off buying the vehicle rather than leasing it as they would own the vehicle and
cost would have been less.
Test yourself (page 262)
1 Needed to finance day-to-day expenses. Without cash, a business cannot pay its debts and will not be
able to survive.
2 To avoid negative cash balances that would require use of an overdraft or other form of borrowing,
both of which increase a business’s costs.
3 Using an overdraft or a short-term bank loan.
© Cambridge University Press 2018
Chapter 20 Answers to Coursebook activities
1
Cambridge IGCSE and O Level Business Studies
Case study (page 263)
a Flow of cash into and out of a business over time.
b Metrorail could not pay Sinqobile the money it was due on time. This will have reduced Sinqobile’s cash
inflows and made it more difficult to meet its cash outgoings.
c Sinqobile is a small company and will have lower cash inflows than a large business such as Metrorail.
If Sinqobile has a shortage of cash, banks might not be prepared to grant an overdraft facility or other
short-term borrowing, which could threaten the survival of Sinqobile.
d Make sure that Metrorail and other businesses it supplies services to pay on time. Could try to reduce
costs or delay payments to own trade payables.
Test yourself (page 264)
1 Capital needed to finance day-to-day running expenses and pay short-term debts of the business.
2 Working capital = current assets − current liabilities
3 Measures the ability of a business to pay short-term debts. Business that does not have enough working
capital may have to borrow the finance required. Will have to pay interest on the amount borrowed –
increases the business’s costs. If the business is unable to borrow the finance required, it may fail.
Case study (page 265)
a She took risks and had a business idea.
b To purchase raw materials for buggies and pay the wages of two employees.
c Measures Shonaquip’s ability to pay short-term debts. If Shonaquip does not have enough working
capital then she may have to borrow the finance required. Would have to pay interest on any amount
borrowed – increases the business’s costs. If the business is unable to finance short-term debts, it
may fail.
d Depends on the time it takes from buying raw materials, making these into buggies for sale, finding
buyers for these and then receiving payment from customers.
Exam-style practice questions (pages 266–267)
1 a Capital needed to finance day-to-day running expenses and pay short-term debts of the business (1).
Current assets − current liabilities (1) [Total: 2]
b A: 1060 − 640 = 420 (1); B: (−180) + 390 = 210 (1) [Total: 2]
c Closing balances in January and February are negative (1), do not have enough cash to pay business
expenses and debts (1), might need to use overdraft facility (1), overdraft is an expensive source of
finance, which increases Cards4U’s costs (1). [Total: 4]
d Increase cash inflows (1), manage trade receivables more effectively (1), offer discount to credit sales
customers to pay for goods sooner (1), increase cash sales (1). Reduce cash outflows (1), buy fewer
inventories (1), negotiate longer credit terms with suppliers (1). [Total: 6]
e No, because without cash Cards4U will not be able to pay its debts and will have no cash to pay for
supplies (1), without supplies nothing to sell, if cannot pay rent then will have to close down (1),
might waste cash buying goods does not need (1), credit customers take longer to pay if not properly
managed (1), if have a cash shortage have to use an overdraft or other short-term finance, which
increases costs (1). Statement agreeing or disagreeing supported by points discussed (1). [Total: 6]
2 a To pay day-today expenses, to avoid the need for an overdraft which increases the business’s costs. [2]
b Difference between cash inflows and cash outflows for a particular time period. [2]
© Cambridge University Press 2018
Chapter 20 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
c
Jan
$000
Feb
$000
Mar
$000
Apr
$000
Cash inflows
Credit sales
230
250
200
180
Total cash inflows
230
250
200
180
Cash outflows
Payments
160
350
230
160
Net cash flow
70
(100)
(30)
20
Opening balance
20
90
(10)
(40)
Closing balance
90
(10)
(40)
(20) [Total: 4]
d Cash inflows may improve (1), recovering money owed from trade receivables on time (1), more cash
coming in to the business to finance cash outflows (1). Cash outflows kept to a minimum (1), avoid
paying trade payables early (1), ensure cash outflows not greater than cash inflows – improves cash
balances (1). [Total: 6]
e ABC has cash shortages from February to March (1), needs to increase cash inflows in these months or
reduce cash outflows (1). Offer discounts to trade receivables to encourage early payment (1), improve
credit control to make sure trade receivables pay on time (1), reduce inventories (1). Delay purchases if
possible (1), ask trade payables for longer credit period (1). [Total: 6]
© Cambridge University Press 2018
Chapter 20 Answers to Coursebook activities
3
Cambridge IGCSE and O Level Business Studies
21 Income statements
Answers to Coursebook activities
Activity 21.1 (page 269)
Cost of sales: flour, yeast, water, salt.
Expenses: electricity, rent, advertising, machinery repairs.
Activity 21.2 (page 270)
1 1600 + 1580 + 1550 + 1530 + 1520 + 1500 = 9280
2 Gross profit: 9280 − (160 + 158 + 155 + 153 + 152 + 150) = 8352
Profit: 8352 − 600 = 7752
3 Costs of sales are variable costs. The more Chata sells the more he must make. Expenses are fixed costs,
do not change with output/sales.
4 Another bakery opened up in direct competition. Competitors reduced prices – some of Chata’s
customers have bought from competitors.
Activity 21.3 (page 270)
1 On the basis of revenue and profit, Company C. However, Company B’s profit is a larger percentage of
revenue than that of Company A or C.
2 a Company A − paid bigger dividend, OR Company C − made highest profit and this might increase
share value.
b Probably Company B − paying good dividend and its profit as a percentage of revenue is much
higher, suggesting that it is better managed.
Case study (page 271)
a Someone who has an idea for a business and is prepared to risk their own capital in the business venture.
b Sold bicycles that have earned revenue greater than costs of sales and other expenses of running his
business.
c To reward Jimmy for taking a risk and setting up business, to reward other people who also risked their
investment in Jimmy’s business, to have profits that could be retained in the business to finance future
growth.
d Money invested in the business by Jimmy and his investors is not included as revenue in the income
statement so it does not affect profit but increases cash balance.
Test yourself (page 272)
1 Difference between revenue and costs of sales.
2 To attract investors, measure business success, decide whether to continue producing/selling a product
and to finance the purchase of non-current assets.
3 Cash includes all money received by a business from all sources, e.g. owners, investors and sales, as well
as all payments made by a business, e.g. day-to-day expenses, purchase of non-current assets such as
machinery. Profit is the difference between revenue earned from sales – even if cash has not yet been
received – and all revenue expenses – even if some of these have not yet been paid.
© Cambridge University Press 2018
Chapter 21 Answers to Coursebook activities
1
Cambridge IGCSE and O Level Business Studies
Activity 21.4 (page 273)
Need to link income statement information with comments from stakeholders and explain the reasons for
the comments – see table below.
Change from last year
Revenue increased by 4%
Suppliers
Cause of change
Lower prices increased sale of toys.
Increase in sales means Muza produced more so needed more raw
materials from suppliers.
Customers
Lower prices.
Competitors
Have lost customers to Muza because of their lower prices so
competitors need to respond if they are to attract customers away
from Muza.
Cost of sales increased by 1% More raw materials were purchased.
Finance manager
Need to spend more on raw materials, which increases inventories
and trade payable.
Profit increased by 5%
Better control of expenses.
Government
Higher profits = higher tax revenue.
Trade union
Employees help to increase profits so should be rewarded.
If profit continues to increase then dividends might increase and
market value of shares too.
Lenders
Interest is easier to pay when a business is making profits.
Dividends fell by 3%
To increase retained profits.
Shareholders
Lower dividends received.
Retained profits increased
To finance expansion plans.
Potential investor
If expansion increases profits then dividends will be high and market
share will also rise.
Employees
Expansion increases employment prospects and future profitability.
Senior managers
Retained profit is an internal source of finance with no cost to the
business.
Case study (page 274)
a Difference between revenue and total costs; reward to entrepreneurs for taking risk when investing/
starting a business.
b Lower revenue from sales, higher operating costs.
c Reward investors, attract new investors, source of finance for expansion.
Test yourself (page 274)
1 Gross profit is revenue − costs of sales; profit is revenue − all costs.
2 Reward to investors in a limited company.
Exam-style practice questions (pages 275–276)
1 a Amount earned by business from sales of products. [2]
b Advertising, transport. [2]
c Source of finance (1), retained profit can be used to purchase non-current assets or finance expansion
(1). Attract investors (1), high profits usually means high dividends and increased share value (1).
[Total: 4]
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Chapter 21 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
d Employees (1), high profits so possibly higher wages (1), better job security (1). Shareholders (1), high
retained profit so lower dividends (1), retained profit could be used to finance expansion of Company
A and increase future profits/dividends (1). [Total: 6]
e Company A is most profitable (1) so market share likely to increase (1). Company B has lower
retained profit as a percentage of profit so must have paid high dividends (1). Company A has high
retained profits (1). Is this due to finance expansion? Future profitability of Company A could
increase and lead to higher dividends and growth in the market value of its shares (1). Decision as to
which company based on points above (1). [Total: 6]
2 a Managers, employees. [2]
b 5% × $8 500 000 = $425 000 [2]
c Source of finance (1), to purchase non-current assets (1), finance expansion (1), no cost to VM (1).
[Total: 4]
d Recession (1), consumers have less money to spend (1), lower sales on luxury items (1). Competitors (1),
lowered prices / improved quality / increased promotion (1), some of VM’s customers bought from
competitors (1). [Total: 6]
e No, as the fall in profits and lower dividend (1) likely to reduce the market value of its shares (1).
Alternative uses of shareholders’ money invested in VM (1)? Profit as a percentage of the market was
only 2.5% (1), suggests VM is not good at controlling costs (1). Statement for or against shareholder
satisfaction based on points discussed (1). [Total: 6]
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Chapter 21 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
22 Statement of financial position
Answers to Coursebook activities
Activity 22.1 (page 277)
1 Net assets = capital employed.
2 Working capital.
Activity 22.2 (page 279)
Statement of financial
position item
Inventories
Bank loan
Share capital
Machinery
Overdraft
Trade receivables
Retained profit
Premises
Trade payables
Debenture
Non-current
asset
Current asset
Current
liability
Non-current
liability
Owner’s
equity
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
Test yourself (page 279)
1
2
3
4
5
Something a business owns that will be used for more than one year, e.g. premises.
Something a business owes that it expects to pay within the next 12 months.
Inventories, trade receivables.
Trade payables, overdraft.
This is their working capital – important to have more cash coming in from current assets than going
out through current liabilities.
Activity 22.3 (pages 280–81)
1
2
3
4
5
6
7
8
9
10
Trade receivables = 30
Trade payables = 16
Borrowed money from a bank or other lender.
Working capital.
Non-current assets = 100
Value on the statement of financial position is what the asset is worth to the business, not what it might
be able to sell the asset for. Land/buildings shown at original cost of these assets to the business –
usually increase in value over time so market value might be much higher than the statement of
financial position value.
What the company owes to the owners of JB Plastics.
Source of finance to buy new non-current assets/finance expansion plans.
Corporation tax.
Shareholders.
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Chapter 22 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Test yourself (page 281)
1 Capital employed shows owners’ equity and non-current liabilities.
2 Current assets and current liabilities changed because some inventories were sold and new inventories
were bought. Cash from some trade receivables was paid to the business and other credit customers
were added. Business paid some suppliers and received credit for more recent purchases so trade
payables are different. Cash is constantly flowing into and out of the business so the cash and bank
balances are different.
3 If the business makes a loss then the retained profit on the most recent statement of financial position is
less than the previous year.
Case study (page 281)
a Monies owed by the business that it expects to pay within the next 12 months, e.g. trade payables.
b (3090 − 2966)/2966 × 100% = 4.2%
c Non-current assets increased. MHC must have bought more of these assets. Non-current liabilities
decreased. MHC must have repaid some of its borrowing. Retained profit increased. MHC must have
made profit in 2012.
d Important source of internal finance used to buy non-current assets. ‘Best’ source of finance because
no cost.
Exam-style practice questions (page 282)
1 a Owners’ liability for business debts is limited to the amount invested in the company (1). Cannot be
forced to use personal wealth to finance the debts of the company (1). [Total: 2]
b Money invested in the business by the owners of a limited company. [2]
c Non-current assets are resources owned by the business (1) which will be used for a period longer
than one year (1). SSF needs a factory to make its products in (1), needs machinery to make the
products (1), needs vehicles to transport the products to customers (1), needs computers to control
inventory and finance, etc.(1) [Total: 4]
d Banks (1), if SSF asks for a loan the banks will want to know the value of its non-current liabilities (1),
if existing borrowing is high then the banks might think SSF is too risky. However, would also look
at non-current assets as land/buildings might be used as collateral against any further borrowing (1).
Shareholders (1), as owners of the company want to know how much the business is worth (1), can
also see if the business is well managed (1), e.g. does it have good working capital (1)? [Total: 6]
e Net current assets is SSF’s working capital (1), value of working capital decreased (1) by 35% (1),
means that more cash left the business than came into the business (1). If the trend continues, SSF
might have a cash shortage (1), might not be able to pay debts, might have to use an overdraft (1), this
can be expensive (1). Net current assets are positive so not currently a problem (1). [Total: 6]
2 a Land, buildings, machinery and vehicles. [2]
b Monies owed by the business to lenders. Do not expect to repay this amount within next year. [2]
c Inventories (1), raw materials, part-finished goods, finished goods (1). Trade receivables (1), money
owed to the business by customers who have been sold goods on credit (1). [Total: 4]
d Non-current liabilities increased (1) by 0.1 (1), BJ must have borrowed money long term (1), net
current assets decreased (1) from 0.2 to (0.2) (1) OR BJ might have cash-flow problems (1). [Total: 6]
e Internal stakeholders might use the information to identify problems (1), probably have a better
understanding of the financial information (1), internal stakeholders know how statements of
financial position figures have changed and therefore have a better idea of how the business is
currently performing (1). External stakeholders might not understand the statements of financial
position (1), information becomes out of date as soon as the statement of financial position is
produced, external stakeholders will not know how the figures have changed (1). Statement agreeing
or disagreeing supported by relevant points (1). [Total: 6]
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Chapter 22 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
23 Analysis of accounts
Answers to Coursebook activities
Activity 23.1 (page 284)
Student’s own answer.
Activity 23.2 (page 284)
•• Will business have profits to reinvest? Senior managers – will they be able to replace non-current assets or
••
••
••
••
carry out expansion plans from internal sources of finance, or will they have to borrow funds?
Will business continue to exist? Employees – job security.
Will future profits rise or fall? Shareholders – rise or fall of profits means increase or decrease in dividends.
Will it be able to pay its debts? Suppliers – will they get paid for goods supplied on credit?
Will it be able to repay long-term borrowing? Lenders – will they get back money loaned to the business?
Activity 23.3 (page 286)
1
2
3
4
Risen each year by 1% on the previous year. Business is performing better each year.
Company A – increased, Company B – fallen. A has performed better than B .
A has not controlled overhead costs as well in 2012 as previously.
A’s gross profit margin has risen. B’s gross profit margin has fallen. However, B’s gross profit margin is
still higher than A’s. A’s profit margin has remained unchanged, B’s profit margin has fallen from 10%
to 9%. Figures suggest that B has not controlled overhead costs as well as A. Over the period, B has
performed better than A because even though gross profit and profit margins have fallen, they are still
higher than those of A.
Activity 23.4 (page 287)
1
Profitability ratio
Gross profit margin
Profit margin
Capital employed
2012
45%
15%
52.5%
2013
48%
14%
58.3%
2 Gross profit margin has improved but not the profit margin. Suggests that TT has not controlled
overhead costs as well in 2013 as in 2012. However, TT is more efficient in use of capital because capital
employed has increased.
3 a Pleased profit has increased because this would increase dividend and market value of shares.
b Increase in profit might mean an increase in wages.
c Revenue increased. If this is because TT has sold more goods then suppliers will be pleased because
they will be supplying more goods to TT.
d Increase in profits means increased tax revenue.
4 Bank will want to know if TT is making enough profit to be able to pay the interest on the loan and
also to repay the loan when due. Although profit margins have fallen, return on capital employed
has increased. Suggests that TT is using capital efficiently and is likely to use any new capital just as
efficiently. Bank will want to see how TT thinks plans will affect future profits before lending money,
but TT is not too much risk so the bank will probably lend the money. Might want non-current assets
as security against borrowing.
© Cambridge University Press 2018
Chapter 23 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Activity 23.5 (page 289)
1
Current ratio
Acid test ratio
2012
1.5:1
1:1
2013
1.7:1
0.7:1
2 Liquidity position improved if the current ratio is used as a measure. However, when inventories
are deducted from current assets to show the most liquid assets, liquidity position worsened
between 2012 and 2013 because the acid test ratio is now 0.7:1, i.e. for every $0.7 coming into TT
it spends $1.
3 Reduce inventories; recover money owed from trade receivables more quickly, e.g. offer early payment
discounts to credit customers.
Activity 23.6 (pages 290–291)
1 GP margin 2011: (114 217 / 1 162 340) × 100% = 9.8%
GP margin 2012: (117 998 / 1 328 300) × 100% = 8.9%
Profit margin 2011: (56 002 / 1 162 340) × 100% = 4.8%
Profit margin 2012: (41 458 / 1 328 300) × 100% = 3.1%
2 ROCE 2011 = (56 002 / 533 670) × 100% = 10.5%
ROCE 2012 = (41 458 / 590 000) × 100% = 7.0%
3 All three ratios indicate that the company performed less well in 2012 than 2011.
4 Current ratio 2011: 805 394 / 784 856 = 1.03:1
Current ratio 2012: 1 087 365 / 1 066 017 = 1.02:1
5 Liquidity position in 2011 is not very good because the ratio should ideally be between 1.5:1 and 2:1.
However, in 2012 liquidity position is worse as the current ratio has fallen to 1.02:1. Results suggest that
the company may have cash‑flow problems.
Test yourself (page 291)
Gross profit / revenue × 100%
Profit / revenue × 100%
Profit / capital employed × 100%
Current assets / current liabilities
Current assets − inventories / current liabilities
Liquidity is cash. Without cash a business will not be able to pay its debts and will not be able to
survive. In the long run a business must be able to earn profit to survive. They are both important
but in the short run cash is more important than profit, and in the long run profit is probably more
important.
7 Only useful if comparing results over time or between companies. Different companies prepare their
accounts using different methods so direct comparison might be misleading.
1
2
3
4
5
6
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Chapter 23 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
Activity 23.7 (page 292)
1 and 2
Stakeholder
2 Employees
3 Lenders
4 Suppliers
Stakeholder Objective Interested in:
1 Higher wages
Profit
Reason
Employees help to earn profits so should
receive a share. A business making high
profits will be able to afford to pay higher
wages to its employees.
2 Job security
Retained profit
1 Interest payments
Profit
Retained profit used to modernise and
expand a business will help it to remain
competitive/be more competitive and ensure
the long-term survival of the business.
Interest on loans paid out of profit, so the
more profit the business earns, the easier it
is to pay interest on borrowing.
2 Repayment of loan
Profit and
liquidity
1 Paid on time for
goods supplied on
credit
2 Increase orders for
supplies
5 Government 1 Tax revenues
6 Consumer
To repay a loan the business will have to
earn profit over the life of the loan and use
some of this profit to build up cash balances
that can then be used to repay the loan
when due.
Working capital Does the business have enough cash
coming into the business to meet its debts?
Revenue/
retained profit
Profit
2 Employment
Profit/retained
profit
1 Lower prices
Retained
profits
2 Continued
production
Profits
© Cambridge University Press 2018
If revenue is increasing because the business
is selling more, then suppliers might expect
to receive more orders for raw materials and
components. Also a business that is using
retained profit to expand is likely to increase
its demand for supplies.
The higher the profit, the higher the tax
revenues for government.
Profitable businesses and businesses using
profits to expand provide employment.
This reduces unemployment and reduces
government spending on any benefits to the
unemployed.
As businesses expand, they often benefit
from economies of scale. These economies
reduce average costs and might enable the
business to reduce its prices.
Consumers want to be able to buy the
products they like and trust. If a business
is profitable then it is likely to continue
producing products and also any spare parts
that might be needed to repair products.
Chapter 23 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Activity 23.8 (page 293)
1 Shareholders – not pleased with performance as the company not performing as well; may affect level
of dividends they receive and the market value of shares might fall.
Employees – decrease in performance might mean no/low pay rise. If the downward trend continues,
some employees might be made redundant.
Government – lower profits reduces tax revenues.
Lenders – might be concerned about the company’s ability to pay interest on borrowing and its ability
to repay the loan when due.
Managers – senior managers will want to know why the company is performing less well. Ratios might
indicate that middle managers are not doing their job properly and this could affect salaries, bonuses,
promotion prospects and even their job security.
2 Unlikely to see the company as a good investment prospect because profitability ratios indicate that the
business is doing less well than in previous years. If this continues then dividend payments and share
values are likely to fall.
Test yourself (page 293)
Senior managers might use ratios to measure the performance of middle managers; employees might use
ratio analysis to assess job security.
Exam-style practice questions (pages 294–295)
1 a The job an employee does is no longer needed by the business. [2]
b 10 000 / 50 000 × 100% = 20% [2]
c Price (1), if Josep is charging a lower price than competitors he might sell a greater quantity (1).
Consumer income (1), the more income consumers have to spend, the more goods Josep will be able
to sell (1). [Total: 4]
d Government (1), interested in Josep’s profit (1), Josep will pay tax on profits and, as these have
increased, the government will earn higher tax revenues (1). Suppliers (1), increase in sales means
increase in output (1), Josep will need more raw materials from suppliers, which increases their sales
and profits (1). [Total: 6]
e Sales and profit both increased (1), however, profit margin only increased slightly from 28% to 28.5%
(1), so suggests Josep has not controlled overheads well in Year 2 (1). ROCE increased from 20% to
24% (1), shows Josep used capital more efficiently (1). Statement for or against whether Josep should
be pleased based on evidence such as that outlined above (1). [Total: 6]
2 a Profit / revenue × 100% [2]
b Primary, tertiary. [2]
c Benefit: ROCE (1), shows how efficient the company has been in use of its capital to earn profit (1).
Limitation: difficult to compare one business with another (1) because businesses might use different
methods to produce financial data in their accounts (1). [Total: 4]
d Difference between gross profit margin and profit margin is overheads (1). Service industries do not
need raw materials (1) so have very high gross profit margins (1) but they do have high overheads (1),
e.g. employment and buildings (1), which reduces the profit margin (1). [Total: 6]
e All businesses will not have the same costs (1), all businesses will not charge the same price (1), some are
large businesses and some are much smaller (1), some businesses operate in mass markets and others in
niche markets (1), some businesses will be more efficient than others (1), some businesses might be new,
others well established (1). [Total: 6]
© Cambridge University Press 2018
Chapter 23 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
24 Economic issues
Answers to Coursebook activities
Activity 24.1 (page 301)
1 Recession, economic growth, unemployment, inflation, GDP, investment, interest rates.
2 Keeping interest rates low at 0.5%, forming a committee of economic and financial experts to make
further recommendations about how to improve economic growth.
3 To encourage economic growth.
4 Fall in demand for its products, which reduces sales and profits.
Case study (page 303)
9.5%
13%
36.8%
Fall in consumer demand, reduced investment by existing and new businesses because of a fall in
business confidence, fall in economic activity.
e Fall in business confidence leading to a lack of investment that resulted in a rise in unemployment and
lower consumer demand. Exports will have fallen and this has worsened the balance of payments. The
country’s GDP fell as a result of the combination of these factors.
a
b
c
d
Activity 24.2 (page 304)
1 $4000 per month
2 He will have $250 less per month to spend. This will reduce his spending, especially on luxury goods
and services.
Activity 24.3 (page 305)
1 Country A = $168 000
Country B = $156 000
Country C = $192 000
2 Country B
3 Student’s own answer, depending on country-specific data.
Activity 24.4 (page 306)
Student’s own answer, depending on country-specific data.
Case Study (page 308)
a Fallen from around 12% to around 6% – almost halved.
b GDP more than doubled in this period.
c Lower interest rates have encouraged businesses to invest. Consumers have had a larger disposable
income and they have increased their demand for goods and services. Businesses have expanded output
and unemployment will have fallen.
d to f Student’s own answers.
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Chapter 24 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
Activity 24.5 (pages 309–310)
1 2009: 8396; 2010: 5417; 2011; 5146; 2012: 5146
2 Yes, because the interest rate is the lowest it has been for five years so he will pay less for the amount
he wants to borrow. However, he needs to know if interest rates are likely to remain at 9.5% for the
foreseeable future. If they are likely to rise then he will have to pay a higher interest amount per month
and might not be able to afford to do this out of his earned income.
Test yourself (page 310)
1 Positive balance of payments, low inflation, low unemployment and economic growth.
2 Increase/decrease taxes, interest rates and government spending.
3 Growth – rise in GDP and falling unemployment; boom – business profits at the highest and a high
level of demand for goods and services causing prices to rise; recession – less investment by new and
existing businesses and a fall in consumer demand and business profits; slump – very low business
confidence and high levels of unemployment.
4 Direct taxes include: income tax, corporation tax. Indirect taxes include: value added tax, import
tariffs/customs duty, sales tax and excise duty.
5 Reduces consumers’ disposable income. Consumers have less money to spend. Will spend less on
luxury goods and will save less. Might use previous savings to maintain their standard of living.
6 Decrease in interest rates increases consumers’ disposable income, which increases spending. This will
increase sales for most businesses, especially those that provide luxury goods and services.
7 An increase in interest rates will increase the cost of borrowing. Businesses may decide to delay any
expansion plans or delay the purchase of expensive capital goods such as machinery, which they need to
finance through borrowing. Consumers’ disposable income will fall and this is likely to decrease demand for
luxury goods such as cars. Businesses that produce luxury goods might reduce their prices or offer incentives
such as 0% finance, or low rates of finance, to encourage consumers to buy these expensive goods.
Exam-style practice questions (pages 311–312)
1 a When a whole economy shrinks in size. [2]
b Decrease in business confidence, consumer demand falls, unemployment rises, lower output, lower
economic growth. [2]
c If they are limited companies they will have to pay corporation tax (1), this is a tax they must pay on
profits earned (1). Value added tax or sales tax (1), this tax is likely to increase the price of the goods
sold (1). Import tariff or customs duties (1), retailers will have to pay these taxes on goods that are
imported into Country A (1). (2 marks per tax identified and explained) [Total: 4]
d Lower sales/consumer demand (1), manufacturers will reduce output, may reduce size of the
workforce/ make employees redundant (1). Fall in business confidence (1), reduce investment in new
technology (1), may become less competitive and sales and profits will fall (1). [Total: 6]
e Reduce interest rates (1), this decreases the cost of borrowing, which encourages investment by
businesses in new technology/growth plans (1), consumers might now borrow money to spend
on more expensive goods and services such as houses and cars. Increase government spending/
government borrowing (1), spend money on building hospitals, schools, motorways, etc. or
employing more doctors, nurses, teachers, etc. – increases the amount of money in the economy (1).
Recommendation depends on current level of interest rates (1), if they are low then reducing them
might not have the desired effect (1) OR how easy will it be for government to borrow money (1)? if
current government borrowing is very high then might not be able to borrow the money needed to
increase spending (1). [Total: 6]
© Cambridge University Press 2018
Chapter 24 Answers to Coursebook activities
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Cambridge IGCSE and O Level Business Studies
2 a Difference between the value of exports and the value of imports of a country over a one-year period. [2]
b Low unemployment, economic growth, positive balance of payments, low inflation. [2]
c Increasing GDP (1), the country is producing more goods and services (1). Its balance of payments is
healthy (1), it is exporting more than it is importing (1). [Total: 4]
d Decrease in corporation tax: will increase profits after tax (1), higher dividends for investors (1) or
higher retained profit (1). Decrease in interest rates: will reduce the cost of borrowing (1), businesses
will be able to borrow finance more cheaply to finance expansion (1), this is likely to increase the
future profitability of businesses (1). [Total: 6]
e Import tariffs are a tax on goods from other countries (1). Higher import tariffs will increase the
price of goods from other countries (1). Imported raw materials will be more expensive (1), foreign
competitor goods will be more expensive (1), higher imported raw material prices will not help local
businesses who use them because their costs of production will be increased (1). However, it might
help local businesses who use local materials produce similar goods to those that are imported
because they will once more be competitively priced (1). [Total: 6]
© Cambridge University Press 2018
Chapter 24 Answers to Coursebook activities
3
Cambridge IGCSE and O Level Business Studies
25 Environmental and ethical issues
Answers to Coursebook activities
Activity 25.1 (page 317)
1 Students should be encouraged to evaluate whether the advantages of the location of the factory, i.e. the
positive externalities, outweigh the disadvantages, i.e. the negative externalities. There is no ‘right’ answer.
Arguments in support of the location might focus on issues such as improved products for consumers,
employment opportunities in an area of high unemployment, the sharing of ideas with other businesses
and the benefits to the local community of improvements in the local infrastructure. The location of
Loreli’s factory and the improvements it could bring in infrastructure and product expertise might
encourage similar businesses or support industries to also locate in the same area.
Arguments against might focus on the general environmental impact of the location of the factory and
how this might have a negative effect on the local population. Issues such as pollution and destruction
of ‘green spaces’ and how these might affect the local population’s quality of life/living standards and
the loss of possible income to the local area from any possible reduction in tourist numbers.
2 Might approve because: provides employment, which reduces government spending on payments to
the unemployed; improves the standard of living for the local community through employment and
improved infrastructure; contributes towards growth of the economy. Might not approve because:
might be politically unpopular – how soon is the next election for government? (this may not be
relevant to all countries); action of pressure groups; might want to protect the environment – could
have as one of its objectives to reduce pollution in the country.
Activity 25.2 (page 318)
1 Government, local community, pressure groups, suppliers/construction companies, airlines, airport
customers.
2 Construction traffic, increased traffic congestion once the airport is opened, noise pollution and air
pollution once the airport is operational.
3 Economic benefits: employment opportunities for both the construction and the operation of the new
airport – increases consumers’ disposable income. Consumers will spend some of this ‘extra’ income
on goods and services produced in Country X – increases the output of domestic businesses. Increase
in tourism – increases exports; earns foreign currency for Country X – tourists will spend money in
local businesses, e.g. hotels, restaurants and tourist attractions.
4 More aircraft increases noise and air pollution; land used for the new airport cannot be used for more
environmentally friendly uses; trees, plants and animal habitats will be destroyed forever; could affect
the health of local residents.
5 Student’s own answer, depending on answers to previous questions.
Activity 25.3 (page 322)
1 Noise, air and land pollution; possibility of chemical leaks; effect on local water supplies and the habitat
these provide for birds and other animals.
2 Benefits: provides employment, which increases consumers’ disposable income and improves living
standards. Limitations: air, noise and traffic pollution; health issues arising from the toxic chemicals
used in tyre manufacturing; will water and energy supplies to local households be reduced as a result of
the factory usage?
3 Passing and enforcing laws to prevent/control the level of pollution. Planning laws to restrict the size
of the factory or its hours of operation to protect local residents from 24-hour noise, traffic or air
© Cambridge University Press 2018
Chapter 25 Answers to Coursebook activities
1
Cambridge IGCSE and O Level Business Studies
pollution. Could require ABC Tyres to offset its damage to the environment with schemes aimed at
helping the environment, e.g. planting trees.
Activity 25.4 (page 324)
1 Student’s own answer.
2 Not only unethical, it is illegal.
Case study (page 325)
a Ignored warnings about unsafe conditions of buildings, low pay, limited employees’ rights, dangerous
working conditions and child labour.
b Should not buy goods from suppliers who provide worse conditions than would be expected if they
were being manufactured in the buyer’s own country. However, this does not mean that low labour
costs are unethical as long as employees are being paid the ‘going rate’ for Bangladesh. Western buyers
are, after all, looking to source supplies at the lowest cost. But if Western retailers are then selling these
goods using very high profit margins, is it ethical that they should do so when wage rates are so low?
c Western buyers have a responsibility to ensure that the goods they source are being produced ethically.
They could send representatives from their company to visit Bangladesh and inspect the factories. The
power is with the Western buyers and they could force suppliers in Bangladesh to behave ethically
otherwise they will not buy their products.
d Children should be receiving an education and not being forced to work simply because they are
cheaper than adults. Children are more likely to suffer injuries in the workplace as they are not as
physically well developed as adults and are less aware of potential dangers in the workplace.
e Pass laws stating the minimum age for employees; ensure that all children receive an education; fine
or close down businesses that break the law; provide financial assistance to families so that they do not
have to rely on the wages of their children.
Test yourself (page 325)
1 Causes different types of pollution, uses up natural resources, soil erosion, destruction of animal
habitats, production of waste, emission of greenhouse gases, uses up non-renewable energy resources.
2 The effect of business activities on unrelated parties.
3 To analyse the social costs and social benefits of a project. Benefits should outweigh cost.
4 A business activity that has a positive overall impact on the environment and its stakeholders, ensuring
future survival.
5 It is in the long-term interests and survival of a business to act ethically.
6 A group of people who join together for a common cause, often to change the behaviour of business.
7 Pollution targets and waste disposal regulations; government might fine, close down or even imprison
business owners who ignore these targets and regulations; taxes or levies on commercial energy use; to
encourage businesses to be more energy efficient.
Exam-style practice questions (page 326)
1 a A business activity that has a positive overall impact on the environment and its stakeholders. (2)
b The effect of business activity on unrelated parties. (2)
c Positive: provides employment (1), Juan Cruz will pay wages to local people to work in his shrimp
farming business (1). Negative: damage to marine biodiversity (1), the business is taking too many
shrimp from the sea and soon none will be left (1). [Total: 4]
d Uses energy sources (1), might use sources of energy that cannot be renewed such as coal and gas (1),
use of these energy sources also creates greenhouse gases that are bad for the environment (1). Uses
© Cambridge University Press 2018
Chapter 25 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
e
2 a
b
c
d
e
natural resources (1), might take too many shrimp from the sea/overfishing (1), could lead to scarcity
of shrimp, which will increase prices (1). [Total: 6]
Impose a tax on energy use (1), increase the price of energy to the business, which increases costs of
production (1), Juan Cruz will look at ways to reduce energy consumption/use more energy-efficient
production methods/use alternative, more environmentally-friendly energy sources (1). Set standards
for businesses to meet when using renewable resources, e.g. shrimp (1), set a quota for the amount of
resource a business can use in a given time period (1), reduces risk of resource becoming scarce (1).
[Total: 6]
A group of people who join together for a common cause (1) to influence business activity/
government policies (1). [Total: 2]
Exploiting employees by paying very low wages, employing child labour, unsafe/unhealthy working
conditions. [2]
Improves reputation/brand image (1) increases sales/profits/investment (1). Motivates employees (1),
easier to retain and recruit employees (1). [Total: 4]
Encourage consumers to boycott/stop buying Khan’s products (1), reduces sales and profits (1),
could cause closure of Khan’s business. Could persuade government to ban import of supplies from
countries acting unethically (1), Khan will not have enough supplies of raw materials (1), will not be
able to produce a full output so will lose sales (1), or have to look for other suppliers who might be
more expensive (1). [Total: 6]
If he does not change supplier then consumers may boycott his goods (1), this will decrease sales and
profits (1), could result in closure of the business (1). If he does change then costs will rise (1), might
have to increase the price of garments (1), less competitive so consumers will buy elsewhere and
Khan’s market share/profits will fall (1). [Total: 6]
© Cambridge University Press 2018
Chapter 25 Answers to Coursebook activities
3
Cambridge IGCSE and O Level Business Studies
26 Business and the international
economy
Answers to Coursebook activities
Activity 26.1 (page 329)
1 Carlos may be able to buy better-quality raw materials at a lower price from other countries who are
members of the free trade agreement.
2 It improves economic and technical cooperation between member countries and the free trade
agreement will reduce trade barriers such as tariffs and quotas between member countries.
3 The free trade agreement encourages trade between member countries. This will increase competition
from businesses in other countries for Carlos and other businesses in his country.
Case study (page 330)
a It operates in more markets – helped to increase sales and profits. Growth has led to economies of
scale – reduced Starbucks’ unit costs and increased profit margins.
b Increased marketing and distribution costs; competition from local businesses; government legal controls,
e.g. minimum wage laws; consumers loyal to local competitors; language and cultural differences.
c China has a very large population; the economy of China is growing fast so consumers have higher
disposable incomes.
d Increases competition so they might lose customers and market share and this will reduce revenue and
profits. Local competitors might have to reduce their prices to compete with Starbucks. This reduces
profit margins. Might have to increase marketing activities to keep customer loyalty. This increases
costs. Some local shops might not be able to compete with Starbucks and will close down.
Activity 26.2 (page 331)
1 Country Y 2011 = 24%; 2012 = 40%
Country Z 2011 = 16%; 2012 = 28%
2 Although there has been a reduction in competition from clothing imports from Country X, there has
been an increase in clothing imports from Countries Y and Z. The total value of clothing imports has
not changed between 2011 and 2012 so the policy has not been successful in reducing competition from
imports. Reduced competition from imports should increase sales for local clothing manufacturers.
However, the quality of locally produced goods might not be as good as that of suppliers from
Countries X, Y and Z. Also their prices might be higher. Consumers in Country B will not be happy if
they have to pay higher prices for clothing that is of poor quality. Also, the governments of Countries
X, Y and Z might place quotas or tariffs on goods exported to them from Country B. This would reduce
sales and profits for other businesses in Country B and could reduce the country’s economic growth
and employment.
Test yourself (page 331)
1 Consumers benefit from a wider variety of products at lower prices. Increases cooperation between
countries and promotes peace and understanding of different cultures. Reduction in prices contributes
to greater exports and incoming foreign currency. Attracting more businesses to invest in their country
can help governments achieve their economic objectives such as lower unemployment and increased
economic growth.
© Cambridge University Press 2018
Chapter 26 Answers to Coursebook activities
1
Cambridge IGCSE and O Level Business Studies
2 Quotas limit the amount of goods that can be imported or exported. Tariffs are a tax on imports and
exports that has the effect of increasing their prices.
3 Reduces trade barriers between member countries, which encourages trade and investment. Trade
agreements often improve economic and technical cooperation between member countries.
Activity 26.3 (page 332)
1 Are there any regulations or controls on foreign investments? Does the government provide any
financial incentives such as tax incentives? How stable is the country’s currency?
2 Infrastructure affects operational efficiency. Businesses need reliable power supplies to make sure
that production is not disrupted; good transport facilities for the delivery of raw materials and the
distribution of finished goods to customers; effective communication systems so that the business can
communicate easily and quickly with other businesses, suppliers and customers.
3 Social, political and operational factors such as skills and productivity of the labour force, political
stability of the country, availability of raw materials and cost of land and buildings.
4 MNCs exploit countries’ natural resources, cause environmental damage; domestic businesses are
unable to compete and may be forced to close down; could change local culture.
Activity 26.4 (page 333)
Stakeholder
Shareholders
Managers
Customers
Positive impact
Potential to increase dividends and value of
shares if the multinational increases overall
profits.
Negative impact
There are likely to be
high costs of becoming a
multinational and if the
venture fails it will reduce
profits and reduce dividends
and the market value of
shares.
Managers might be given the opportunity to
Some of the work currently
work in other countries.
done in the home country
Managers might have greater promotion
might be transferred to
opportunities.
another country and could
threaten job security.
They will be able to receive goods more quickly Some production might be
if produced in their own country/region.
moved to other countries and
Increases customer choice in the country/
this might affect quality and
region where the multinational locates.
availability.
Suppliers
Suppliers in the country where the
multinational locates should sell more goods
and increase their revenue and profits.
Government
Government where the multinational locates
will benefit from increased tax revenue.
Local community
Increased job opportunities, which increases
the standard of living.
© Cambridge University Press 2018
Multinationals have stronger
bargaining power and might
force suppliers to reduce their
prices, which will reduce their
profit margins.
The multinational might use
all of the country’s natural
resources and then leave.
Risk of pollution caused by
the multinational.
Chapter 26 Answers to Coursebook activities
2
Cambridge IGCSE and O Level Business Studies
Case study (page 335)
a Availability of a large, hard-working and educated workforce. Close to markets where finished goods
are sold, which reduces transport costs.
b Reduces costs of production. Close to the North American market that GM sells to. Reduces unemployment.
c GM will need to employ many employees in its new factory. Increases government tax revenue.
Employees will pay tax on their wages and GM will pay tax on its profits. Improves Mexico’s balance of
payments. GM will export the cars produced in Mexico to North America. GM cars no longer need to
be imported into Mexico as they are now produced there.
d There are potential drawbacks of MNCs locating in Mexico such as: possible environmental damage to the
area where the factories are located; air, noise and traffic pollution; employees might be exploited by the
MNCs, e.g. paid low wages; they might repatriate profits; the profits earned will not benefit the Mexican
economy; they might exploit Mexico’s natural resources and, once these are exhausted, leave the country.
Test yourself (page 335)
1 Easier access to raw materials, lower cost of labour, economies of scale, access to bigger markets, lower
production costs, spread of risk, premium pricing for global brands.
2 Increases choice and quality of goods and services, improves country’s reputation, increases
employment opportunities, generates income in the form of tax, improves infrastructure, knowledgesharing, improves balance of payments.
3 Undue influence on the government, increased competition, environmental damage, exploitation of labour
and natural resources, repatriation of profits, negative social impact, less sense of social responsibility.
Activity 26.5 (page 336)
1 GBP = 49 250; euro = 41 500
2 GBP
Case study (page 338)
a It has production and R&D bases in countries throughout the world. It has suppliers of raw materials in
different countries and it sells its cars throughout the world.
b Because it buys raw materials and components from different countries and its cars are sold in many
different countries too.
c South African factories can supply components and assemble cars at lower cost than in other countries.
Also they are well placed geographically for exporting cars to other countries. If the ZAR appreciates
against other currencies then local sales of cars produced in South Africa might fall because imported
cars will become cheaper as a result of the appreciation of the ZAR.
d Exports from South Africa will be more expensive so car sales to other countries are likely to fall.
e A depreciation of the ZAR against other currencies will make exports cheaper so car sales from South
Africa to other countries will probably rise.
Test yourself (page 338)
1 The value of a currency falls against other currencies.
2 By increasing or decreasing import and export prices.
3 If a country’s currency appreciates then its exports will be more expensive and imports into the country
will be cheaper.
4 If a country’s currency depreciates then its exports will be cheaper and imports into the country will be
more expensive.
© Cambridge University Press 2018
Chapter 26 Answers to Coursebook activities
3
Cambridge IGCSE and O Level Business Studies
Exam-style practice questions (page 339)
1 a The process by which countries are connected to each other (1) through the trade of goods and
services (1). [Total: 2]
b A business organisation that has operations in more than one country (1), a business that sells in
different countries (1). [Total: 2]
c Increases the price of exports (1), will reduce sales of its products in foreign markets (1). Reduces the
price of imports (1), will reduce Medico’s costs of production (1). [Total: 4]
d Impose tariffs (1), increase the prices of imported goods (1), protects local businesses from cheaper
competitor products from overseas (1). Set quotas (1), set a limit on the amount of a good that can be
imported (1), consumers will still have to buy locally produced goods (1). [Total: 6]
e Could bring both benefits and problems for the economy of Brazil (1); any relevant benefit,
e.g. increases consumer choice and quality of products, increases employment opportunities, or
drawback, e.g. increases competition, exploitation of labour (Maximum of 2). Explain one benefit,
e.g. the MNC will employ local people and this may increase their skills or increase their income,
which improves living standards, and one problem, e.g. the MNC will increase competition for local
producers. The larger MNC will be able to charge lower prices because it enjoys economies of scale
and this will reduce revenue and profits of local firms (Maximum of 2). The benefits outweigh the
problem, or the problems outweigh the benefit (1 mark). [Total: 6]
2 a The foreign country (1) where a multinational sets up its operations (1). [Total: 2]
b Can sell shares to the public (1). Owners have limited liability (1). [Total: 2]
c Availability of resources (1) – is there a good and reliable supply of raw materials at a reasonable price (1)?
Labour supply (1) – are there available employees with the right skills or who are capable of being
trained (1)? [Total: 4]
d Depreciation is a fall in the value of the currency (1), reduces the price of exports (1). Halim Leather
will sell more goods in foreign markets (1), profits will rise (1), easier to enter new foreign markets (1),
foreign governments might impose a tariff or quotas to reduce the increase in competition for local
businesses of cheaper imports (1). [Total: 6]
e Level of competition in foreign market (1), will consumers want to buy its products (1)? It must gain
market share in the foreign market (1). Costs of entering the foreign market might be too costly (1),
might be less risky to expand in its home market (1), if revenue from sales in the foreign market is
greater than costs then profit will increase so it will be successful (1). [Total: 6]
© Cambridge University Press 2018
Chapter 26 Answers to Coursebook activities
4
Section 1 Understanding business activity
Cambridge IGCSE and O Level Business Studies
Exam-style case study answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits.
Marking guidance for case study questions has been provided for this case study below, however this same guidance can be
followed when marking any case study questions from the coursebook or the Cambridge Elevate enhanced edition. Please note,
the way marks are awarded may differ in examination to the guidance provided in this resource.
Case study: Tabansi’s Drinks and Smoothies (pages 68–69)
It is important that students apply their understanding of business concepts to the specific business scenario given in the case
study. For instance, they could make appropriate use of the following features: soft drinks business/market, retained profit,
expanded product range, wider market, market trader, more ambitious, purchase production unit, savings/borrowing for start-up
capital, small business adviser, business plan. There may be further examples of application which have not been included here,
but for which students could be credited.
Question
1a Explain two characteristics that have made Tabansi a successful entrepreneur.
Possible answers could
include
Characteristics
• have an idea for a new business
• prepared to invest their own savings
• accept the risks of failure
• want to make all the decisions about the management of the business
Sample explanation
Entrepreneurs have an idea for a business. Tabansi sold soft drinks to tourists. He has expanded
the range of products sold. The business has been a success because it has expanded.
Marking guidance
•
•
•
Total available marks: [8]
One mark should be given for each relevant characteristic: [max 2 marks]
Up to three further marks can be given for each explanation, of which one of these marks
must be applied to the specific business context of this question. This means clear use of the
case study material must have been shown supporting the point being made: [max 6 marks]
Question
1b The small business adviser told Tabansi that ‘he should set clear objectives for his business’.
Explain the importance of each of the following objectives to Tabansi’s business. Which objective
do you think is the most important? Justify your answer.
Possible answers could
include
Profit
•
•
•
© Cambridge University Press 2018
reward Tabansi for his investment in the business – he receives
a financial return for the risk he has taken
can be used to invest in expansion of the business – which
might help the business enter new markets, compete better with
larger businesses
needed to help convince the bank to provide a loan – to finance
growth plans
Exam-style case study answers – Section 1
Section 1 Understanding business activity
Cambridge IGCSE and O Level Business Studies
Growth
•
•
•
Survival
•
•
more profits for Tabansi – which he could use to plough back
into his business or improve his own lifestyle
less risk – can better compete with larger businesses
long-term objective – survival and profitability are going to be
more important in the short-run
in the short term many small/new businesses fail – because they
do not have economies of scale or enough financial resources to
compete with larger businesses
needs to survive in order to achieve profit and growth – if the
business does not survive then no other objectives are possible
Conclusion
•
•
•
Marking guidance
Level
Criteria
High
•
•
•
Middle
•
•
•
Low
•
•
•
Non-creditable
answer
© Cambridge University Press 2018
•
profit is needed for the long-term survival of Tabansi’s business
– without profit growth and survival of the business will be
difficult
growth will help increase Tabansi’s profits in the long-term and
provide a source of finance to help with growth plans – a larger
business may be more competitive, and this helps the business
to survive in competitive markets, or difficult economic times
if the business does not survive, then Tabansi will not earn profit
and he risks losing the money he invested in the business
Marks
Detailed discussion of two or more objectives is evident in the
response
Recommendations and/or conclusions have been well-justified
clearly explaining the reasons behind decisions made and why
the alternative points are not as important
Clear and appropriate use of case study material to support
points made is evident throughout the response to demonstrate a
good understanding of appropriate business concepts.
[9-12]
At least one objective has been discussed in detail
Some justification and reasoning has been provided for the
choices made
Some use of case study material to support points made is
evident in the answer to show understanding of appropriate
business concepts.
[5-8]
Some points have been made, but little or no explanation offered
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have
been made.
[1-4]
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
2a Explain two benefits to Tabansi of being a sole trader.
Possible answers could
include
Benefits
• easy to set up / low start-up capital
• owner has complete control / makes all decisions
• uses owner’s skills and interests
• decides when to work and working hours
• keeps all of the profits
Sample explanation
Tabansi is the only owner. He has complete control over business decisions. Tabansi made all
decisions about expanding his product range to retain profits to expand the business.
Marking guidance
•
•
•
Total available marks: [8]
One mark should be given for each relevant benefit: [max 2 marks]
Up to three further marks can be given for each explanation, of which one of these marks
must be applied to the specific business context of this question. This means clear use of the
case study material must have been shown supporting the point being made: [max 6 marks]
Question
2b Explain how the following three factors might influence Tabansi’s decision to change his
business to a private limited company. Which factor do you think is the most important? Justify
your answer.
Possible answers could
include
Limited liability
•
•
Additional source of finance
•
•
More owners
•
•
© Cambridge University Press 2018
as a sole trader, Tabansi has unlimited liability for
the business’s debts – he could be forced to use his
personal money and sell his personal belongings to pay
debts of the business
with limited liability, he only risks losing the amount he
invests in his business – this reduces his personal risk
he could raise capital by selling shares to family, friends
and other private investors – this is easier to obtain and
cheaper than borrowing
this is a cheaper source of finance for business
expansion than borrowing from banks or other lenders –
no interest is payable on money raised through a share
issue and it does not have to be repaid by the business
to the shareholders
more owners will dilute or even remove the total control
Tabansi has over the business – all the owners will want
to be involved in business decisions
profits will have to be shared between all the owners –
Tabansi might receive less profit from the business than
he does currently
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Conclusion
Section 1 Understanding business activity
•
•
•
Marking guidance
Level
Criteria
High
•
•
•
Middle
•
•
•
Low
•
•
•
Non-creditable
answer
© Cambridge University Press 2018
•
limited liability – offers Tabansi protection from losing
everything he owns if the business fails and has unpaid
debts – there is less risk for Tabansi
additional source of finance – this might be easier for the
business to obtain than borrowing – also, it is cheaper
and does not have to be repaid, unlike borrowed capital
more owners – Tabansi loses some or possibly all control
of his business – he will have to include other owners in
the decision-making process for the business and he will
have to share profits with them – however, the business
might be able to grow and earn much higher profits than
at present, so even though profits are shared, Tabansi
might receive more than he does at the moment
Marks
Detailed discussion of two or more factors evident in the response
Recommendations and/or conclusions have been well-justified
clearly explaining the reasons behind decisions made and why
the alternative points are not as important
Clear and appropriate use of case study material to support
points made is evident throughout the response to demonstrate a
good understanding of appropriate business concepts.
[9-12]
At least one factor has been discussed in detail
Some justification and reasoning has been provided for the
choices made
Some use of case study material to support points made is
evident in the answer to show understanding of appropriate
business concepts.
[5-8]
Some points have been made, but little or no explanation offered
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have
been made.
[1-4]
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
3a New businesses such as Tabansi’s are at greater risk of failure. Explain two reasons why new
businesses fail.
Possible answers could
include
Reasons
• poor management
• poor cash-flow management
• wrong location
• lack of finance
• competition, etc
Sample explanation
New businesses often fail because of poor management. Cash flow is not effectively managed.
There is no planning. Poor cash flow means that a business is unable to pay its debts.
Marking guidance
•
•
•
Total available marks: [8]
One mark should be given for each relevant reason: [max 2 marks]
Up to three further marks can be given for each explanation, of which one of these marks
must be applied to the specific business context of this question. This means clear use of the
case study material must have been shown supporting the point being made: [max 6 marks]
Question
3b The small business adviser has recommended to Tabansi that he produces a business plan.
Consider the importance of the following elements of a business plan for Tabansi. Which element
of the business plan do you think is the most important? Justify your answer.
Possible answers could
include
The business opportunity
•
•
•
The market
•
•
Financial forecasts
what is the size of the market for Tabansi’s products? –
this will help Tabansi calculate the potential sales for his
drinks and whether the market is big enough for him
to enter
is the market likely to grow? – will he be able to achieve
future increases in sales and profits
•
who are the main competitors? – what are their
products? what do consumers think of them? how are
they priced? Is there a market leader?
•
what is the forecast of sales and profits for the first
year? – will profits give Tabansi a good return for the risk
he is taking in investing in his business?
what is the cash-flow forecast? – is Tabansi likely
to need an overdraft to meet any short-term cash
shortages?
•
© Cambridge University Press 2018
what product will the business sell? – Tabansi needs to
have a clear idea about his product mix
why does Tabansi think customers will buy the drinks? –
demand for drinks influences the sales of the business
and hence the revenue and profit earned
what market research has he done for the business? –
this provides data that Tabansi can use to prove there
is a demand for his drinks, the quantity he might sell,
how much consumers are willing to pay and information
about competitors’ products
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Conclusion
Section 1 Understanding business activity
•
•
•
Marking guidance
Level
Criteria
High
•
•
Middle
© Cambridge University Press 2018
Detailed discussion of two or more elements is evident in the
response
Recommendations and/or conclusions have been well-justified
clearly explaining the reasons behind decisions made and why
the alternative points are not as important
[9-12]
Clear and appropriate use of case study material to support
points made is evident throughout the response to demonstrate
a good understanding of appropriate business concepts.
•
•
At least one element has been discussed in detail
Some justification and reasoning has been provided for the
choices made
Some use of case study material to support points made is
evident in the answer to show understanding of appropriate
business concepts.
[5-8]
Some points have been made, but little or no explanation offered
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have
been made.
[1-4]
•
•
•
Non-creditable
answer
Marks
•
•
Low
the business opportunity – without a good idea for the
business, which is supported by good market research
inforamtion, then there is no point in Tabansi risking his
own money starting the business
the market – if the market is small with many competitors,
then Tabansi will find it difficult to enter. However, if it is a
growing market then Tabansi could also see his business
grow which increase long-term revenue and profits
financial forecasts – these are important because
Tabansi needs to know if this is the best way of investing
his capital – will the return be high enough to reward
his risk, or could he do better by investing his money
elsewhere?
•
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
4a Explain two ways Tabansi might increase his business’s added value.
Possible answers could
include
Ways
• improving product quality
• offering quality service offered
• distinctive packaging or branding
Sample explanation
Tabansi might improve quality, e.g. cooler bags, freshly squeezed juices, which could increase
sales and profits.
Marking guidance
•
•
•
Total available marks: [8]
One mark should be given for each relevant way: [max 2 marks]
Up to three further marks can be given for each explanation, of which one of these marks
must be applied to the specific business context of this question. This means clear use of the
case study material must have been shown supporting the point being made: [max 6 marks]
Question
4b Consider why each of the following stakeholders will be interested in Tabansi’s business.
Which stakeholder group do you think will be most interested in the success of Tabansi’s
business? Justify your answer.
Possible answers could
include
Lenders
•
•
Suppliers
•
•
Government
•
•
Conclusion
•
•
•
will the business be able to pay interest on loans? – this is how lenders earn
their profit so will want to be sure they will get paid by Tabansi’s business
will the business be able to repay loans? – The lender risks losing the money
loaned if it cannot be repaid
will they get paid for goods they supply to Tabansi? – goods are supplied on
credit to Tabansi – the supplier needs the cash from Tabansi to meet their own
cash outflows – if they don’t get paid then they will make a loss on these sales
is the business likely to grow? – if so then they will need more supplies and
this will help to increases the revenue and profits of suppliers
how much tax will they receive from Tabansi’s profits? – the Government
needs tax revenue to be able to finance their spending plans
will Tabansi provide employment opportunities for locals? – this benefits the
local community by paying wages to those Tabansi employs – they will spend
some of this buying goods and services of other businesses and so provide
more employment opportunities
lenders – they want to be certain that they will receive interest payments and
return of the amount loaned to Tabansi – the more successful the business, the
lower the risk of not receiving these
suppliers – they want to be sure that they will receive money owed and a
successful business will also provide opportunities for suppliers to grow too
government – the more successful Tabansi’s business, the more tax paid
to government and the more people employed – provides government with
revenue to finance spending, so they don’t have to borrow or it reduces
borrowing – also, it will reduce the amount spent supporting the unemployed
© Cambridge University Press 2018
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Marking guidance
Level
Criteria
High
•
•
•
Middle
•
•
•
Low
•
•
•
Non-creditable
answer
© Cambridge University Press 2018
•
Section 1 Understanding business activity
Marks
Detailed discussion of two or more stakeholder groups is
evident in the response
Recommendations and/or conclusions have been well-justified
clearly explaining the reasons behind decisions made and why
the alternative points are not as important
Clear and appropriate use of case study material to support
points made is evident throughout the response to demonstrate
a good understanding of appropriate business concepts.
[9-12]
At least one stakeholder group has been discussed in detail
Some justification and reasoning has been provided for the
choices made
Some use of case study material to support points made is
evident in the answer to show understanding of appropriate
business concepts.
[5-8]
Some points have been made, but little or no explanation offered
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have
been made.
[1-4]
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – Section 1
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Exam-style case study 1a answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits. Marking guidance for case study questions has been provided for this case study below, however,
this same guidance can be followed when marking any case study questions from the coursebook or the Cambridge Elevate
enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided in this resource.
Case study 1a: DIY Home Supplies
Question
1a Identify one advantage and one disadvantage to Joshua of changing the legal structure of his
business to a private limited company.
Possible answers
could include:
Advantages
• raise capital by selling shares
•
•
•
•
limited liability
continuity
easier to get bank loan
separate legal identity
Disadvantages
• shareholders expect dividends
• accounts not totally private
•
more complex legal process than unlimited business
Sample explanation
Limited liability for his building suppliers business means that, if the business owes suppliers money
for the purchase of building materials, and the business goes bankrupt, then Joshua and his father (as
shareholders) cannot have their personal possessions taken away to pay the debt. They would only lose
the money they invested into the business.
Marking guidance
•
•
•
•
Total available marks: [8]
One mark should be given for a relevant advantage: [max 1 mark]
One mark for a relevant disadvantage: [max 1 mark]
Up to three further marks can be given for each explanation, provided that one is applied to the
specific business scenario in this question: [max 6 marks]
Question
1b The small business development adviser encouraged Joshua to set clear objectives for his business.
Consider each objective in Appendix 2. Which do you think is most important for the success of DIY
Home Supplies? Justify your answer.
Possible answers
could include:
Objective 1: Offer quality •
products and services to
customers at competitive •
prices at all times
create brand loyalty – could lead to increased sales as customers keep
returning
remain competitive – less risk of losing market share to rivals
Objective 2: Reinvest
•
a percentage of profits
each year to improve
•
and expand the business •
able to finance growth without the need to borrow money externally –
keeps costs of finance lower
no risk of losing control of business
able to control rate of growth
© Cambridge University Press 2018
Exam-style case study answers – 1a
Cambridge IGCSE and O Level Business Studies
Objective 3: Only sell
products that meet
expected social, ethical
and environmental
standards
•
•
•
Conclusion
•
•
•
•
Marking guidance
Level
Criteria
High
•
•
•
Section 1 Understanding business activity
better reputation – lower costs of promotion
increased sales if able to find customers who have same principles
less risk of legal / pressure group action which could have negative
impact on costs/image
able to charge higher price – may increase profit margin
objective 1: helps remain competitive – without this may not be able
to achieve other objectives or expand his business – so possibly most
important
objective 2: important source of finance – so able to buy more houses
to renovate – but may slow down expansion as little retained profit as
only formed seven years ago – may need to borrow to expand as quickly
as planned
objective 3: customers may not share same views – may not be prepared
to pay extra – lower sales as customers go to cheaper competitors – may
not be able to find suitable suppliers or materials to pursue which could
lower sales – so could be seen as longer term aim – depends on personal
values as to how important the issue is
Marks
Detailed discussion of two or more objectives is evident in the response
Recommendations and / or conclusions have been well-justified clearly
explaining the reasons behind decisions made and why the alternative
points are not as important
Clear and appropriate use of case study material to support points made
is evident throughout the response to demonstrate a good understanding
of appropriate business concepts.
[9–12]
Middle
•
•
•
At least one objective has been discussed in detail.
Some justification and reasoning has been provided for the choices made.
Some use of case study material to support points made is evident in the
answer to show understanding of appropriate business concepts.
[5–8]
Low
•
•
Some points have been made, but there is little or no explanation offered.
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have been
made
[1–4]
•
Non-creditable •
answer
© Cambridge University Press 2018
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – 1a
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
2a Explain two reasons why the government provides grants to start-up businesses.
Possible answers could
include:
Reasons
• to increase employment
• to increase economic growth
• small businesses may grow into large businesses
Sample explanation
To raise employment levels as small businesses will employ many workers in their shops and
factories and so reduce unemployment. Without government help, businesses such as Joshua’s
building supplies shop may not open and, therefore, these workers would not have a job. This
may reduce benefit payments or increase income tax for the government.
Marking guidance
•
•
•
•
Total available marks: [8]
One mark should be given for each valid reason: [max 2 marks]
One mark for a relevant disadvantage: [max 1 mark]
Up to three further marks can be given for each explanation, provided that one is applied to
the specific business scenario within this question: [max 6 marks]
Question
2b Explain why the following three characteristics are important to Joshua when being a successful
entrepreneur. Which characteristic do you think is most important? Justify your answer.
Possible answers
could include:
Taking risks
•
•
•
Creative
•
•
Hard working
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
set up the business in 2010 – with $5000 in savings – and borrowed money – could
have lost it all
looking to expand rather than second shop – entered a new market – no experience
– so could make loss and damage reputation of other business
no direct experience of either business – as electrician – so shows he is willing to
take advantage of new opportunities
needs new ideas to make his supplies business different to others such as
equipment stocked or how to operate
saw opportunity to renovate house for students – did something different – he will
have to think about how he decorates the house
business established in 2010 – made many mistakes but learned quickly – to own
an efficient and profitable business – had to work hard to manage the business
effectively so that it is successful
planning shown for new business – work long hours to ensure business is given
finance needed
creative – limited evidence of this – so less likely to be important
hard working – has a successful business – father provided some of the finance but
he worked hard in first two years to ensure success – without this risk would not
have paid off
taking risks – taken chances with both ideas – without this, would not have had
opportunity to be successful – but taking risk is only part of the process – need to
work hard to ensure decisions taken are worth the risk
Exam-style case study answers – 1a
Cambridge IGCSE and O Level Business Studies
Marking guidance
Level
Criteria
High
•
•
•
Section 1 Understanding business activity
Marks
Detailed discussion of two or more characteristics is evident in the
response
Recommendations and / or conclusions have been well-justified clearly
explaining the reasons behind decisions made and why the alternative
points are not as important
Clear and appropriate use of case study material to support points made is
evident throughout the response to demonstrate a good understanding of
appropriate business concepts.
[9–12]
Middle
•
•
•
At least one characteristic has been discussed in detail.
Some justification and reasoning has been provided for the choices made.
Some use of case study material to support points made is evident in the
answer to show understanding of appropriate business concepts.
[5–8]
Low
•
Some points have been identified but there is little or no explanation
offered.
Judgement may have been attempted but there is limited or no explanation
of the choices made
An appropriate reference to material in the case study may have been made
[1–4]
•
•
Non-creditable •
answer
No response provided or, response given is not creditable.
Question
3a Explain two possible problems linked to Joshua’s proposed growth of his business.
Possible answers
could include:
Possible problems
• financial
• competition
• government / legal controls
• more difficult to control
[0]
Sample explanation
More difficult to control as Joshua already has the DIY supplies business to run as well as starting this
new venture, especially as the two businesses are very different and he made a number of mistakes in
his first two years of business. This could lead to poor decisions being taken which threaten his potential
success.
Marking guidance
•
•
•
Total available marks: [8]
One mark should be given for each valid problem: [max 2 marks]
Up to three further marks can be given for each explanation, provided that one is applied to the
specific business scenario within this question: [max 6 marks]
© Cambridge University Press 2018
Exam-style case study answers – 1a
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
3b Consider how the following three stakeholders will be affected if Joshua goes ahead with his new
business idea. Which stakeholder do you think will be most affected by this decision? Justify your answer.
Possible answers
could include:
Bank
•
•
providing finance – gain interest payments on $25 000 – which increases revenue
high risk as no experience in this sector – could affect bank’s profits – can use house
as security to limit amount of risk
Customers
•
additional accommodation – more choice or better quality (as newly renovated) –
more choice could mean lower prices so more affordable – important as on low
income
Joshua has no experience in sector so house may not be suitable or there may be
problems contacting him
•
Shareholders
Conclusion
•
lower profits possible – as added costs of finance and investment in new venture –
•
no experience so less certain of success
has limited liability – limits risk faced to amount invested
•
•
•
Marking guidance
bank – probably most affect as faces risk of non-payment – property might not be
easy to sell
customers – increases competition – more choice – but lack knowledge of market so
choice may not match needs – but always other landlords available
shareholder – risks limited as benefit from limited liability as private limited
company – so losses limited and will benefit if makes profit
Level
Criteria
High
•
•
•
Marks
Detailed discussion of two or more stakeholders is evident in the response
Recommendations and / or conclusions have been well-justified clearly
explaining the reasons behind decisions made and why the alternative
points are not as important
Clear and appropriate use of case study material to support points made is
evident throughout the response to demonstrate a good understanding of
appropriate business concepts.
[9–12]
Middle
•
•
•
At least one stakeholder has been discussed in detail.
Some justification and reasoning has been provided for the choices made.
Some use of case study material to support points made is evident in the
answer to show some understanding of appropriate business concepts.
[5–8]
Low
•
Some stakeholders have been identified but there is little or no explanation
offered.
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have been
made
[1–4]
•
•
Non-creditable •
answer
© Cambridge University Press 2018
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – 1a
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
4a DIY Supplies is in the private sector. Explain two differences between Joshua’s business and
its competitors in the public sector.
Possible answers could
include:
Differences
• profit motive
• Joshua’s business not owned by government
• separate legal identity
• limited liability
Sample explanation
Joshua’s business has profit as an objective, whereas public sector businesses have different
objectives, such as providing a service. This means that the price Joshua charges for renting a
room will be based on how much profit he wants to make to achieve this objective rather than
setting prices based on what students can afford to pay.
Marking guidance
•
•
•
Total available marks: [8]
One mark should be given for each valid difference: [max 2 marks]
Up to three further marks can be given for each explanation, provided that one is applied to
the specific business scenario within this question: [max 6 marks]
Question
4b Consider the advantages and disadvantages to Joshua of choosing to start a new business
rather than expand his existing business. Do you think Joshua made the correct decision? Justify
your answer.
Possible answers could
include:
Existing
business
•
•
•
•
New business
•
•
•
•
•
•
Conclusion
•
•
© Cambridge University Press 2018
has experience – operated since 2010 – knows mistakes so able to
avoid them
demand – is there scope for a second shop? – he bought the shop, why was
it sold?
finance – cheaper than other option by $20 000
spread business reputation
competition – there are other landlords who students rent from – students
may be loyal so how will he attract customers?
potential market – there is a large population of students – so could be first of
many houses – help increase profit further
finance – will need to borrow $20 000–50 000 more than new shop – can he
afford it?
taking risks – seems to like a challenge as was electrician before
has prepared a business plan
has practical skills – as electrician – so may not be too difficult to renovate
house or know people who can help him – which would lower costs
existing business – has experience – and reputation to build on – cheaper so
may be seen as safer option – but may want a new challenge
new business – may like taking risks, already lived the dream with current
business – may want a new challenge – higher risk as no experience – large
potential market – has competition so may represent greater risk – so could
depend on how much risk he is prepared to take
Exam-style case study answers – 1a
Cambridge IGCSE and O Level Business Studies
Marking guidance
Section 1 Understanding business activity
Level
Criteria
Marks
High
•
•
Detailed discussion of both options is evident in the response
Recommendations and / or conclusions have been well-justified
clearly explaining the reasons behind decisions made and why the
alternative points are not as important
Clear and appropriate use of case study material to support points
made is evident throughout the response to demonstrate a good
understanding of appropriate business concepts.
[9–12]
One option has been discussed in detail
Some justification and reasoning has been provided for the choices
made.
Some use of case study material to support points made is evident
in the answer to show some understanding of appropriate business
concepts.
[5–8]
A number of issues have been identified but there is little or no
explanation offered.
Judgement may have been attempted but there is limited or no
explanation of the choices made
An appropriate reference to material in the case study may have
been made
[1–4]
•
Middle
•
•
•
Low
•
•
•
Non-creditable •
answer
© Cambridge University Press 2018
No response provided or, response given is not creditable.
[0]
Exam-style case study answers – 1a
Section 1 Understanding business activity
Cambridge IGCSE and O Level Business Studies
Exam-style case study 1b answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 1b: Banke’s bakery
Question
1a Explain two ways to measure the size of Banke’s business.
Possible answers could
include:
Relevant points
• number of employees
• capital employed
• level of sales turnover
• market share of the business
Sample explanation
The number of employees is one way to measure size. Banke does the baking so is likely to
employ few employees, if any. Large businesses often employ a large number of workers,
although this is not always the case when capital-intensive methods of production are used.
Question
1b Consider the following three reasons why Banke might want her business to remain small.
Which reason is likely to be most important? Justify your answer.
Possible answers could
include:
Lack of demand
•
bakery may not have a large number of potential customers
in the local area – without a large demand there is no point in
trying to expand to sell large numbers of bread or pizza, so the
business will remain small
Offer personal service
•
Banke bakes the bread and pizza – customers might like
supporting small local business and meeting Banke – if she
expands, she may not have time to meet and talk to customers
customers can easily ask for different, individual orders to
be made which limits Banke’s ability to increase the scale of
production
•
Ability to control
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
runs her own business successfully – does not want someone
telling her what to do
does most of the jobs – so able to see clearly what needs to be
done
lack of demand – must be able to sell what she makes –
otherwise will make a loss – unless able to increase demand, this
is likely to be most important factor
personal service – only one shop – can train employees to offer
good service as well, but it would not be Banke
control – did not like idea of partnership so control is clearly
important to her – Billy did offer to become a partner
Exam-style case study answers – 1b
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
2a Explain two disadvantages to Banke of her being a sole trader.
Possible answers could
include:
Relevant points
• no one to share workload with
• only have own ideas and skills
• unlimited liability
• few sources of finance available for expansion
• carry all the business risk
Sample explanation
Banke has no one to share workload with so, as well as making the bread and pizzas, she has
to run the shop which could increase the amount of stress and burden Banke has to deal with
(especially at a time when her main customer to whom she sells 60% of her products is closing
down) which could increase the chances of her making mistakes.
Question
2b Consider the advantages and disadvantages of the following two forms of business
organisation Banke could choose if she went into business with Billy. Which form do you think
Banke should choose? Justify your answer.
Possible answers could
include:
Partnership
•
•
•
•
•
•
Private limited
company
•
•
•
•
•
Recommendation
•
•
© Cambridge University Press 2018
increased capital – Billy will put money in
additional partners to work in the business – help with decisions –
holidays/responsibility shared
additional specialisms/skills of partners – Billy has 20 years’ experience
as manager – so could help expand business or know about potential
customers to help replace lost revenue when supermarket closes down
unlimited liability – so same risk as remaining a sole trader
disagreements may cause problems/arguments – which can lead to
slower decision making or wrong decisions being made – missing out
on opportunities – but Billy is a friend for 10 years so may not be an
issue
profit will have to be shared – so make less than would if remain as sole
trader
limited liability – limit losses to amount invested – reduces risk –
important if she decides to buy franchise as it is a different business
increased capital – can sell shares to friends and family
legal requirements – more paperwork to set up
less privacy with accounts – some disclosure legally required
only sell shares to family and friends – restrict amount of capital that
can be raised
private limited – main advantage is limited liability – limit any loss to
amount invested – so personal assets safe – would also allow other
friends and family to invest – but would have less privacy as some
accounts disclosed – could always employ Billy as manager – so if
lower risk is important – private limited is safer option
partnership – can share risk and will benefit from Billy’s skills and
knowledge of supermarket – but retain unlimited liability – and as pizza
is new business this increases risk
Exam-style case study answers – 1b
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
3a Explain two examples of tertiary sector businesses that a business might use.
Possible answers could
include:
Relevant points
• banking
• transport
• advertising agency
• market research agency
• wholesaler
• website designer
• accountant
• legal services
• business advisor
Sample explanation
Banke needs to use an advertising agency to help promote her bread to the customers as she is
busy making the bread and pizzas.
Question
3b Explain why the following three recommendations are important to Banke when deciding
whether to expand her business. Which recommendation do you think is the most important?
Justify your answer.
Possible answers could
include:
Market research
•
•
•
•
•
Clear objectives
•
•
•
Business plan
•
•
Conclusion
•
•
•
•
© Cambridge University Press 2018
greater awareness of consumer needs – can adapt its pizza or bread to
match what customers want – increasing sales
help forecast likely future trends – can improve focus of new products
know strength of competitors – can change marketing strategy, such as
prices to compete improving chances of success
reduces risks so franchise launched with more confidence – know what
features customers want
produce the correct amount of product to avoid wastage of bread ingredients
measure of success – if achieve a certain amount of new business to
replace 60% lost, they know they are on track
helps decision making/planning/budgeting for the new franchise
gives sense of purpose and direction – able to take decisions/allocate
resources effectively to ensure annual target is hit
guide business/acts as a checklist/monitoring – to help decision making/
see what action they need to take – in order to help ensure expansion is
successful
support loan applications/attract investors – so don’t have to use own
savings as shows ability to repay
depends on what Banke wants to know – all help with planning but focus
on different elements
market research – information about the market – important as lost major
customer – has to decide whether to accept franchise
objectives – important as before she decides whether to go into partnership
or buy franchise needs to know what she wants to achieve
business plan – overview of aims – help planning and support requests for
loans – but needs to know what she wants to do first
Exam-style case study answers – 1b
Cambridge IGCSE and O Level Business Studies
Section 1 Understanding business activity
Question
4a Describe two stakeholders that might be affected by the closure of Lowcost Supermarket.
Possible answers could
include:
Relevant points
• suppliers
• employees
• government
• lenders
• local community
Sample explanation
Suppliers, such as Banke, rely on the supermarket for 60% of its business so will lose
a significant amount of revenue from its closure. If suppliers are unable to find alternative
customers for its bread or other products, the businesses also face the risk of having to
close down.
Question
4b State the advantages and advantages of the three options listed in Appendix 2. Which option
do you think Banke should choose? Justify your answer.
Possible answers could
include:
Option 1
•
•
•
•
Option 2
•
•
Option 3
•
•
•
•
•
Recommendation
•
•
•
© Cambridge University Press 2018
be own boss – able to make all decisions – was concerned about idea
of partnership
lower risk – has experience in this market
current business is successful
level of demand – can she find new customers to replace the ones lost
by the supermarket closure?
partnership – able to share risk and costs but would have to share
ownership which she is worried about – may make decisions she is not
happy about
private limited – lowers risk but set up is more time consuming and
requires more paperwork and disclosure of information
Billy has 20 years of management experience but not in this business
would Billy want to be an employee? – he offered to be a partner
would increase her workload and risk of being a sole trader – and if
business not successful would be at greater risk of losing personal
possessions if unable to pay business debts
has some knowledge of pizza market
new competitor is likely as someone will take franchise which could
lower her sales of bread and other food items, especially as one of her
main customers is closing down
Banke does not like idea of partnership – still has unlimited liability –
but has private limited company option – but would mean more
information and legal requirements to set up
current business – about to lose main customer – so can she find
alternative customers to replace the 60%?
franchise – help and support offered – has some knowledge of pizza
business – could help spread risk if she can afford the cost of buying
the franchise – may depend if Billy willing to work for her
Exam-style case study answers – 1b
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Exam-style case study answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits.
Marking guidance for case study questions has been provided for Section 1 in the answers documents. However, this same
guidance can be followed when marking the case study below and the other case study questions from the coursebook or the
Cambridge Elevate enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided
in this resource.
Case study: Precision Tooling (pages 136–137)
It is important that students apply their understanding of business concepts to the specific business scenario given in the case
study. For instance, they could make appropriate use of the following features: component manufacturer, one factory, division
of labour, hourly-rate method, bonus, production target, motivation, decrease in output, change of pay system, trade union,
recruitment of employees. There may be further examples of application which have not been included here, but for which
students could be credited.
Question
1a Explain two documents that the human resources manager might use in the recruitment
process.
Possible answers could
include
Job description
• outlines the main duties of the post – for example, supervise ten production employees; plan
and carry out marketing activities to agreed budgets and timescales
• identifies who the job holder is responsible for supervising/managing – supervising ten
employees
• identifies who the job holder reports to – accountable to the factory manager
Person specification
• identifies the type of qualifications, skills, experience and personal qualities the business is
looking for in applicants
• should attract only those applicants with the right skills, experience and personal qualities
• can help in the selection process
Sample explanation
The person specification lists the skills, experience and personal qualities that the business is
looking for. It will help Precision Tooling attract applicants with the right skills and experience for
the factory manager’s job. Only people with the required skills will apply. This will save time and
money in the recruitment process.
Question
1b The human resource manager is wondering whether she should use internal or external
recruitment methods for replacing the factory manager and the Section A supervisor. State the
advantages and disadvantages of each method of recruitment. Which method do you think the
human resource manager should choose? Justify your answer.
© Cambridge University Press 2018
Exam-style case study answers – Section 2
Cambridge IGCSE and O Level Business Studies
Possible answers could
include
Internal recruitment
Section 2 People in business
Advantages
• the person already knows the business and how it
operates – so it may reduce training requirements
• might provide motivation for employees – prospects
for promotion
Disadvantages
• job requires skills and expertise that might not be
available from internal recruitment – don’t get the
best person for the job
• could lead to conflict – employees who apply for the
job but are not successful
External recruitment
Advantages
• external recruitment will bring in new ideas – more
effective and efficient; improves quality
Disadvantages
• advertising costs will be more expensive – reduces
profits
• takes longer to fill vacancies – could reduce output in
the short-run
• training required – new employees will have to be
trained and this increases costs and could reduce
production in the short-run
Conclusion
•
•
internal recruitment – quicker and less costly, but
the business will not necessarily recruit the ‘best’
employees – perhaps more appropriate for recruiting
the supervisor than the factory manager
external recruitment – will take longer to recruit and
is more costly e.g. advertising and training of new
employees – might be more appropriate for the
factory manager e.g. brings new expertise/ideas to
the business
Question
2a Explain two benefits for the production workers of Precision Tooling of trade union
membership.
Possible answers could
include
Benefits
• negotiation with employers to improve pay and conditions – collective bargaining
• conflict resolution
• legal support and advice
• membership benefits, e.g. pensions
Sample explanation
A trade union will negotiate with employers on behalf of its members. This will protect Precision
Tooling employees from exploitation and make sure they are not worse off with a change of pay
system. It is more effective for a trade union to represent all employees than for employees to do
this individually.
© Cambridge University Press 2018
Exam-style case study answers – Section 2
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Question
2b The operations director wants the new factory manager to ‘understand the functions of
management’. Explain the importance of each of the functions of management below for the
future success of Precision Tooling. Which function of management do you think is the most
important? Justify your answer.
Possible answers could
include
Planning
•
•
looking at where the business is now and where it
wants to be in the future – needs to have a clear idea
about the future direction of the company
setting clear objectives and deciding on the actions
needed for these to be achieved – without clear
(SMART) objectives, the business will not know the
resources required and employees will not know what
they should be working towards
Organising
•
preparing and organising the resources needed to
achieve the planned goals and objectives at the
lowest possible cost to the business – if resources
are not available when needed, then this will delay
the achievement of objectives and could result in loss
of revenue and/or increased costs and hence lower
profits
Coordinating
•
making sure that all of the different parts of the
business are working together towards achieving
the business’s goals and corporate objectives – if
different functions are working towards different
goals and objectives, then there will be a waste of
resources and targets will not be met
Conclusion
•
•
•
© Cambridge University Press 2018
planning – without careful planning, including setting
clear objectives, the business will not be successful
and marketing opportunities could be missed
organising – without the resources, objectives will not
be achieved at the lowest possible cost – profit will
be lower than it might have been had resources been
available as and when required
coordinating – marketing, operations, finance and
HRM must all work together to achieve company
goals and objectives – it is no good for one function
to work differently from the others as this is likely
to result in a waste of resources and targets not
achieved in the shortest possible time and at the
lowest cost
Exam-style case study answers – Section 2
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Question
3a Other than improving productivity, explain two benefits to Precision Tooling of having a wellmotivated workforce.
Possible answers could
include
Benefits
• improved quality/reduced waste
• lower absenteeism
• lower labour turnover
• less conflict in the workplace/easier to manage
Sample explanation
A more motivated workforce may reduce labour turnover. Precision Tooling will not have to recruit
employees as often and will not lose skilled employees. A lower labour turnover will reduce
Precision Tooling’s costs.
Question
3b The operations director has suggested replacing the hourly-rate system with a piecerate system to improve the motivation of the production workers. State the advantages and
disadvantages of each system for Precision Tooling. Which system do you think they should use?
Justify your answer.
Possible answers could
include
Hourly-rate system
Advantages
• Precision Tooling knows exactly how much its wage cost
will be – number of hours worked per worker × hourly
rate – this helps with budgeting wage costs
• only pay workers for the time worked
Disadvantages
• not dependent upon employee output – employees
receive a fixed amount per hour regardless of how many
they produce/how hard they work
• difficult to calculate unit cost of output which might be
needed for pricing decisions
Piece-rate system
Advantages
• employees will work harder in order to increase their
wage – increases motivation
Disadvantages
• quality of output might be poor as employees work too
quickly to increase their pay – increases costs of waste
and could affect company reputation if poor quality
products are sold to customers
© Cambridge University Press 2018
Exam-style case study answers – Section 2
Cambridge IGCSE and O Level Business Studies
Conclusion
Section 2 People in business
•
•
hourly-rate – easier to budget and only pay workers for
time worked – however, it does not motivate employees
to increase productivity, so does not necessarily improve
labour productivity and reduce average costs – however,
quality of output might be better
piece-rate – could motivate employees to work harder
and produce greater output – this increases labour
productivity and reduces average costs which increases
profit margins or helps the business to lower prices and
be more competitive – however, quality issues might
arise, increasing the costs of waste and customer
returns/complaints
Question
4a Explain two features of Precision Tooling’s organisational structure.
Possible answers could
include
Features
• chain of command – shows responsibility, accountability, formal communication channel,
delegation of authority
• span of control – number of subordinates, effectiveness of control
Sample explanation
Span of control shows how many subordinates a manager/supervisor is in charge of. A factory
manager has a narrow span of control. Supervisors have a span of control of ten employees each.
Spans of control are not too wide, so supervision should be effective.
Question
4b Explain the advantages and disadvantages of each of the following methods of communication
that might be used by Precision Tooling when communicating with employees.
Which method do you think would be most effective? Justify your answer.
Possible answers could
include
Noticeboard
Advantage
• can be made available for all employees if placed on all noticeboards
in the company – everyone has access to the same message
Disadvantage
• no permanent record of the message – once removed from the
noticeboard employees do not have anything to refer back to
• not everyone reads noticeboard messages – communication may not
be effective
• notices might get covered up by other notices
Email
Advantage
• quick and easy – all employees are sent the same message at the
same time
• provides a permanent copy of the message which can be referred
to later
Disadvantage
•
•
© Cambridge University Press 2018
some employees might not have email, or check it often – Precision
Tooling will not know who has received the message and who has not
could end up as junk mail – not seen by some employees
Exam-style case study answers – Section 2
Cambridge IGCSE and O Level Business Studies
Letter
Section 2 People in business
Advantage
• all employees will get the same message at the same time and it is a
permanent record of the message – less chance of miscommunication
Disadvantage
• takes time to prepare and send letters – delays communication of the
message
• cost - expense of printing and postage
Conclusion
•
•
•
© Cambridge University Press 2018
method chosen will depend on message to be communicated e.g.
noticeboard might be a good place to communicate information about
a job vacancy, but not about possible redundancies
email and letters provide employees with a permanent record of the
message
email is probably best for receiving confirmation that the message has
been received and understood i.e. easier for employees to reply to
email than the other two methods – effective communication
Exam-style case study answers – Section 2
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Exam-style case study 2a answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 2a: Snax Plc
Question
1a Explain two benefits to Snax Plc of contracts of employment.
Possible answers could
include:
Relevant points
• it is a legal requirement
• avoids misunderstanding if there is a dispute
• employers and employees know the terms and conditions of the employment
Sample explanation
It is a legal requirement, so Snax Plc has to provide all the 350 production workers with a contract
setting out details, such as the hours and when they are to be paid; this should stop the chance
of disputes arising which could lead to a stoppage in the production of crisps. If the employer
does not provide a contract, it could lead to fines/legal action which would increase costs.
Question
1b As well as contracts of employment, there are other legal controls on the recruitment and
employment of workers. How might each of these laws affect Snax Plc? Justify your answer.
Possible answers could
include:
Minimum wage laws
•
•
Health and safety laws
•
•
•
•
Anti-discrimination laws
•
•
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
workers have right to be paid for work they do – pay at minimum
wage – so unless large increase limited impact
would increase business costs – may not be able to afford to pay
all 350 workers – so make some workers redundant/replace with
machinery
laws to protect employees – ensure protective clothing provided
if employers do not provide safety equipment and the worker is
injured during crisp production they can sue for compensation –
company can also get fined for not complying with the law
increases business costs – as will need to train workers to use
machines safely as well as purchase equipment
could reduce number of accidents – increasing productivity/output
have to have equal opportunities policies in place – takes time and
money to set up
could have to give job back and pay compensation if unfairly
dismissed
if workers feel unfairly treated they may leave – many are leaving –
could help reduce recruitment costs
widen pool of ideas/skills – leading to more varied ideas and views
minimum wages – as current level of pay meets law – limited impact
health and safety – increases costs – impact on profitability and
prices – so likely to have most effect as cannot avoid
anti-discrimination policies can benefit business as more ideas –
help compete – policies do not necessarily increase costs
Exam-style case study answers – 2a
Section 2 People in business
Cambridge IGCSE and O Level Business Studies
Question
2a Explain one advantage and one disadvantage of off-the-job training.
Possible answers could
include:
Advantages
• other workers not affected
• workers have access to skilled trainers
• workers do not learn bad habits
• workers focus 100% on training
Disadvantages
• expensive
• not necessarily tailored to individual company
• workers are training rather than working
Sample explanation
Other workers not affected so the remaining from the 350 employees are able to focus on
production, which could help increase/maintain output. If not, Snax Plc would not be able to
keep up with demand, leading to a reduction in sales for its crisps and other snacks.
Question
2b Explain three reasons why training of workers is important for Snax Plc. Justify your answer.
Possible answers could
include:
Decrease amount of
supervision
•
•
less supervisors – lower costs of pay
help motivate some of the 350 employees – as do not feel being
watched as much
Decrease chances of
mistakes
•
fewer errors – less rework required as fewer wasted resources –
lower costs
higher output of crisps – able to meet demand
better quality – could improve reputation of its snacks – increase
demand/sales
•
•
Increase opportunity for
internal promotion
•
•
Conclusion
•
•
•
increase motivation – so fewer employees leave – which is
current problem
increase pool of internal candidates – easier to find employees
with knowledge of business so lessens requirement to recruit
external candidates
supervision – help lower costs – but this is not main issue – high
turnover and waste issues
mistakes – concern over high level of waste – but workers highly
trained so impact may be limited in cooking division
opportunity for promotion – high labour turnover – and have to
recruit external candidates – could save time – reducing need for
induction training
Question
3a Other than increasing hourly wage rates, identify two financial incentives that Snax Plc could
consider paying to its employees in the Preparation division.
Possible answers could
include:
Relevant points
• bonuses
• performance related pay
• share ownership scheme
© Cambridge University Press 2018
Exam-style case study answers – 2a
Section 2 People in business
Cambridge IGCSE and O Level Business Studies
Sample explanation
Share ownership may encourage the employees to think about how to make the business more
productive, such as reducing the level of waste as they will directly benefit from any increase in
profit or improvements in quality. Furthermore, it does not add to costs of running the business,
as payment comes out of profits.
Question
3b Explain the following non-financial incentives. Which one would be the best for the Factory
Manager to use in order to reduce labour turnover in the Preparation division? Justify your
answer.
Possible answers could
include:
Job rotation
•
•
Quality circles
•
•
•
Team working
•
•
•
Recommendation
•
•
•
•
workers switch jobs – more interesting/not as boring as doing
the same thing – improve motivation
cost of training workers to do different jobs
workers have first-hand knowledge of issues – solutions likely to
be more effective – can save time and money
takes longer as time in group meetings (350 employees) could
be used working – lower output
can help motivate employees as given responsibility – which
could help reduce problem of workers leaving
employees have ownership of work – increases motivation
relies on workers being able or willing to cooperate – as not
everyone may be team workers
unequal participation – could lower overall productivity so fewer
crisps/snacks produced
employees may not want extra responsibility of team working so
lower output not increase motivation
how easy is it to switch jobs without additional training costs – if
work is not interesting will not help improve motivation
employees must feel that solutions offered are listened to
otherwise could demotivate rather than motivate
depends on reasons why employees leaving – is it work, pay or
responsibility? – may need to see results of questionnaire
Question
4a Explain the purpose of two documents that the human resources department might send to
someone interested in applying for a vacancy at Snax Plc.
Possible answers could
include:
Relevant points
• job description
• person specification
• application form
Sample explanation
Job description outlines the tasks and responsibilities that will need to be carried out as part of
the specific job. Applicants will know what the job involves and if they are suitable to apply. This
reduces the chance of wasting Snax Plc’s time by applying for an inappropriate role. This allows
the human resources manager to draw up a job specification with suitable skills required, so he
can focus on resolving the labour turnover issue.
© Cambridge University Press 2018
Exam-style case study answers – 2a
Section 2 People in business
Cambridge IGCSE and O Level Business Studies
Question
4b State the advantages and disadvantages of the following methods of recruitment. Which
would be the most appropriate for Snax Plc to use to fill a vacancy for a supervisor in any of the
three factory divisions? Justify your answer.
Possible answers could
include:
Internal recruitment
•
•
•
•
External recruitment
•
•
•
•
Recommendation
•
•
© Cambridge University Press 2018
saves time and money – cheaper than external recruitment
can be motivating – as others see chance for promotion – so
fewer employees leave, helping solve another problem
person is already known – so no need for induction training,
saving time
may need training – increases costs
new ideas about how to make crisps or reduce amount of
wastage
already skilled/trained to correct level reduces costs of training
person does not know the organisation and how it works
person not known
employees may want chance for promotion so could lower
labour turnover – have knowledge but do not feel valued but
better candidates may be the ones who have left Snax Plc
new employees may take time to adapt and be able to bring in
new ideas to help improve productivity and quality but existing
employees might have ideas from quality circle but not had
opportunity to implement
Exam-style case study answers – 2a
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Exam-style case study 2b answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 2b: MJM Foods
Question
1a Explain two features of MJM Food’s organisational structure.
Possible answers could
include:
Relevant points
• span of control
• levels of hierarchy
• chain of command
Sample explanation
The span of control is the number of subordinates working directly under a manager. The Factory
Manager is in charge of the whole factory and has a span of control of two people. The Deputy
Factory Manager has a wider span of control of six supervisors. The supervisors have a wider
span of control of 10 workers.
Question
1b Consider the following three functions of the Factory Manager. Which management function is
likely to be the most important? Justify your answer.
Possible answers could
include:
Planning
•
•
•
Organising
•
•
•
•
look ahead and set aims/targets – so know what to do to achieve aims
plan for necessary resources/level of output to ensure supplies arrive
on time from local farms
make decisions about which products/suppliers to use for its food
delegate tasks
arrange work schedules for people who work both part- and full-time –
so maintain/maximise efficiency
ensure everyone works effectively – so no duplicated tasks
arrange for deliveries to central warehouse – so customers receive
goods on time for supermarket shelves
Controlling
•
•
•
measure/evaluate work of employees
identify problems – such as late supplies
order ingredients to ensure that planned production of processed
foods can be made – otherwise factories may not be able meet orders/
lose sales
Conclusion
•
•
all functions important in different ways
planning – know goals and make decisions to achieve objectives but
much of planning done by head office
organising – ensure all resources are in place to achieve objectives –
factory manager likely to responsible for overseeing this stage
controlling – checking/ensuring planned activities have happened but
only important once plans and actions taken place
•
•
© Cambridge University Press 2018
Exam-style case study answers – 2b
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Question
2a The manager of F2 uses an autocratic leadership style. Explain two other leadership styles
MJM Food’s managers could use.
Possible answers could
include:
Relevant points
• democratic
• laissez-faire
Sample explanation
Democratic management style would make employees feel more involved in decision-making in
each factory and, therefore, increase worker motivation and productivity. Production workers who
make the frozen food could be asked for their views on how the food is manufactured, to find out
better ways to produce it.
Question
2b Explain why the following three factors are important when choosing a method of
communication. Which factor do you think is the most important? Justify your answer.
Possible answers could
include:
Speed
•
•
Need for
feedback
•
•
how quickly does the message need to reach receiver? – if urgent, quick
methods such as telephone or text are necessary – allows appropriate actions
to be taken soon which is important for frozen food and ingredients – could
save money
speed involves more cost as technical equipment needed
do you need a reply? – if not, how will you know whether message received
understood or acted upon in the factory?
not all messages need a response
Cost
•
•
technology costs money – which business or farms might not be able to afford
systems must be compatible between the different offices and departments
within factory
Conclusion
•
much depends on the message being sent – is it urgent or is feedback
required? – speed and feedback are likely to be the important factors
speed of message – will increase cost – but can mean quicker actions taken –
but with four factories speed can be very important as may need to coordinate
actions
cost – quicker methods will cost more – but large organisation should be able
to afford it – and cost of delays may be more expensive as food could be
damaged or wasted if slow
need for feedback – need to ensure messages are received (speed does not
matter if they have not understood the message)
•
•
•
Question
3a Explain two benefits to MJM Foods of producing a person specification when recruiting the
new manager for F2.
Possible answers could
include:
Relevant points
• allows MJM to specify qualities, qualifications & experience needed
• allows MJM to recruit best person for the job
© Cambridge University Press 2018
Exam-style case study answers – 2b
Section 2 People in business
Cambridge IGCSE and O Level Business Studies
Sample explanation
A person specification lists the personal qualifications, experience and skills required for the job.
This means the directors can list all the personal qualities he thinks are important for the new
manager to have, such as good listening skills to talk to production workers (especially if using
quality circles). If applicants have these skills and qualifications, MJM Foods can match these
employees to the job description and recruit the best person for the job.
Question
3b State the advantages of part- and full-time employees. Recommend whether the other
factories should increase the number of part-time workers. Justify your answer.
Possible answers could
include:
Part-time
•
•
•
•
•
•
Full-time
•
•
•
•
Recommendation
•
•
more flexible hours – able to reduce hours at times of low
demand for its frozen food – reduces wage costs
easier to extend hours at busy times – so able to meet demand
when not working no need to pay – lower wage costs
may leave for full-time job elsewhere – increasing time spent
recruiting/training replacements
one of higher rate of percentage rejects at 5% and more
accidents
lower cost of training
consistency of work – could boost reputation/quality of its food
products
more committed to the business – reducing labour turnover
more likely to be trained/skilled than part-time workers – so
cause fewer mistakes or accidents
fewer workers needed – so lower training costs
part-time more flexible but higher level of mistakes and
accidents (but this may be due to lower amount of training rather
than part-time status)
full-time employees receive more training, so make fewer errors,
so the case for more part-time employees is not clearly made
Question
4a Explain two ways, other than retirement, in which a worker’s employment with MJM Foods
might end.
Possible answers could
include:
Relevant points
• dismissal
• redundancy
Sample explanation
Redundany when the job no longer exists because of a change, such as automation in the
factory. The worker is released as there is no work for them to do. The employee has not made
any fault or mistake when making the food.
© Cambridge University Press 2018
Exam-style case study answers – 2b
Cambridge IGCSE and O Level Business Studies
Section 2 People in business
Question
4b Explain how the following three types of training could help improve the overall efficiency of
MJM Foods. Which type of training is likely to have the most effect on efficiency? Justify your
answer.
Possible answers could
include:
Induction
•
•
•
•
•
new workers will know what they have to do when they start work which will
mean the production workers will be effective straight away
helps familiarise workers/provide information about the business – so
understand how food is produced
aware of health and safety/legal issues in the factory – lower risk of
accidents
know who to ask if there is a problem – preventing wastage of expensive
ingredients
opportunity to communicate culture – so all workers get same message
about efficiency
On-the-job
•
•
•
•
•
•
•
•
some production takes place but trainer is less productive
can reinforce errors OR bad practices reducing sales OR damage reputation
fewer new ideas OR skills will be taught
control what is taught so workers only learn skills needed
employees can carry on working – improving productivity
cheaper (than off-the-job) – lower training costs
addresses the specific needs of the business
trainer may have bad habits – so repeating costly mistakes – lower
productivity in long run – increase cost
Off-the-job
•
•
•
•
•
not necessarily tailored to individual business – so not cost effective
have to pay more OR high cost for specialists – which increases costs
skills might not be available in the business – so benefit from new techniques
allows for mistakes – building employee confidence in job – reducing waste
workers have access to skilled trainers – so know how to use the machinery
correctly – fewer accidents
Conclusion
•
off-the-job is more expensive, increasing costs, but will allow workers to
focus 100% on training so could lead to fewer accidents
on-the-job allows some output so lessens impact on productivity – efficiency
is important
induction will introduce workers to business but may not provide the
specialist training needed
choice could depend on whether skilled workers are willing or able to offer
on-the-job training
•
•
•
© Cambridge University Press 2018
Exam-style case study answers – 2b
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Exam-style case study answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits.
Marking guidance for case study questions has been provided for Section 1 in the answers documents. However, this same
guidance can be followed when marking the case study below and the other case study questions from the coursebook or the
Cambridge Elevate enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided
in this resource.
Exam-style case study: Teen Fashions (pages 200–201)
It is important that students apply their understanding of business concepts to the specific business scenario given in the case
study. For instance, they could make appropriate use of the following features: clothing manufacturer, fashion clothing, young
females, brand image, e-commerce, competitors, market share, operational factors, website, shareholder return, expansion,
market research, trade mission, population data, recession, disposable income and channel of distribution. There may be further
examples of application which have not been included here, but for which students could be credited.
Question
1a Explain two benefits to Teen Fashions of having a ‘strong brand image’.
Possible answers could
include
Benefits
• increases sales
• more control over pricing
• easier to introduce new products
Sample explanation
A strong brand image may help to introduce new products, which is important for fashion
products entering the market for older women, and would increase Teen Fashions’ profits.
Question
1b Consider how the following three factors influence the demand for Teen Fashions products.
Which factor do you think is the most important? Justify your answer.
Possible answers could
Price of Teen Fashion products
•
include
•
•
the higher the price, the lower TF’s sales will be
– opposite is also true – price is the most important
factor influencing the demand for most products
the price of fashion products is relatively price elastic
– a small change in price will cause a bigger change in
sales/quantity demanded
consumers will compare the price of their products with
competitor fashion products – if TF’s products are more
expensive, then consumers will not buy from TF
Consumer income
•
the higher consumer income, the more likely they will
buy fashion clothing from TF – fashion clothing is more
of a luxury good than a necessity
Quality of Teen Fashion products
•
consumers will look for value for money – if TF’s products
are similar to competitors, then they will consider other
factors, such as the quality of the clothing
© Cambridge University Press 2018
Exam-style case study answers – Section 3
Cambridge IGCSE and O Level Business Studies
Conclusion
Section 3 Marketing
•
•
•
price – most important factor as the level of sales will be
higher the lower the price, especially when compared to
competitor products
consumer income – will only buy luxury items, such as
fashion clothing, if they have money left after buying
necessity goods and services, such as food and rent
quality – fashion items have short life cycle, so quality
might not be so important – however, if the price is
similar for other fashion clothing, then quality might
become a more important factor
Question
2a Explain one advantage and one disadvantage to Teen Fashions of its current channel of
distribution shown in Appendix 1.
Possible answers could
Advantages
include
•
•
•
distribution to wider market
wholesalers break down bulk
middlemen may promote products
Disadvantages
• lower profit margins for Teen Fashions
• Teen Fashions has less control over product marketing
Sample explanation
An advantage of the current channel of distribution is that it helps Teen Fashions to sell to a wide
geographical market / a competitive market / a national market, increases sales and profits.
Question
2b The marketing director and the operations director disagree about the benefits to Teen
Fashions of e-commerce. Consider their views and recommend whether or not Teen Fashions
should develop e-commerce activities. Justify your answer.
Possible answers could
include
Marketing director’s view
© Cambridge University Press 2018
Supports introduction of e-commerce.
• wider access to market – potential to increase sales
and profits
• need to keep up with the competitors who are using
e-commerce – many young people use the internet to
buy goods
• more convenient for consumers who can buy from home
instead of visiting shops – consumers with busy lives
might only buy fashion clothing using e-commerce
Exam-style case study answers – Section 3
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Operations director’s view
Against introduction of e-commerce.
• need to invest in design and maintenance of a website
– this increases TF’s costs and the level of investment
might not be worth it
• need to set up a department to handle e-commerce
orders – which increases costs
• higher inventory costs – need to make sure that they
always have enough items in stock to meet demand,
otherwise TF could get a reputation for not being able to
supply goods when requested by consumers
Conclusion
•
marketing director’s view – potential to increase sales
and profits by increasing potential market – competitors
are likely to be using e-commerce, so TF must too in
order to maintain and increase market share
•
operation director’s view – increases costs – money
could be spent on other, more profitable investments
opposing views might be considered as short term costs
(operations director’s view) versus long-term benefits
(marketing director’s view)
•
Question
3a Explain two benefits to Teen Fashions of the marketing manager carrying out market research
for Option 1.
Possible answers could
include
Benefits
• can identify the needs of consumers
• can identify gaps in the market
• reduces risk when developing and launching products
• can help with decisions about other elements of the marketing mix, e.g. pricing, identifying
competitor strengths and weaknesses
Sample explanation
Market research will help identify the needs and wants of consumers. This is important for fashion
clothing, as trends change often and quickly and there is a need to remain competitive (the
market is highly competitive). Market research can increase sales and profits, and strengthen
brand image.
© Cambridge University Press 2018
Exam-style case study answers – Section 3
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Question
3b The Board of Directors has agreed that Teen Fashions needs to expand the business. Consider
Option 1 and Option 2. Which option do you think it should choose? Justify your answer.
Possible answers could
include
Option 1
For
• TF’s brand already familiar to this market – makes the
introduction of new products easier
• expansion into another segment of the market –
potential for increased sales, revenue and profits
• less risk as brand is known to the potential market –
Teen Fashions has some idea of the wants of the market
Against
• cost of market research – how will this be financed?
• cost of developing new products – will the costs be
recovered from sales?
• high inventory costs – will need to have more items held
to meet demand
• how younger consumers might see expansion of
products to an older consumer – could damage brand
image and reduce sales to younger consumers
Option 2
For
• no need to change products as aimed at same age
•
•
•
group – less risk
large potential market – could lead to increased revenue
and profits
spreads risk – if the market in Country X falls, TF might
still have good demand in Country Y
consumers in Country Y have high disposable income
to spend on fashion clothing – consumer income is an
important factor influencing the demand for more luxury
items, such as fashion clothing
Against
• TF’s brand is not known in Country Y – consumers in
Country Y might not buy foreign-made clothing
• high promotion costs – needed to create brand
awareness
• there might be language and cultural issues – will
products meet the needs of consumers in Country Y?
• there might be competition in Country Y – which is
already well-established and this could make it difficult
for TF to enter this market
© Cambridge University Press 2018
Exam-style case study answers – Section 3
Cambridge IGCSE and O Level Business Studies
Conclusion
Section 3 Marketing
•
•
Option 1 – less risky option – TF brand already known
in the market – however, could damage image in current
segment and sales might fall – will any sales in new
segment compensate for potential loss of sales in the
current segment?
Option 2 – potential to increase market size and spread
risk – could increase revenue and profits – however, high
entry costs e.g. product design and promotion costs
– however, TF unknown in the market and not easy to
predict how consumers in Country Y will react to their
entry into the market
Question
4a Explain two methods of promotion Teen Fashions might use if it chooses Option 1 to expand
the business.
Possible answers could
include
Methods
• advertising
• celebrity endorsement
• event sponsorship
• money-off vouchers
Sample explanation
Teen Fashions might advertise in magazines read by 25–40-year-old females to create awareness,
help Teen Fashions to enter the market more easily.
Question
4b Explain how each of the following three factors might influence the success of Teen Fashions
entering Country Y. Which of these factors do you think is likely to be the most important? Justify
your answer.
Possible answers could
include
Social differences
•
•
demographic factors such as age and gender profile
of Country Y are important – what is the size of the
potential market?
is there a demand for fashion clothing in Country Y?
Differences in language
•
how might different language affect TF’s entry into this
market e.g. the effect on product name, promotional
activities?
Differences in legal controls to
protect consumers
•
are consumer laws in Country Y different and stricter
than in country X? – how will this impact on costs of
production of goods for Country Y?
Conclusion
•
social differences – fashion clothing is mainly aimed at
younger consumers – what is the size of the market in
Country Y? – do younger consumers have high incomes?
different language – less of a problem as it is relatively
easy and not too costly to translate promotional
materials into other languages
difference in legal controls – this could be the most
important factor, because TF must obey the laws in
Country Y if they want to sell their goods there – if this
increases production costs, then TF might have to
charge a price above that of local producers
•
•
© Cambridge University Press 2018
Exam-style case study answers – Section 3
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Exam-style case study 3a answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 3a: Savoury Foods (SF)
Question
1a Explain two advantages to SF of using a wholesaler.
Possible
answers could
include:
Relevant points
• buy in small quantities
• wider variety of goods available
• advice given
• delivery available
• credit
Sample explanation
SF can buy the food ingredients in small quantities from the wholesaler and, therefore, will not need to pay
additional costs for a large storage facility for fresh vegetables which could go bad and damage the quality
of the finished product.
Question
1b Explain why the following three roles of packaging might be important to SF’s new products. Which role
do you think is most important? Justify your answer.
Possible
answers could
include:
Protect
•
•
frozen food could be easily damaged/perish – so ensure it is safe to eat
could face legal action if food not edible – damage reputation of this well known brand –
could lower market share
Promote
•
•
promote as attractive wrappings – encourage people to buy its products in what is a
competitive market – increase sales
reinforce brand image – low cost product will have simple packaging and plain colours
•
•
could include nutritional information or cooking instructions on labels
legal requirement – could face legal action if misleading – increase cost or damage reputation
Inform
Conclusion •
•
•
protection is vital to ensure food is safe to eat and to avoid legal action
important to promote as this ensures sales of new product, but there are other ways to
promote as well as packaging
providing information is a legal requirement, but lack of information will have less impact
than failure to protect the food
Question
2a Explain one advantage and one disadvantage of primary market research.
Possible
answers could
include:
Advantages
• greater awareness of consumer needs
• help forecast future trends
• know strength of competitors
• produce the correct amount of product
© Cambridge University Press 2018
Exam-style case study answers – 3a
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Disadvantages
• time to collect
• cost to collect
Sample explanation
Greater awareness of consumer needs, so they know what to do to adapt the frozen food to match what
customers want. They will be better able to meet customer needs, especially when launching a new product
which increases the likelihood of sales.
Question
2b Explain how each item of secondary market research listed below might affect SF’s marketing decisions.
Which factor do you think is likely to have the most effect on sales? Justify your answer.
Possible
answers could
include:
Where competitors
sell its products
•
•
•
know distribution channels used by competitors
help decide on an appropriate promotion strategies to use in supermarkets
depending on where competitors are
help decide on whether to sell in same supermarkets or not
Competitor’s prices
•
know what prices they should charge – to maximise revenue or improve chances
of sales – which have reduced over last 10 years by 140 000 for example if
competitors charge high price, could use price penetration to gain share
Income
•
•
•
know what prices they should charge charge for the meals
know what type of products to supply to different supermarket
help decide of style of packaging to promote brand image – as have a well
known brand
product is high quality so will want to sell in areas where incomes are higher and
people can afford to pay higher prices
•
Conclusion
•
•
•
where competitors sell will influence pricing and promotion – it is a competitive
market – competitors are selling similar products so may not want to be in direct
competition
competitors prices – have to decide on pricing – it is a competitive market but it
is a new product
less income will have less money to spend so may be unable to pay high prices
or try new products (unless heavily discounted, which could damage image as is
a better quality product)
Question
3a Explain one advantage and one disadvantage of using a focus group.
Possible
answers could
include:
Advantages
• highly detailed answers
• the researcher can interact and ask follow-up questions
• results can be easier to understand than lots of data
• can get information from non-verbal responses, such as facial expressions or body language
Disadvantages
• small sample size
• other group members can influence others responses
• expensive to set up
• take time to arrange
© Cambridge University Press 2018
Exam-style case study answers – 3a
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Sample explanation
The researcher can interact with the people in the focus group allowing them to ask follow-up questions
to find out more detailed information about their views on the new frozen foods. This can help SF make
necessary adjustments to the recipe or packaging before launching it into the market.
Question
3b State the advantages and disadvantages of the following three pricing strategies suggested by the
directors for the new product. Which one do you think SF should use? Justify your answer.
Possible
answers could
include:
Competitive pricing
•
•
•
able to maintain sales – as price does not deter customers – but will not
necessarily attract customers to its new ready meals
research costs and time to find competitors’ prices in this competitive market
limited control over prices – so have to rely on other elements of marketing to
attract customers
Penetration pricing
•
•
•
•
low prices can help attract customers
way to quickly increase market share
price may not cover cost which could mean lower profit than $132 000
customers may buy from competitors when increase price of its ready meals
Price skimming
•
•
•
helps establish an image of high quality – food is better quality
able to recover development costs quickly – so profit can be made
high price may put off potential customers – leading to lower sales
Recommendation
•
operate in competitive market so competitive pricing is sensible but have
limited control over prices and may not reflect the better quality of the new
ready meals so could lose potential revenue – better in long term once
established
new product so penetration pricing can help attract customers to try and, as it
is better quality, they may keep buying when the price goes up
product is better quality so price skimming would reinforce image but could
lead to fewer customers especially in competitive market
•
•
Question
4a Explain two stages of a product’s life cycle.
Possible
answers could
include:
Relevant points
• development
• introduction
• growth
• maturity
• decline
Sample explanation
Introduction is when the new frozen food is launched onto the market and sales grow slowly as many
customers will not be aware of its existence.
© Cambridge University Press 2018
Exam-style case study answers – 3a
Section 3 Marketing
Cambridge IGCSE and O Level Business Studies
Question
4b Explain how the following three options could help SF increase its sales. Which option do you
think is likely to be the most effective? Justify your answer.
Possible answers could
include:
Option 1: Price reduction
•
•
•
Option 2: Sales promotions •
•
Option 3: Extension
strategies
•
•
•
•
Recommendation
•
•
•
© Cambridge University Press 2018
demand should increase if lower price as demand is price
elastic, but the amount of the change may not lead to an overall
increase in revenue
competitive market so lower pricing may encourage customers
to try product
customers might think lower price means lower quality
if aimed at children – should be seen by target market but
parents are likely to buy food
can target customers with offer which could lead to repeat
purchases to increase chance of winning
changes to package can improve appeal – as its food is seen as
more up to date
existing customers may not recognise product – so lose more
customers than they gain as cannot find it
cost of redesign can be high
relies on children being there when goods are being purchased
which may not be case as parents may shop in supermarkets at
times when children not there
price reduction can encourage people to try – and if they like
then they keep buying its meals but competitors may match offer
– as it’s a competitive market and lower prices lower the profit
margin which can lower profit even further
sales promotions encourage people to buy but only if they want
to win the prize being offered – will not work if do not like the
product
updating the image can attract or remind customers, giving
sales a boost, but market share is only small percentage of total
market of $2.4m so may not be cost effective
Exam-style case study answers – 3a
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Exam-style case study 3b answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 3b: Quality Vacations (QV)
Question
1a Explain two advantages to QV of segmenting the market.
Possible answers
could include:
Relevant points
• makes advertising/promotion more effective
• a more focused marketing mix
• product meets customer needs of specific niche
• price suitable for target market
• suitable channel of distribution chosen
• meets specific customer needs
• more effective use of marketing budget
• more likely to have higher sales to that target market
• lower competition in a specific market
Sample explanation
The marketing mix is likely to be more effective because QV has identified a new market for guided
walking holidays. The advertising can be in a form that reaches these target customers, making the
promotion more effective. The cost of promotion is likely to be more cost effective in turning advertising
expenditure into sales.
Question
1b Explain why the following three elements are important to the success of QV’s new product. Which
element is likely to have the most effect on sales? Justify your answer.
Possible answers
could include:
Product
•
this is the main reason why customers are buying – so must meet customer
needs or they will look at other holidays
Price
•
price can persuade customers to choose its products rather than other holiday
companies
price can help reinforce image – as it’s a niche market – may be able to charge
higher price to reflect type of holiday
•
Promotion
•
•
helps attract attention – leading to higher sales
inform customers on its website about what they can expect on the walking
holidays – so better able to make decisions
Conclusion
•
price – influences ability to pay – as use cost plus 50% could mean it is too
expensive so fewer customers – and it is important as operate in a competitive
market – but as none of its rivals offer this type of holiday may be less important
product – this is important as if holiday is not what customers want it could lower
demand and then price and promotion may be less effective
promotion can help attract customers who may be interested in guided walking
holidays – but if it is not what customers are looking for then could have limited
impact
•
•
© Cambridge University Press 2018
Exam-style case study answers – 3b
Cambridge IGCSE and O Level Business Studies
Section 3 Marketing
Question
2a Explain one advantage and one disadvantage to QV of using secondary market research.
Possible answers could
include:
Advantages
• low cost
• quick/readily available
disadvantages
• information may not be appropriate
• out of date
Sample explanation
Information may be out of date so QV does not find out what customers currently think about
holidays. This could lead to the wrong decisions being taken, such as entering the new niche
market leading to money being wasted and fewer sales being made.
Question
2b Explain how the following three factors are likely to affect the accuracy of QV’s market
research. Which reason do you think is likely to have the most effect? Justify your answer.
Possible answers could
include:
Number of
people asked
•
•
affects the sample size – more people asked, lower margin for error
can have more confidence in results which is important for this new niche
market
Where research
was carried out
•
need to obtain opinions from people in target market – asking people in
another country about walking may not reflect views of people in Country X
location can influence results – if questions are asked where there are lots
of children, the results will not reflect the target market
•
Who was asked
•
•
Conclusion
•
•
•
need to obtain opinions from people in target market – if the wrong people
are asked, QV may not obtain information required – wrong decisions made
such as whether to use television to advertise
need to have a range of views
number of people can help ensure confidence in results but if wrong people
are asked, results can be misleading
target market is based in Country X so important to have views of these
people but also need to ensure there is a range of views
as it is a niche market need to know views of potential customers – not
everyone will be interested in guided walking
Question
3a Explain two limitations to QV of operating in a niche market.
Possible answers could
include:
Relevant points
• small market
• lack of economies of scale
• likely to attract competition if successful
• vulnerable to market changes – all ‘eggs in one basket’
Sample explanation
Small market means there is limited potential for growth, which will limit the amount of customers
willing to buy walking holidays from QV. So, even if they are successful, there is likely to be a
maximum amount of revenue they can gain from this small sector of the market.
© Cambridge University Press 2018
Exam-style case study answers – 3b
Section 3 Marketing
Cambridge IGCSE and O Level Business Studies
Question
3b Explain how each of the following three factors may influence QV’s future sales and profits.
Which factor do you think is the most important? Justify your answer.
Possible answers could
include:
Unemployment
•
•
Average wages
•
•
Exchange rate
•
•
Conclusion
•
•
•
high unemployment rate of 8% will lead to fewer potential
customers – as not able to afford holidays
niche market for walking holidays so may depend on where or
who affected by unemployment
people may have jobs but if standard of living low – and average
wage expected to fall by $300 – could lower demand
does sell a range of holidays so may see higher demand for
different sectors
as holidays are in another country – appreciation is good for
tourists as own currency worth more whereas depreciation in
Country X would increase costs and affect demand
fluctuations could make pricing difficult as need to pay variable
amounts for accommodation and food
unemployment could lower demand but may have limited impact
on niche market aimed at higher income earners
wages affect ability to pay – even if have job – may be low paid
so cannot afford demand
exchange rates will affect cost and prices charged, but if
customers do not have money to pay, this factor may have less
impact
Question
4a Explain one advantage and one disadvantage to QV of using a website to sell its products.
Possible answers could
include:
Advantages
• improved communication
• increased potential number of customers/sales
• increased target market
• lower marketing costs
Disadvantages
• cost of maintaining website
• lack of personal service
• can be difficult to stand out from competitors
Sample explanation
Improved communication means employee have access to emails/phones to keep in contact
with customers, and are able to respond to customer requests quickly. This can help improve
customer loyalty so they return to buy holidays from QV rather than its competitors.
© Cambridge University Press 2018
Exam-style case study answers – 3b
Section 3 Marketing
Cambridge IGCSE and O Level Business Studies
Question
4b Explain how the following three factors might influence the choice of distribution channel.
Which factor is likely to be the most important? Justify your answer.
Possible answers could
include:
Cost
•
•
Nature of the product
•
•
The market
•
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
transport costs are not an issue as it is a service not a physical
product
costs of advertising can be reduced is use its website rather
than television for new type of holiday
perishable or fragile goods need to be moved quickly and
carefully – holidays are a service so do not need to be stored
technical or specialist products may need to offer personalised
service
customers located overseas may require an agent – difficult to
access which increases costs
operates in a range of niche and mass markets for its various
holidays
using shops could help provide advice
sells holidays so costs of transport and storage not relevant –
costs of advertising can be lowered if used a website
nature of product means direct channel or retailer can be used
as there is no physical item to be moved – will influence choice
but it may not be as significant
as operates in a range of markets, this factor does need to be
considered as has a wide range of customers, some of whom
may require a specialist service
Exam-style case study answers – 3b
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Exam-style case study answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits.
Marking guidance for case study questions has been provided for Section 1 in the answers documents. However, this same
guidance can be followed when marking the case study below and the other case study questions from the coursebook or the
Cambridge Elevate enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided
in this resource.
Case study: Sunshine Foods (pages 242–243)
It is important that students apply their understanding of business concepts to the specific business scenario given in the case
study. For instance, they could make appropriate use of the following features: manufacturer, breakfast cereals, batch production,
flow production, economies of scale, new product, break-even, operational efficiency, quality, customer complaints. There may be
further examples of application which have not been included here, but for which students could be credited.
Question
1a Explain two reasons why quality is important to Sunshine Foods.
Possible answers could
include
Reasons
• reduces the cost of waste
• improves brand image/more competitive
• increases sales
• reduces customer complaints/returns
Sample explanation
Quality is important because it reduces costs, reduces customer complaints, improves brand
image, increases sales.
Question
1b State the advantages and disadvantages of quality control and quality assurance. Which
method do you think would be most effective for Sunshine Foods to ensure that they produce
quality products? Justify your answer.
Possible answers could
include
Quality control
Advantages
• output is inspected to reduce risk of sending defective
items to consumers – helps SF’s image and reputation
Disadvantages
• need to employ quality inspectors which increases costs
• not all output can be inspected because this would be
too time consuming and costly – some defective items
might be sold, and this could damage SF’s reputation
• work is repetitive and boring – demotivates employees
and defective items might be missed
• production employees don’t see quality as their job –
over-reliance on quality inspectors to check quality
• inspection often takes place at the end of the production
process – if mistakes are made early on in the process,
then resources are wasted completing these products
© Cambridge University Press 2018
Exam-style case study answers – Section 4
Cambridge IGCSE and O Level Business Studies
Quality assurance
Section 4 Operations management
Advantages
• raw materials, components and other resources must be
of the required standard before being used in production
– no risk of making products with defective resources
• quality standards agreed for every stage of the
production process – all employees are responsible for
the quality of their output
• products designed to reduce quality issues – using
technology such as Computer Aided Design (CAD)
Disadvantages
• requires staff training in quality assurance procedures –
increases costs
• high cost of the technology if CAD used
Conclusion
•
•
quality control – all responsibility for quality rests with
quality control inspectors and not production employees
– costly and, because not all items can be inspected,
there is greater risk of defective products making their
way to the final consumer – waste is higher because
inspection often takes place at the end of the production
process – no check to make sure that raw materials,
components and other resources are of the required
standard
quality assurance – less waste as raw materials,
components and other resources are quality checked
before use – greater use of technology which removes
human error from the quality process – focus is on
all employees taking responsibility for quality which
reduces costs and can provide a source of motivation
for employees
Question
2a Explain one advantage and one disadvantage to employees at Sunshine Foods of the
directors’ decision to finance the investment for the introduction of flow production methods.
Possible answers could
include
Advantages
• work is easier
• develop new skills in the operation of the equipment
• if profitability increases as a result of introducing flow production this could increase wages or
improve job security
Disadvantages
• some employees may be made redundant/lose their jobs
• work becomes less skilled which may be boring
Sample explanation
Flow production requires fewer employees with less skill, work becomes boring, employees do
not need to use the skills they have been trained for, some employees might be made redundant.
© Cambridge University Press 2018
Exam-style case study answers – Section 4
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Question
2b The operations manager wants to introduce changes to improve productivity at
Sunshine Foods. Explain how each of the following might help the operations manager achieve
this objective. Which one is likely to be the most effective? Justify your answer.
Possible answers could
include
Training
•
•
•
Improving employee motivation
•
•
Investing in new technology
•
•
•
better-skilled employees – use machinery more efficiently,
have better skills, so can produce more in the same time
improves motivation (perhaps link to theories) – better
motivated employees are more productive
fewer mistakes – less defective products/waste – more
output of saleable quality
could use financial and non-financial incentives – bonus
based on production targets, or give employees greater
responsibility within the production process
motivated workers will work harder and take more pride
in their work – increases output per worker and reduces
waste/improves quality
removes human error from production – machines do
not make mistakes because they don’t get tired
faster and more reliable – machines, once set up,
produce identical products every time
greater output than employees – do not need to rest
machines so they can work longer hours
Conclusion
•
•
•
training – short-term cost of training, but long-term benefits
of better skilled employees – benefits outweigh costs
– however, workers might leave if their skill level is not
matched by wage level – similar business pay higher wage
employee motivation – costs involved e.g. bonus
payments – not all employees are motivated by the
same incentives – how long will the incentive motivate
workers for?
new technology – might be the best method because
‘human’ aspect is taken out – but still need to train
employees to use machinery – high capital cost and
technology needs updating
Question
3a Explain two examples of economies of scale which Sunshine Foods might have benefited from
as a result of growth over the past five years.
Possible answers could
include
Economies of scale
• marketing economies
• bulk-buying economies
• managerial economies
• technical economies
• financial economies
Sample explanation
As Sunshine Foods has grown, it might have benefited from managerial economies, could
improve operational efficiency, improve quality, this could reduce SF’s costs per unit or
increase sales.
© Cambridge University Press 2018
Exam-style case study answers – Section 4
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Question
3b State the advantages and disadvantages of break-even charts to Sunshine Foods when
launching a new product such as Choco-pops. Do you think break-even charts are useful to
Sunshine Foods when launching new products? Justify your answer.
Possible answers could
include
Advantages
•
•
•
Disadvantages
•
•
•
Conclusion
•
•
•
simple to construct – all data is linear
can be used to see effect of changing revenue or costs
– can forecast profit at different levels of output for
different revenue and cost changes
can easily see and calculate the margin of safety at
different levels of sales
difficulty of separating costs into fixed and variable – so
not possible to draw a linear total cost line
costs do not behave in a linear way – economies of
scale not considered
assumes all output is sold – in reality most businesses
have inventories of finished goods
do the advantages outweigh the disadvantages?
provides management with some data about how many
they need to sell in order to cover costs – some data,
even with limitations is better than no data
management can easily see what the effect would be on
break even and profit of different prices
Question
4a Explain two reasons why Sunshine Foods should manage the level of raw material inventories.
Possible answers could
include
Reasons
• costs of holding inventory – warehousing, damage, theft, obsolescence, ties up cash
• costs of not holding inventory – disrupts production, late customer delivery, damage to
reputation, possible loss of orders
Sample explanation
There are costs of holding and not holding inventory, raw materials used might go out of date,
quality is important, effective inventory management reduces business costs.
Question
4b Explain the advantages and disadvantages of just-in-time inventory management. Do you think
Sunshine Foods should introduce just-in-time inventory management? Justify your answer.
Possible answers could
include
Advantages
•
•
•
© Cambridge University Press 2018
no inventories of raw materials and components held –
removes costs of holding these inventories
no inventories of finished goods held – removes costs of
holding these inventories
could identify the costs of holding inventory e.g.
warehouseing, insurance, theft, obsolescence,
opportunity costs of cash tied up in inventories
Exam-style case study answers – Section 4
Cambridge IGCSE and O Level Business Studies
Disadvantages
Section 4 Operations management
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
costs of not holding inventories e.g. disruption to
production if inventories not available
unable to meet orders for goods at short notice
do the benefits of not holding inventory outweigh the
costs of holding inventory?
do they have good communication with suppliers –
essential for just-in-time inventory management to work.
are employees and machinery flexible enough to switch
jobs at short notice?
Exam-style case study answers – Section 4
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Exam-style case study 4a answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 4a: Meltec Electronics (ME)
Question
1a Explain two reasons why ME might want to locate its new factory in Country P.
Possible answers could
include:
Relevant points
• reduced labour costs
• access to raw materials
• government incentives
• closer to market
Sample explanation
Reduced labour costs, especially as Country P is a low cost economy, would help reduce costs
and improve competitiveness, leading to a potential increase in sales and profit.
Question
1b State the advantages and disadvantages of the two sites being considered for the new factory
in Country P. Which site do you think ME should choose? Justify your answer.
Possible answers could
include:
Site A
•
•
•
•
Site B
•
•
•
•
Conclusion
•
•
price of land high – will increase fixed costs
land is available – allows ME to set up factory sooner – to start producing the
electronics to recover costs of factory
close to local town – allows access to employees
no grants available – will increase costs
price of land lower than Site A – will lower fixed costs
land is not available – which could impact on output
20 km from town – could create transport problems for employees but lessen
impact of environmental effects on local community and infrastructure may need
be developed
grants available – will decrease costs
Site A is more expensive, but land is available which could speed up production;
and close access to town makes it easier to attract employees, but could face
problems due to external costs of new factory
Site B is cheaper but no suitable land available so may be problems with
starting factory; but grants are available, so government does want to
encourage businesses to this location and may be willing to help with
infrastructure and planning permission
Question
2a Explain one advantage and one disadvantage to ME’s employees of flow production.
Possible answers could
include:
Advantages
• increased skills/offer training
• make job easier/quicker
• jobs may be more secure as business more competitive
© Cambridge University Press 2018
Exam-style case study answers – 4a
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Disadvantages
• boring/lack motivation
• jobs lost
• worried about future job security
• difficult to adapt
• reduce skills needed for job
Sample explanation
Work can be boring (employees lack motivation) so might not work as efficiently, which could
have a negative impact on the forecast output for the new factory.
Question
2b State the advantages and disadvantages of the following three ways to improve labour
productivity. Which way is likely to have most impact? Justify your answer.
Possible answers could
include:
Spend more on
training
•
•
•
Employ more
supervisors
•
•
•
Introduce a bonus
scheme based on
production targets
•
Conclusion
•
•
•
•
improve skills – less likely to make mistakes and work quicker so more
output from fewer resources
improve motivation – so try to ensure quality production
Increase cost – could impact on profit
cost of wages – increase costs
can only identify errors – but if workers do not know how to improve
errors remain
could demotivate employees as do not feel trusted to make electronics
incentive to increase output so achieve the 500 000 target within
three years
risk to quality as paid by results so customers not willing to buy its
electronics
increased cost of training in short run, but in the long run it could help
improve quality, so fewer mistakes, fewer resources and increased
output
bonus scheme could encourage more output but may encourage
workers to rush, which lowers quality
supervisors are expensive and may not be able to identify all mistakes;
having more supervisors does not solve basic errors in technique
Question
3a State and explain four sources of waste in the business.
Possible answers could
include:
Relevant points
• scrap materials during production
• wasted energy
• damaged raw materials
• obsolete stock in storage
Sample explanation
Scrap materials during production as quality of components may not meet the required standard.
© Cambridge University Press 2018
Exam-style case study answers – 4a
Section 4 Operations management
Cambridge IGCSE and O Level Business Studies
Question
3b State the advantages and disadvantages of the following two methods of lean production ME
could use to reduce the level of waste. Which method do you think is likely to be more important?
Justify your answer.
Possible answers could
include:
Cell production
•
•
•
•
•
•
•
•
Kaizen
•
•
•
•
•
•
•
Conclusion
•
•
improved communication, avoiding confusion arising from
misunderstood or non-received messages in the factory
workers become multi-skilled – more able to adapt to meet future
needs of business which is looking to expand
improved employee motivation – more variety and arising from
variety of work, sense of team work and more responsibility so
quality is achieved
improved quality as each cell has ‘ownership’ for its product/area
not all workers may want to participate – and pressure to keep
producing more output/better quality
workers may need training – increase costs
may not allow business to use its machinery as intensively
compared to flow production
may not suit all products
all workers involved – sense of team effort encouraged – leading to
lower labour turnover
increase motivation – as feel opinions and ideas matter
employees have hands-on knowledge – leading to better solutions –
saving time/cost or resources
help break down barriers between different departments in the
factory
rewards all ideas – which can all lead to major savings
everyone needs training in approach – costs time and money
relies on changing culture in organisation – may meet resistance –
so can demotivate some employees
cell production would produce less than flow, so level of output is a
factor that may work against this method
kaizen would need to involve everyone to continually suggest
improvements, so could depend on who is recruited for new site
Question
4a Explain two reasons why quality is important to ME.
Possible answers could
include:
Relevant points
• good reputation
• increased sales
• more competitive
• can charge a higher selling price
• creates customer satisfaction
• creates brand loyalty
© Cambridge University Press 2018
Exam-style case study answers – 4a
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Sample explanation
To gain a good reputation so that customers are confident that the electronics will last and work
as expected. This means customers will keep coming back and buying its products and so keep
sales and profits high.
Question
4b ME needs to choose a method of production for the new factory. Consider the advantages and
disadvantages of the following two production methods. Which method do you think ME should
use? Justify your answer.
Possible answers could
include:
Flow production
•
•
•
•
larger output/mass production
economies of scale or lower unit costs
continuous process
standardised products/consistent quality
•
•
•
use unskilled workers – lower wage costs
demotivating for employees as work is repetitive – lower efficiency
significant storage requirements – higher rent/fixed costs when already
have high costs at site A
high set up/machinery costs which means a large capital outlay at time
when looking to build a new factory
if one machine breaks down whole production line stops – might not be
able to meet orders – could damage reputation
inflexible/standard size – not easy to alter production to meet new requests
•
•
•
Batch production
•
•
•
•
•
•
•
•
•
Conclusion
•
•
•
•
© Cambridge University Press 2018
flexible OR easy to switch production to help meet changes in demand
variety of products – leading to possibly more sales
some variety in workers’ jobs – less boring than flow
less effect on production if machinery breaks down – as many materials
are important
spread risk as not focusing on only one type of product
time lost to reset machines between batches – lower productivity/lost
output
fault with one product can affect entire batch – increase waste
inventory may be sitting around between stages
added cost of moving OR storing semi-finished goods
will there be variety in electronics made? if so, batch better as more
flexible
flow production produces higher output so easier to meet forecast and
cheaper in long run but high set-up costs
do they need to invest in flow production as average cost will be lower?
low cost country – do workers have the skills to oversee machinery? if
not, flow makes greater use of unskilled workers but low cost can afford
to train workers
Exam-style case study answers – 4a
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Exam-style case study 4b answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 4b: Freedom Footwear (FF)
Question
1a Explain two economies of scale FF might benefit from.
Possible answers could
include:
Relevant points
• financial
• marketing
• purchasing/bulk buying
• managerial
• risk bearing
Sample explanation
Purchasing economies as FF can buy its stock of leather or other raw materials in larger quantities
now, and gain bulk buying savings from his supplier.
Question
1b Consider the advantages and disadvantages of the following three ways to ensure the quality of
FF’s products. Which way do you think is likely to have the most effect? Justify your answer.
Possible answers could
include:
Quality control
•
•
prevents faulty products leaving factory – maintain reputation
only occurs at end of process so can be expensive to correct errors in its
electronic production
Increase training
•
•
•
increase training costs
could avoid/reduce number of errors – improving quality and reduce cost
of rework especially when materials have to be imported
can improve employee motivation – lower number of employees leaving
•
•
increase inventory cost – so cost of sales rises reducing profit margin
good quality materials could be damaged during production –
•
can aid quality image – which is important as looks to maximise its
capacity of 500 000 items
•
quality control protects reputation but only check at end so errors can
still occur throughout process
training can stop employees making mistakes which can cover cost of
training in long run so likely best solution
quality materials only important as long as production process does not
waste or damage materials
Only buy best quality
materials
Conclusion
•
•
Question
2a Explain one advantage and one disadvantage to FF of using batch production.
Possible answers could
include:
Advantages
• flexible way of working
• variety in workers’ jobs
• less effect if machinery breaks down
© Cambridge University Press 2018
Exam-style case study answers – 4b
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Disadvantages
• can be expensive
• increased movement of goods
• warehouse space needed
Sample explanation
It is a more flexible way of working and production can easily be changed from one product to
another to meet demand. So, if there is an increase in the number of orders for a particular size of
shoes, then FF can quickly meet this demand.
Question
2b State the advantages and disadvantages of each of the following three ways for FF to save
costs. Which way do you think is most likely to have the most effect? Justify your answer.
Possible answers could
include:
Reduce styles and
colours
•
•
•
•
Reduce number of
workers
•
•
•
Introduce lean
production
methods
•
•
•
•
•
•
Recommendation
•
•
•
© Cambridge University Press 2018
save inventory costs – lower cost of sales
could order larger quantities of other materials and benefit from possible
economies of scale
lower storage costs
lower demand as customers have less choice and may not only want black
– could damage reputation of its shoes
reduce wage cost – as highly skilled to likely to receive higher pay - lower
total costs
work would have to done by remaining workers - demotivate remaining
workers – who leave or lower productivity as overworked – so not able to
meet 95 000 pairs needed to break even
cost of redundancy in short term
damage, waste and loss of stocks/equipment are lowered – lower costs
allowing them to lower prices
improved quality through the introduction of kaizen and quality circles
its skilled employees are more involved – more motivated leading to higher
efficiency
cost of introducing system – changing processes and training will increase
costs rather than help lower them in short term
little margin for error – delays in delivery of leather or other materials can
mean lose order
inventory orders generally lower – reduce opportunity for economy of scale
reducing range can lower inventory costs but can damage reputation as
less customer choice which could see sales fall which negates benefit of
lower cost
reduce workers will lower labour costs but can demotivate other workers
who may not be able to cope with increased workload
depends on lean production method used – aim to eliminate waste – so
small savings can be made – which over time could become significant –
involves employees which can help increase motivation
Exam-style case study answers – 4b
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Question
3a Explain two disadvantages to FF’s workers of introducing the latest technology into the
production process.
Possible answers could
include:
Relevant points
• jobs lost
• sometimes job more boring
• worried about future security of jobs
• difficult to adjust to new machinery
• resistant to change
• reduce skills
• maybe lower wage rate
Sample explanation
Jobs can be lost so workers become demotivated as they fear they could be ones to be made
redundant which will lower their incomes and standard of living.
Question
3b Explain how the following three uses of new technology could help FF improve its business.
Which use do you think is likely to have the most effect? Justify your answer.
Possible answers could
include:
CAD
•
help design prototypes/new products – for different shoe style – which
could help increase target market/sales
CAM
•
computers monitor production process and control machines –
quicker production and reduce need for someone to do quality control
checks
less labour required – lower labour costs as fewer highly skilled
workers needed
•
Start a website
•
•
•
Recommendation
•
•
•
improved communication with retailers so able to respond to requests
for more shoes quickly
increased sales potential – as allows customers to easily view its
different shoe options before order
lower marketing costs as can advertise latest styles/colours quickly
without having to reprint brochures which is important as will not
increase further its promotion budget
website can help improve sales – which have fallen for past three
years – providing information and way to communicate about
products available/wanted but product quality must match
CAD can help improve production – new designs can attract sales
which business needs
CAM can help ensure quality and speed of production but if product
designs are wrong, customers may not want to purchase the shoes
Question
4a Explain two ways FF’s management could use the break-even data shown in Appendix 1.
Possible answers could
include:
Relevant points
• to estimate how many sales need to be made to cover all the costs
• to see what will happen to the break-even point if costs or prices change
• to calculate the margin of safety for the different products
© Cambridge University Press 2018
Exam-style case study answers – 4b
Cambridge IGCSE and O Level Business Studies
Section 4 Operations management
Sample explanation
To estimate how many sales need to be made to cover all the costs so that the business will not
lose money on its output and will make a profit on its shoes. If they did not know what the breakeven level of output was then FF might be losing money and may not be aware of this until the
end of the year when the income statement was produced.
Question
4b FF is thinking of changing to a cheaper supplier. Explain why the following three factors are
important when making this decision. Which factor do you think is most important? Justify your
answer.
Possible answers could
include:
Speed of delivery
Range
•
without access to materials for its shoes, production will stop – will
not be able to meet orders – leading to customer dissatisfaction and
even lower sales
•
retailers might decide to stop stocking its products
•
having a variety of materials and colours is important to produce the
three different styles planned
different styles can help attract new customers or target new
markets – to increase sales or spread risk
•
Quality
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
make high quality shoes so quality materials are needed to maintain
standards
poor quality materials would damage its reputation, leading to a
further decline in its sales
speed is important as, without materials, there can be no production,
but as it is batch production some processes can still continue
range – as looking to reduce number of styles and colour this is
likely to be less important – as only need black which is likely to be
standard colour most suppliers have
quality is part of its image – so this is important – especially if they are
switching to a cheaper supplier – a significant difference between this
and quality of old supplier could damage its reputation
Exam-style case study answers – 4b
Cambridge IGCSE and O Level Business Studies
Section 5 Financial information and decisions
Exam-style case study 5b answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 5b: Phacto Engineering (PE)
Question
1a Explain two disadvantages to PE of using an overdraft.
Possible
Relevant points
answers could • repayable on demand
include:
• repayable within a year
• security may be required
• interest payable
Sample explanation
Interest is payable, which increases the expenses and cash outflows. This is an issue at a time when
having cash-flow problems. Interest must be paid, otherwise the lender has the right to cancel the overdraft
immediately and the business could struggle to pay its other creditors as well.
Question
1b Explain how the following three profitability ratios can be used to assess PE’s profitability. Which ratio do
you think is most useful? Justify your answer.
•
•
•
2016 (100 ÷ 300) × 100 = 33.3%
2017 (150 ÷ 420) × 100 = 35.7%
improved indicating the margin has increased
Profit margin
•
•
•
2016 13.3%
2017 (50 ÷ 420) × 100 = 11.9%
ratio has decreased which shows less able to control its expenses
Return on capital
employed (ROCE)
•
•
•
2016 20%
2017 (50 ÷ 220) × 100 = 22.72%
ratio improved so business used its resources better to generate profit
Conclusion
•
•
ratios look at different elements of profitability
ROCE shows amount of profit for each dollar invested – shows how efficiently capital
is used – this is very important to managers as provides an overview of business
operations so profitability can be said to have improved
Possible
Gross profit margin
answers could
include:
Question
2a Explain the purpose of two financial statements produced by PE’s accountant, Suraiya. Calculate the profit
margin and return on capital employed (ROCE) for 2017. Compare your two ratio results with those of 2016 in
Appendix 1.
Possible
Relevant points
answers could • Profit margin = (50 ÷ 420) × 100 = 11.9%
include:
• ROCE = (50 ÷ 220) × 100 = 22.72%
© Cambridge University Press 2018
Exam-style case study answers – 5b
Cambridge IGCSE and O Level Business Studies
Section 5 Financial information and decisions
Sample explanation
Profit margin – ratio has decreased, which shows less able to control its expenses. ROCE improved, so
business used its resources better to generate profit.
Question
2b Explain how the following three stakeholders might use PE’s accounts. Which stakeholder do you think is
likely to find the accounts most useful? Justify your answer.
Possible
Government
answers could
include:
Lenders
•
•
want to know level of profits which has increased by $10 000 – pay more tax
how secure are the 50 full-time jobs in community or expansion? – implications for
government policies
•
ability to repay capital/interest when borrowing $50 000 for new equipment – so use
liquidity ratios/acid test ratio
able to pay interest on time as often needed to use its overdraft – liquidity ratio and cash
flow
•
Suppliers
•
•
•
Conclusion
•
•
•
Question
how secure is their money – as trade receivables is high – profitability ratio
want to know if business is able to pay for inventory on time as takes more than 30 days
for some of PE’s customers to pay and cash balance ($10 000) last month – so do they
have sufficient cash to pay them – liquidity ratio and cash flow
owed money so keen to see size of other debts of business and what security
exists – assess risk of default
government will be able to obtain helpful information about objectives and how business is
doing, but key information such as taxation can also be obtained through other methods
suppliers will be interested in ability to pay – so cash flow and reputation could be useful
rather than ratios
lenders, like suppliers, are likely to find information helpful as likely to lend larger sums of
money for projects so on this basis could find information more helpful as risk greater
3a Explain two sources of finance PE could use for the new machinery.
Possible
Relevant points
answers could • retained profit
include:
• leasing
•
bank loan
Sample explanation
Leasing. Then the brothers do not have to borrow money at a time when cash flow is negative. This means
they can use their money for other uses, such as exporting. The sales from this could be used to generate
revenue which can then cover the cost of leasing.
Question
3b State the advantages and disadvantages of the following three methods that PE could use to improve its
cash-flow position. Which method should PE choose? Justify your answer.
Possible
Buy lower level of •
answers could inventory
•
include:
Ask suppliers for
more time to pay
© Cambridge University Press 2018
•
•
reduce cash outflow below ($10 000)
could be n problem as may not be able to meet orders so may not be feasible to export
products to Country Y
delays cash outflow – allows time for customers to pay as some take more than 30 days
damage relations with suppliers – less willing to supply parts in future
Exam-style case study answers – 5b
Cambridge IGCSE and O Level Business Studies
Section 5 Financial information and decisions
Increase prices
•
•
increase revenue and improve financial position as increases cash inflow
risk of being less competitive with other component producers – could lose customers
to competitors
Conclusion
•
identified inventory as issue – so area to address but need to ensure have sufficient so
not delay production which would impact on cash inflow
suppliers may not be willing to offer more time so may depend on credit history – will
delay cash outflow but may not solve underlying problem
increasing prices will increase cash inflow but offering customer 30 days to pay may
not see benefit immediately and higher prices could discourage sales, lowering inflow
which will not improve cash flow
•
•
Question
4a Explain two reasons why managing cash flow is important to PE.
Possible
answers could
include:
Relevant points
• cash flow needed to pay day-to-day expenses
• business could fail due to lack of cash
• reduces need for finance
• able to predict/plan for cash-flow problems
• helps a business get a loan
Sample explanation
Business could fail due to lack of cash so it is important to be able to anticipate potential cash-flow issues,
such as the problems caused by trade receivables. This will allow the brothers time to find an appropriate
solution to ensure their otherwise profitable business does not fail.
Question
4b Explain how the following two changes might affect PE’s choice of finance for the new equipment. Which
change do you think is likely to have the most effect? Justify your answer.
Possible
answers could
include:
Large order from Country Y •
for its products
•
•
order can support ability to pay – which can improve chance of loan being
given (or at a lower interest rate) as seen as lower risk
large order could remove need to borrow from bank
payment for order could be delayed so could influence source – as delay
could put pressure on cash flow and interest payments may be difficult to
manage
Interest rates increase by
5% in Country X
increase cost of borrowing – higher repayments if use loans to purchase the
additional machinery – negative impact on expenses and cash flow
loans become more expensive and internal sources such as retained profit
may have to be considered
higher interest could increase the value of any cash reserves but as balance
is negative throughout the six months – this is unlikely to be significant
factor
•
•
•
Conclusion
•
•
© Cambridge University Press 2018
order can help support application or may be sufficient to change the type
of finance used
interest rates will only affect external sources such as loans, which is a
fixed cost, and as they need $50 000 its impact is likely to be significant
Exam-style case study answers – 5b
Cambridge IGCSE and O Level Business Studies
Section 5 Financial information and decisions
Exam-style case study answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits.
Marking guidance for case study questions has been provided for Section 1 in the answers documents. However, this same
guidance can be followed when marking the case study below and the other case study questions from the coursebook or the
Cambridge Elevate enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided
in this resource.
Case study: The Paradise Group (pages 296–297)
It is important that students apply their understanding of business concepts to the specific business scenario given in the case
study. For instance, they could make appropriate use of the following features: public limited company, hotels, profit growth, hotel
performance, statement of financial position, cash-flow forecast, profit, hotel purchase, share capital, financing options, financial
data, any statement of financial position items. There may be further examples of application which have not been included here,
but for which students could be credited.
Question
1a Explain how any two external stakeholders of the Paradise Group might use the financial data
provided in the text and Appendix 2.
Possible answers could
include
Stakeholders
• lenders
• suppliers
• customers
• government
Uses
How profit might be of use when considering:
• receipt of interest on borrowing/repayment of borrowing
• tax receipts
• supply of raw materials
• pricing
• new products
Sample explanation
Lenders will want to know the profit of the company, cash flow, so that interest will be paid.
Question
1b Do you think The Hideaway hotel is as successful as other businesses in the Paradise Group
chain? Justify your answer using at least two profitability ratios.
Possible answers could
include
Ratio 1
•
gross profit margin is 50 % – this is the same as for the
rest of the group
Ratio 2
•
profit margin is 10%, which is lower than for the rest of
the group – 25%
© Cambridge University Press 2018
Exam-style case study answers – Section 5
Cambridge IGCSE and O Level Business Studies
Conclusion
Section 5 Financial information and decisions
•
•
if measured by profitability ratios, it is as successful as
the other hotels in the group as measured by the gross
profit margin, but the profit margin is significantly lower,
suggesting that they are not as successful at controlling
overhead costs
making a judgement as to success based on just one
year’s figures could be misleading – a more accurate
judgement could be made if figures for previous years
were available
Question
2a Using examples, explain the difference between non-current assets and current assets that
might be held by the Paradise Group.
Possible answers could
include
Current assets
• inventories
• trade receivables
• cash/bank balances
Non-current assets
• land
• premises
• machinery
• motor vehicles
Give marks for appropriate definitions of the two terms, e.g. current assets are resources owned
by a business that they expect to convert into cash before the date of the next statement of
financial position.
Sample explanation
Non-current assets are resources owned by a business that they expect to use for longer than
one year. For example, hotels, furniture.
Question
2b Consider the advantages and disadvantages of the following methods that could be used to
finance the purchase of City Budget Hotels. Recommend to the Board of Directors which source
it should use. Justify your answer.
Possible answers could
include
Share issue
Advantages
• no interest payments so cheaper than a long-term loan
• money raised is a permanent source of capital
Disadvantages
• dilutes control of the company
•
•
Long-term bank loan
profits shared among more owners
cost of the share issue
Advantage
• does not affect ownership of the company
Disadvantages
• must pay interest on the loan – increases costs
• the loan must be repaid
• reduces the profit available for other uses,
e.g. investment in growth or dividend payments
© Cambridge University Press 2018
Exam-style case study answers – Section 5
Cambridge IGCSE and O Level Business Studies
Recommendation
Section 5 Financial information and decisions
•
•
share issue – dilutes control, but cheaper than borrowing
– reduces gearing i.e. lowers financial risk – might not
be able to raise all of the finance needed and will take
longer than arranging a bank loan
long-term bank loan – more expensive but does not
dilute control – increases gearing i.e. increases financial
risk – quicker to raise finance this way compared to
share issue
Question
3a Explain two ways the company’s accountant, Eve Wan, might use the cash-flow forecast she
has prepared to better manage the Paradise Group’s cash position.
Possible answers could
include
Ways
• to monitor closing balances
• change timing of inflows
• change timing of outflows
• arrange finance to cover short-term cash shortages
Sample explanation
Eve Wan might use the cash-flow forecast to identify any months when the business might have a
cash shortage; she might try to increase cash inflows or delay payments to reduce cash outflows;
this will remove the need for an expensive overdraft.
Question
3b ‘Profit is what our business is all about and this has been increasing year on year for the past
five years, so there is nothing to worry about’. Explain why each of the following is important to
the Paradise Group. Which do you think is the most important? Justify your answer.
Possible answers could
include
Cash
•
•
Profit
•
•
•
Conclusion
© Cambridge University Press 2018
•
cash is needed to pay for day-to-day expenses e.g.
trade payables and wages
without cash the business would have to use overdraft
facilities, which are very expensive
profit is needed to reward shareholders
profit can be ploughed back i.e. reinvested in PG – it is
the cheapest source of finance for PG
profitable businesses find it easier to attract new
shareholders to invest or to persuade lenders to provide
finance for expansion
cash is more important in the short-run, but in the
long-run PG will have to make profit if it is to survive
and grow
Exam-style case study answers – Section 5
Cambridge IGCSE and O Level Business Studies
Section 5 Financial information and decisions
Question
4a Explain two ways the Paradise Group could increase its profits.
Possible answers could
include
Ways
• reduce selling prices
• spend money on a promotional campaign – as long as the increase in revenue is greater than
the increase in promotional spending, profits should increase
• reduce costs – find cheaper suppliers, reduce the number of employees
Sample explanation
PG could reduce selling prices. It is in a competitive market so price elasticity of demand is likely to
be relatively elastic. Reducing price will increases revenue and if costs remain the same, then profits
should rise.
Question
4b Explain how the following two financial documents might be useful to Paradise Group’s
directors when choosing a source of finance. Which statement do you think is the most useful to
Paradise Group’s directors? Justify your answer.
Possible answers could
include
Income statement
•
•
Statement of financial position
•
•
Conclusion
•
•
© Cambridge University Press 2018
provides information about retained earnings – the
amount PG has not given to shareholders and can be
used to reinvest in the business
the dividends to shareholders proposed could be
reduced – this would increases retained earnings
they can calculate the gearing ratio – shows the level of
financial risk – the higher the gearing ratio, the less likely
that borrowing would be considered a good source of
finance
current assets give an indication of the amount of cash
tied up in inventories and owed by trade receivables –
reducing these would increase cash balances and this
cash could be put to more profitable use
statement of financial position is possibly the most
useful, but it is only a ‘snapshot’ in time and there is
no guarantee that the figures are the same now as they
were when the statement was created
the income statement might be used to consider how
best to apportion future profit i.e. give lower dividends to
shareholders to increase future retained earnings
Exam-style case study answers – Section 5
Cambridge IGCSE and O Level Business Studies
Section 5 Financial information and decisions
Exam-style case study 5a answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 5a: The Fitness Studio (TFS)
Question
1a Explain two reasons why someone might want to become a shareholder of TFS.
Possible answers Relevant points
could include:
• share of profits/dividends
• capital gain from increased share price
• wants to become a director
• benefit from limited liability
• a growing company
Sample explanation
To obtain share of profits as they are risking their own money by investing it in the business. The business
is successful and now has three gyms; this could lead to more dividends in the future. The share price may
increase in the future, which will lead to possible profits from selling their shares for a higher price than paid
originally.
Question
1b State the advantages and disadvantages of the following three sources of finance TFS could use for the
new equipment. Which source should TFS choose? Justify your answer.
Possible answers Leasing
could include:
•
•
•
•
•
no large initial payment of $700 000
lease company may cover cost of repair – lower costs
can update fitness equipment when technology improves
never own asset so cannot be added to the $400 000 of non-current assets
overall cost may be higher due to regular payments
Share issue
•
•
•
•
•
•
•
access to greater amounts of capital
no interest OR finance costs to pay – so fixed costs do not increase
permanent source of capital – no need to repay
avoid increasing debt which is currently $200 000
possible loss of control OR risk of takeover for the five friends
shareholders might expect dividends
cost OR time to arrange
Retained profit
•
•
•
•
•
no interest to pay which could be expensive on a $700 000 loan
no need to repay
might raise limited amount as only been operative for five years
takes time to raise funds
funds not available of other uses such as the redecoration
© Cambridge University Press 2018
Exam-style case study answers – 5a
Cambridge IGCSE and O Level Business Studies
Recommendation
•
•
•
Question
Section 5 Financial information and decisions
leasing may be suitable as cash-flow issues – and easy to update to latest
equipment when needed which may help attract new customers to Gym 1 – but ongoing cost which has implications for cash flow – but as Gym 1 having problems it
might lower risk
share issue – can raise full amount from sister – but will have to give up share of
ownership which everyone might not agree to
retained profit – have $180 000 – so can afford it – but opportunity cost as funds
once used not available for other purposes – also need to pay for refurbishment
2a Explain two current assets and two current liabilities TFS might include.
Possible answers Relevant points
could include:
• trade receivables
•
•
•
•
inventory
cash
trade payables
bank overdraft
Sample explanation
Cash received from membership payments received from the gym users.
Question
2b Explain how each of the following three financial documents might be useful to help an investor decide
whether to become a shareholder. Which document do you think is most important? Justify your answer.
Possible answers Balance
could include:
sheet
•
•
•
records amount of assets and liabilities – the fitness gyms have including the level of debt
and assets available to sell if necessary
able to calculate liquidity ratios – stability of the business (ability to repay current liabilities)
shows value of the existing business
Cash-flow
forecast
•
•
predicts cash inflows and outflows such as membership fees and redecoration of the gyms
able to see if any cash-flow problems and help identify ways to avoid liquidity problem – is
there sufficient working capital?
Income
statement
•
to assess profitability/availability of retained profit/ability to repay loans as looking to
spend $700 000 on new sports equipment
shows whether the business has made a profit or a loss over the year – compared with
competitors and with previous year’s accounts to assess if the gym business is improving/
worse
able to see whether profits are made which could help indicate if dividend paid
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
SFP tells investor a lot about key elements of a business – its assets and liabilities – will
want to know there are sufficient assets
cash-flow is important to short term survival of any business – if cannot solve cash-flow
problems business will fail – based on estimates so could change
income statement shows how much profit made in previous year and does not necessarily
mean will be successful in future
Exam-style case study answers – 5a
Cambridge IGCSE and O Level Business Studies
Question
Section 5 Financial information and decisions
3a Explain two reasons, other than financing growth, why profit is important to TFS.
Possible answers Relevant points
could include:
• represent a reward for risk taking
• measure of performance
• ensure long term survival of business
• shareholders want dividends (satisficing)
• attracts future investors/shareholders
Sample explanation
Attracts future investors/shareholders, such as Jackson’s sister, as potential investors will see this as
a successful company. This would increase the amount of capital the business has to use to help fund
expansion.
Question
3b Consider the data in Appendix 2 for the three gyms. Which gym do you think has performed the best?
Include calculations of profitability ratios in your response and justify your answer.
Possible answers Gym 1
could include:
•
•
•
gross profit margin (40 ÷ 60) × 100 = 66%
profit margin (10 ÷ 60) × 100 = 16.67%
gross profit margin is second highest but less able to control its expenses based on
revenue generated
Gym 2
•
•
•
gross profit margin (55 ÷ 80) × 100 = 68.75%
profit margin (25 ÷ 80) × 100 = 31.25%
revenue is equal to Gym 3
Gym 3
•
•
•
gross profit margin (50 ÷ 80) × 100 = 62.5%
profit margin (20 ÷ 80) × 100 = 20%
revenue is equal to Gym 2
Conclusion
•
Gym 2 is the best performing gym – as both gross profit margin and profit margin are
the highest, this is due to better control of its cost of sales which allows it to have a
better margin
Question
4a Explain four factors TFS should consider when deciding how to finance the costs of redecoration.
Possible answers Relevant points
could include:
• amount
• time scale
• security
• cost of source
• impact on ownership
Sample explanation
Amount, as source must be able to raise the $30 000 needed.
© Cambridge University Press 2018
Exam-style case study answers – 5a
Cambridge IGCSE and O Level Business Studies
Question
Section 5 Financial information and decisions
4b Explain how the following three stakeholders of TFS might use ratio analysis to help them make
decisions. Which stakeholder do you think is likely to find the information most useful? Justify your answer.
Possible answers Suppliers
could include:
Bank
•
•
•
how secure is their money? – profitability ratio
want to know if business is able to pay for inventory on time as owed – liquidity ratio
owed $50 000 so keen to see size of other debts of business and what security exists –
assess risk of default
•
ability to repay capital/interest when borrowing money for new equipment – so use
liquidity ratios/acid test ratio
able to pay interest on the $200 000 in non-current liabilities on time – liquidity ratio
•
Shareholders
•
•
will want to see if TFS has made high profit as want to be paid a dividend on their
$50 000 investment
assess the profitability of the business and use it to assess the use of their funds –
profitability ratio
Conclusion
•
•
•
© Cambridge University Press 2018
suppliers may base on trust – and can always shorten credit period if concerned
bank likely to lend large amount to business especially if it is to finance new equipment
so important to be able to assess risk of investment
shareholders benefit from limited liability which limits amount of risk – so more
interested in potential return
Exam-style case study answers – 5a
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Exam-style case study answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits.
Marking guidance for case study questions has been provided for Section 1 in the answers documents. However, this same
guidance can be followed when marking the case study below and the other case study questions from the coursebook or the
Cambridge Elevate enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided
in this resource.
Case study: Halo Enterprises (pages 340–342)
It is important that students apply their understanding of business concepts to the specific business scenario given in the case
study. For instance, they could make appropriate use of the following features: retail company, manufacturer of beauty products,
eco-certified products, organic products, no testing on animals, eco-friendly packaging, recession, international growth strategy,
exporting, host countries, economic indicators, political indicators. There may be further examples of application which have not
been included here, but for which students could be credited.
Question
1a Explain two benefits that the host country, Country Z, will have because of Halo Enterprises
setting up operations there as a multinational.
Possible answers could
include
Benefits
• provides employment opportunities
• improves balance of payments
• increases choice of goods and services
• invites knowledge-sharing
• increases tax revenues
• improves country’s reputation
Sample explanation
The host country might benefit from increased employment opportunities. Country Z has 7%
unemployment – this will help to continue the country’s economic growth and will reduce
government spending on benefits for the unemployed.
Question
1b Explain the advantages and disadvantages of the following two countries for Halo Enterprises
when choosing a new location. Which country do you think Halo Enterprises should choose?
Justify your answer.
Possible answers could
include
Country Y
Advantages
• politically stable
• good power and rail infrastructure
• economy is in the growth stage of the economic cycle
• member of a free trade area
Disadvantages
• lower growth rate
• higher inflation and interest rates than Country Z
• more trade barriers than Country Z
© Cambridge University Press 2018
Exam-style case study answers – Section 6
Cambridge IGCSE and O Level Business Studies
Country Z
Section 6 External influences on business activity
Advantages
• good transport infrastructure
• economy is at the boom stage of the economic cycle
• lower unemployment than Country Y
• low inflation and interest rates
• hardly any tariffs or quotas
• investment encouraged
Disadvantages
• much smaller population – smaller potential market
• land-locked – might be more difficult to transport goods
to Country Z
• exchange rate is less favourable than Country Y with
respect to country X’s currency
Conclusion
•
Country Z appears to have more advantages
than disadvantages – the lower inflation rate and
unemployment rate in Country Z and the economy being
in boom, might suggest that consumers have more
real disposable income – this could help HE achieve
better sales – however, political instability of Country Z
might be a problem for the future i.e. uncertainty that
good economic indicators will continue – when will the
economic boom end?
Question
2a Pressure groups are currently posing a threat to multinationals in Country Z. When considering
which country to set up operations in, explain why Halo Enterprises should consider pressure
groups as both an opportunity and a threat.
Possible answers could
include
Opportunities
• support HE’s environment concerns
• may change government policy
Threats
• effect on local businesses
• boycott of HE’s goods
• damage to HE’s reputation
© Cambridge University Press 2018
Exam-style case study answers – Section 6
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Question
2b The exchange rate of Country X’s currency with respect to Country Y’s currency has been
fluctuating in the past year. Explain how each of the following might affect Halo Enterprises if
it decides to export to Country Y. Which of these do you think is the most beneficial for Halo
Enterprises? Justify your answer.
Possible answers could
include
Appreciation of Country X’s
currency
•
will make Country X’s goods more expensive in
Country Y – higher prices reduce demand/sales
Depreciation of Country X’s
currency
•
will make Country X’s goods less expensive in
Country Y – lower prices increase demand/sales
Conclusion
•
the depreciation of Country X’s currency is better for
HE exports to Country Y – however, the currency will
also be depreciating against other currencies and this
increases import costs – if HE imports its raw materials,
then the prices of these will rise – the increase in costs
of production might mean that HE has to increase its
prices, which could negate any benefit of currency
depreciation
Question
3a Based on the information in Appendix 2, compare two economic features of Country Y and
Country Z and explain their impact on business activity.
Possible answers could
include
Economic features
• GDP growth rate
• inflation
• interest rates
• exchange rates
• unemployment rate
• barriers to entry
• legal controls/regulatory framework
Sample explanation
The unemployment rate is higher in Country Y than it is in Country Z. Country Y’s employment
rate is almost double that of Country Z’s. Consumers in Country Y will have lower disposable
incomes and this will reduce the sales potential in Country Y for HE’s products.
© Cambridge University Press 2018
Exam-style case study answers – Section 6
Cambridge IGCSE and O Level Business Studies
Question
Section 6 External influences on business activity
3b Before Halo Enterprises can set up operations in either of the countries, it needs to put
forward a proposal to the government showing the social costs and benefits of its operations.
The government of Country Z is aware of the increasing threat of pressure groups and wants to
do a very detailed cost–benefit analysis of Halo Enterprises’ proposal before giving it approval.
Explain how Halo Enterprises activities might cause positive and negative externalities. Do you
think the government of Country Z should approve Halo Enterprises’ proposal? Justify your
answer.
Possible answers could
include
Positive externalities
•
•
•
•
•
•
provides employment opportunities
improves balance of payments
increases choice of goods and services
invites knowledge-sharing
increases tax revenues
improves the country’s reputation
Negative externalities
•
increased competition repatriation of profits
environmental damage exploitation of employees
negative social impact
undue influence on government
less sense of social responsibility
exploitation of natural resources
•
•
•
•
Conclusion
•
the cost benefit analysis should consider whether the
benefits of HE’s proposal outweighs the costs – do
the economic positives outweigh the social and
environmental negatives?
Question
4a What are tariffs and quotas? Explain how they may impact the business activity of Halo
Enterprises if it decides to export to or set up operations in Country Y.
Possible answers could
include
Explains tariffs and quotas, e.g. tax on imports and exports, limits placed on the number of goods
that can be exported and imported.
Effects
• increases price
• makes HE goods less competitive
• unable to sell enough to earn profit
• cannot satisfy demand in foreign country
Sample explanation
Tariffs are a tax on imports. HE’s goods will be more expensive in Country Y. Country Y imposes
tariffs but Country Z does not. HE will probably sell more in Country Y than in Country Z.
© Cambridge University Press 2018
Exam-style case study answers – Section 6
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Question
4b Explain how the following three issues could affect Halo Enterprises. Which do you think is the
most important issue? Justify your answer.
Possible answers could
include
Being ethical
•
•
•
Being environmentally friendly
•
•
•
Being sustainable
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
consumers are more aware of ethical issues and many
may not buy from businesses that behave unethically –
ethical behaviour can increase sales and profits.
employees can be motivated working for a business that
behaves ethically towards them and in their production
process – it will be easier to recruit and retain employees
improves the image and reputation of the business,
which helps to attract new investors to help finance
expansion plans
improves the business’s reputation and helps to gain/
keep customers, employees and investors
government might fine or close down any business that
causes damage to the environment
pressure groups might take action to oppose any
business that is seen as not being environmentally
friendly – this might affect production, damage
reputation, reduce sales and profits
sustainable development requires a business to weigh
up the environmental, social and economic impacts of
its activities – a business is sustainable if it contributes
towards the economic growth of a country and makes
profits while obeying the law, behaving ethically and
being environmentally friendly
importance of being sustainable could be any of the
advantages a business may gain from being ethical and
environmentally friendly
ethical – helps with brand image, sales, attracting
investment and employee recruitment and retention.
Possible long-term benefits – does HE have an objective
to behave ethically towards its markets and consumers?
environmentally friendly – how active and powerful
are pressure groups – what are the consequences
of government action against HE if they behave in a
way that harms the environment? – does HE have a
corporate social responsibility (CSR) objective?
sustainable – is likely to develop as a result of behaving
in an ethical and environmentally friendly way, so it
could be argued that this is the most important issue
for HE
Exam-style case study answers – Section 6
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Exam-style case study 6a answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 6a: Toystar Ltd
Question
1a Explain two advantages to Toystar Ltd of becoming a multinational company.
Possible
answers could
include:
Relevant points
• to increase market share
• to secure cheaper premises and labour
• to avoid tax or trade barriers
• government grants
Sample explanation
To increase market share. TS is a successful business and may find there is limited potential growth in its home
market and, therefore, needs a new market for its products. They may start by exporting toys to other countries
but eventually they may want to set up production there.
Question
1b The management of the company is evaluating whether Country B is the right country in which to set up its
operations first. Consider two benefits and two threats to Toystar Ltd of setting up operations in Country B.
Do you think the benefit ts outweigh the threats? Justify your answer.
Benefit 1:
Benefit 2:
Threat 1:
Threat 2:
Conclusion:
Possible
answers could
include:
Advantages to
Toystar Ltd
•
•
•
•
•
•
•
•
•
•
access to new market/increase sales/market share for its toys
reduce production costs, such as cheaper labour, transport, materials
spread risk as this would be a new market so not reliant on one market for sales
easier access to raw materials such as plastic and paper
avoid barriers to trade as a free trade agreement has been signed recently
help remain competitive
reduce transport costs
economies of scale
reduce tax liability/take advantage of favourable tax laws
access government grants
Disadvantages
to Toystar Ltd
•
subject to more legal controls – increase costs as must ensure meet rules and regulations
in many different countries which could make it harder to ensure use fair practices
communication problems as business looks to become a multinational company
lack of coordination as will have operations in a number of countries
environmental concerns such as the use of plastic and paper in packaging could damage
its reputation
•
•
•
© Cambridge University Press 2018
Exam-style case study answers – 6a
Cambridge IGCSE and O Level Business Studies
Conclusion
•
•
•
Question
Section 6 External influences on business activity
business more likely to benefit from lower costs which can help it remain competitive and
wider market which helps spread risks
business will have to deal with different sets of laws to ensure It does not face legal action
which takes planning
larger organisation can face diseconomies of scale, can be managed but it is more difficult
as geographical spread increases
2a Explain two methods of legal control that the government of Country B can use to control the amount of
foreign investment that happens in its country.
Method 1:
Explanation:
Method 2:
Explanation:
Possible
answers could
include:
Relevant points
• access to new markets
• labour may be cheaper in other markets
• increased competition
• increased marketing and distribution costs
Sample explanation
Increased competition as other toy manufacturers will find it easy to access Country A. If these products are
cheaper, it may be difficult for Toystar Ltd to compete leading to potentially lower sales and profit.
Question
2b State the advantages and disadvantages to the following stakeholders of multinational companies setting
up operations in Country B? Which stakeholder do you think will benefit the most? Justify your answer.
Possible
answers could
include:
Society
•
•
•
•
•
•
•
•
•
Local
business
•
•
•
•
•
© Cambridge University Press 2018
create jobs – increase incomes and standard of living – boosting the growing economy
even more
tax – increase government funds to provide services
increased choice and lower prices as access to wider range of toy products
improve reputation of country – attract other businesses
use up scarce resources in a country that already has to import energy
pollution such as the use of plastic and paper in packaging
may exploit local labour as fewer legal controls
may expect government support and threaten to pull out of country if not offered
favourable terms
loss of cultural identify as standard products sold everywhere
bring in expertise – so skills of local workforce improves – helps other local businesses to
develop knowledge and skills
could lose employees to new business increasing the problem of labour shortages so may
need to offer higher wages to retain employees increasing costs
infrastructure improvements benefit local businesses as well as the toy producer
improved image of country could lead to extra investment
increased competition – as better product which able to sell at lower prices – could mean
lower sales
Exam-style case study answers – 6a
Cambridge IGCSE and O Level Business Studies
Conclusion
•
•
•
Section 6 External influences on business activity
create jobs – but quality of jobs as may be low skilled
offer choice and lower prices so consumers may benefit but in long term the closure of
independent businesses may reduce choice
local businesses may benefit from expertise and improvements to infrastructure but many
small businesses may struggle to compete against larger competitors who are better
placed to lower their prices so, while some businesses benefit, others may have to close
Question
3a The threat from environmental pressure groups is growing significantly in Country A. Explain two methods
pressure groups could use to support their cause.
Possible
answers could
include:
Relevant points
• lobbying government
• organise a boycott so customers do not buy toys from Toystar Ltd
•
•
•
•
•
•
write letters to newspapers
hold public meetings
arrange a meeting with business
protest/demonstration
petitions
direct action
Sample explanation
Organise a boycott so customers do not buy toys from Toystar Ltd, which would lower its sales and revenue.
The business will have to be seen to listen to the pressure group if it wishes to maintain a favourable
reputation so customers will be prepared to continue to buy its products.
Question
3b The management of Toystar Ltd faces conflict between profit and ethics when making business decisions.
Management has chosen to adopt a more ethical approach and respond to environmental pressures.
Consider how businesses respond to environmental pressures and why it is important for them to do so
How businesses respond:
Why businesses respond:
Possible
answers could
include:
Reduction in minimum
wage
•
lower labour costs – of it 300 employees – lowers production costs – improve
profit margin and profitability of business
Reduce time for new
businesses to obtain
planning permission
•
•
less paperwork – saves time when looking to open new factory so able to start
production/gain possible sales sooner
need to find suitable location and overcome issues with pressure groups
Restriction on amount of
packaging
•
•
•
may need to redesign packaging of toys – increases costs
less packaging can improve image as seen an environmental friendly
reduction in packaging could lower costs – improve margin
Conclusion
•
lower costs if minimum wage reduced but business may pay above minimum
wage as ethical so may have limited or no effect
remove legislation so easier to set up factory but this is a one off impact when
start production
packaging will be important for all its products – will cost money to redesign
packaging for each toy and it is an ongoing issue (especially if rules keep
changing) so likely to have most impact
•
•
© Cambridge University Press 2018
Exam-style case study answers – 6a
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Question
4a Explain two possible environmental impacts of Toystar Ltd’s activities.
Possible answers
could include:
Relevant points
• air pollution
• visual eye sore
• people give up homes/loss of green fields or nature
• congestion/extra traffic
Sample explanation
Loss of green space. A large amount of land will be needed for the site and roads will need to be built
to access the factory to take materials and products in and out. This will reduce the amount of land for
community projects, lowering the quality of life for the local community.
Question
4b Explain two possible business practices (economic, environmental or social) of Toystar Ltd that
would indicate its commitment to sustainable development and corporate social responsibility. Why it is
important for companies to follow sustainable business practices? Justify your answer.
Business practice 1:
Explanation:
Business practice 2:
Explanation:
Importance of sustainable business practices:
Possible answers
could include:
Reduce waste
•
•
•
Use renewable
energy
•
•
Develop
environmentally
friendly products
•
Conclusion
•
•
•
•
•
© Cambridge University Press 2018
less resources needed – as less need to import natural or other resources
reduce pollution – such as plastic and paper so less litter produced so no eye
sore or pollution of rivers – helps protect wildlife
reduce cost – so more money to support other projects
protect scarce resources such as coal in country which already has to import
power
reliable energy source for its factory to ensure production not impacted by
power shortages
can reduce or change materials used in its toys limiting amount of resources
used
old toys will not add as much to litter if they can be recycled
can improve reputation – leading to increase sales
reduce waste will reduce amount of pollution – and could lower amount of
materials needed which can conserve natural resources
renewable energy is sustainable as does not use natural resources for power –
which could increase level of greenhouse gases – important as a factory
changing how products are made can help reduce waste and energy as makes
better use of resources throughout process - it can also help improve image and
increase sales which can help offset the additional costs of development
Exam-style case study answers – 6a
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Exam-style case study 6b answers
The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should
be assessed on its own merits. Marking guidance for case study questions has been provided in the answers document for
case study 1a. This can be used as a basis for marking this case study. Please note, the way marks are awarded may differ in
examination to the guidance provided in this resource.
Case study 6b: Style Fashions (SF)
Question
1a Explain two ways in which legal controls can affect SF.
Possible answers
could include:
Relevant points
• need to provide safe working conditions
• limit working hours
• minimum wages
• pollution restrictions/permits
• location of business
• restrictions on what OR how much can be produced
Sample explanation
Need to provide safe working conditions, such as guards on the cloth-making machines, which increases
the production costs for the business. This could lower profit and make it harder for the business to
compete.
Question
1b Explain how the following three economic objectives could help Country T. Which economic objective
do you think is most important? Justify your answer.
Possible answers
could include:
Lower the level of
unemployment
•
•
Lower the level of
inflation
•
•
•
Increase the GDP
•
•
•
Conclusion
•
•
•
© Cambridge University Press 2018
more people in jobs – earning income – improves standard of living – able to
afford to spend more on holidays and tourism
more tax to government – able to provide services to people to help recover from
recession
lower inflation should help improve real incomes so people have more money to
spend on new clothes
less pressure from employees for wage increases which increase business costs
external factors such as fluctuating exchange rates also affect inflation – difficult
to influence as government looking to encourage trade
increase in total level of output of goods and services in economy
business owners, especially textile business owners, may look to expand as
people have money to spend
employ more workers as new bushinesses are encouraged to start up – standard
of living increases
lower unemployment increases standard of living – but depends on jobs created
– low paid unskilled will have limited impact
lower inflation – means average level of prices fall but if people have jobs and
increase in GDP can reduce negative impact
increase GDP most important as could have potential impact on whole economy
– expansion will create jobs which achieves one of the other objectives
Exam-style case study answers – 6b
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Question
2a Explain one effect of a decrease in tax rates on the consumers and businesses in Country T.
Possible answers
could include:
Relevant points
• consumers have more money to spend
• increase in sales
• business have more money to invest
Sample explanation
A decrease in tax rates leads to customers having higher disposable income. Customers will increase the
demand for clothes as they have more money to spend on luxuries. This will mean SF has an increase in
sales which will further increase its profits.
Question
2b Explain how each of the following three factors will affect the success of SF. Which factor is likely to
have the most effect on the success of SF? Justify your answer.
Possible answers
could include:
Increase in
employment
•
•
more people in jobs – earning income – improves standard of living – able to buy
clothes from local businesses – most sales exported but this could change with
increase in demand as locals have more jobs
could push up labour costs as harder to find suitable workers to make clothes
More business
start-ups
•
•
increase competition – lower sales
depends on type of business as tourism also important sector – some new businesses
could help provide services for SF
Lower legal
controls
•
•
•
business tries to be ethical so may not change actions
lower costs – increase profit so easier to compete
could encourage more businesses to start up – increasing competition
Conclusion
•
increasing employment can increase demand – but also increase labour costs which
may not be able to pass onto customers through higher prices – but most exported –
but as incomes increase could see demand rise in own country so may have most
impact
increased competition which could affect sales but impact depends on type of
businesses as could provide services
lower legal controls help all business but as export need to be aware of laws in other
countries
•
•
Question
3a Explain two possible ethical issues that SF should consider.
Possible answers
could include:
Relevant points
• pay fair wages
• provide better working conditions for workers
• pay fair price to suppliers OR pay suppliers on time
• source environmentally friendly materials
• do not sell excess stock cheaply OR fix prices
• charge a fair price to customers
• pay taxes in country in which sales are made
• do not employ child labour
© Cambridge University Press 2018
Exam-style case study answers – 6b
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Sample explanation
Pay fair wages. This means that workers will be paid a wage they can live on; this will give the company a
better reputation with its consumers. Sales may even increase because of its ethical reputation.
Question
3b State the advantages and disadvantages to Country T of allowing multinational companies to set up
operations there. Do you think multinational companies should be allowed? Justify your answer.
Possible answers
could include:
Advantages of
multinationals for
Country T
•
•
•
•
•
•
Disadvantages of
multinationals for
Country T
•
•
•
•
•
•
Conclusion
•
•
•
create jobs – as two million people work in textiles increase incomes and
standard of living – boost economy which is growing
tax – increase government funds to provide services
increased choice and lower prices of clothing as access to wider range of
products
bring in expertise – so skills of local workforce improves – helps other local
businesses to develop knowledge and skills
infrastructure improvements benefit local businesses
improved image of country could lead to extra investment which helps achieve
its objective of attracting more new businesses
use up scarce resources and pollution
may exploit local labour as fewer legal controls so more use of child labour
may expect government support and threaten to pull out of country if not offered
favourable terms or taxes lower than 22%
increased competition – as better product which can be sold at lower prices –
could mean lower sales
loss of cultural identify as standard products sold everywhere
environmental impact from pollution as materials are imported
create jobs – but quality of jobs may be low skilled especially in clothing industry
offer choice and lower prices so consumers may benefit but, in long term, the
closure of independent businesses may reduce choice
local businesses may benefit from expertise and improvements to infrastructure
but many small businesses may struggle to complete against larger competitors
who are better placed to lower their prices so, while some benefit, others may
have to close
Question
4a Explain one advantage and one disadvantage to SF of importing.
Possible answers
could include:
Advantages
• price of inventory could be cheaper
• higher quality
• wider range
Disadvantages
• depreciation of exchange rate of home country
• higher cost of transport
• speed of delivery
• different quality standards
© Cambridge University Press 2018
Exam-style case study answers – 6b
Cambridge IGCSE and O Level Business Studies
Section 6 External influences on business activity
Sample explanation
The price of imported stock can be cheaper. This means SF can sell its clothes at a cheaper price. SF will
be more competitive than manufacturer and this will increase both sales and profit.
Question
4b Explain how the following three changes are likely to affect SF. Which change do you think is likely to
have the most effect on SF? Justify your answer.
Possible answers
could include:
Increase in Country T’s
exchange rate
•
•
exports more expensive – harder to sell its products abroad
imports cheaper – clothing materials can be bought for lower costs – could
lower prices or increase profit
Lower tariff on imports
•
lower costs – so able to import materials for the first time so may be able to
charge lower prices – increase demand
more imports – more competition – lower sales
•
Increase in interest
rates in Country T
•
•
increase costs as rates increase by 0.5% – could delay or stop investment
less disposable income – lower sales – clothes may be necessity although
may switch to lower quality – lower demand
Conclusion
•
exchange rates likely to have most effect as business imports materials which
helps and exports most of its products – so may depend on whether able to
increase sales in Country T
tariffs help its import but could see more cheaper finished products enter
country – but as sell most overseas – less impact
interest rate rise will increase costs but only a small rise so may not change
decisions
•
•
© Cambridge University Press 2018
Exam-style case study answers – 6b