™

Cambridge IGCSE

BUSINESS STUDIES 0450/23

*9030633940*

Paper 2 Case Study May/June 2021

1 hour 30 minutes

You must answer on the question paper.

You will need: Insert (enclosed)

INSTRUCTIONS
• Answer all questions.
• Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
• Write your name, centre number and candidate number in the boxes at the top of the page.
• Write your answer to each question in the space provided.
• Do not use an erasable pen or correction fluid.
• Do not write on any bar codes.
• You may use a calculator.

INFORMATION
• The total mark for this paper is 80.
• The number of marks for each question or part question is shown in brackets [ ].
• The insert contains the case study.

This document has 12 pages. Any blank pages are indicated.

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1 (a) Explain four factors that may influence the location of a tertiary sector business.

Rent
Factor 1: ...........................................................................................................................

Explanation: ......................................................................................................................
One of factor is rent, as it directly impacts the operational cost. Business tend to locate
at places where the cost is rent is cheap so that the funds can be used more efficiently
...........................................................................................................................................
which might result in lower cost and increased revenue.
...........................................................................................................................................

Competitors
Factor 2: ...........................................................................................................................

Explanation: ......................................................................................................................
A business may locate near their competitors, as it may create a market of that specific good
...........................................................................................................................................
where the targeted consumers will come and purchase the product. However, there can be customers
who can purchase goods from the competitors,and not form us which can result in lower revenue.
...........................................................................................................................................

Access to supplier
Factor 3: ...........................................................................................................................

Explanation: ......................................................................................................................
A business may locate at a place which is near its supplier. This will result in goods coming to the shop
...........................................................................................................................................
fast and will also reduce transportation cost. Both these outcomes are beneficial for the firm.

...........................................................................................................................................
Availability of labor
Factor 4: ...........................................................................................................................

Explanation: ......................................................................................................................
A firm can also locate at a place where there is availability of labor. The place might have high
...........................................................................................................................................
amount of unemployed workers, which result in cheap labour, and can save cost for the business.

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(b) Explain how the following three factors could cause Ruben’s new business to fail:

• Lack of management experience

• Insufficient working capital
• Poor planning

Which factor do you think is most important to Ruben? Justify your answer.

Lack of management experience: ....................................................................................

Ruben would lack management experience which can result in difficulty in handling or motivating,
...........................................................................................................................................
the 4 full time employees or the 8 part time employees. The can result in reduced quality of service
at the franchise and may harm the reputation. Moreover, Ruben can have difficulty in choosing the
...........................................................................................................................................
right employees as it is crucial to employ the right individuals for the perfect role to perfectly kick start a
business.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Insufficient working capital: ...............................................................................................

Ruben may not have enough funds to repay his suppliers for chicken or the buns of the burger for his
...........................................................................................................................................
fast-food franchise. This can damage the relation of Ruben with his supplier which can result in getting
less discounts and less opportunities for growth. Moreover interest can be charged on Ruben for the
...........................................................................................................................................
funds owed, which can increase liabilities and also increase cash out flow as some point
the funds will need to be transferred.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Poor planning: ..................................................................................................................

Ruben would have not properly, made a business plan for his new outlet of a fast food franchise.
...........................................................................................................................................
Without a proper plan, the franchisee can be reluctant to give the license to Ruben and so Ruben
wouldn't be able to start the business. In addition, without proper planning of finances, Ruben would
...........................................................................................................................................
not be able to decide whether to borrow a loan or take funds from his grandparents. His new business
can become a failure if he doesn't a proper plan from where to borrow.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Conclusion: .......................................................................................................................
Overall, poor planning can be the main reason for Ruben's failure. As without a plan, all the asset and
...........................................................................................................................................
resources will not be properly organized which can result in inefficient production and can fail the
business. Insufficient working capital may not a big issue as his grandparents have already offered
...........................................................................................................................................
$50,000 which doesn't have to paid back with interest. He has also worked in a fast food takeaway
serving customers, so he will have some management experience.
...........................................................................................................................................

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2 (a) Using Appendix 2, explain one external cost and one external benefit of Ruben’s business.

Enviornmental damage
External cost: ....................................................................................................................

...........................................................................................................................................

Explanation: ......................................................................................................................
After customers are done eating their burgers or chicken from Rubens's outlet, they can litter
...........................................................................................................................................
the plastic container or plastic cup on the ground. This plastic litter can damage the environment
as animal like cats and dogs can eat these containers which can damage their health and cause
...........................................................................................................................................
external cost from Ruben's outlet.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
Government spending on merit goods
External benefit: ................................................................................................................

...........................................................................................................................................

Explanation: ......................................................................................................................
As one of the Government spokesperson said: "Fast food takeaway businesses provide tax revenue."
...........................................................................................................................................
Increase in tax revenue can cause government to spend on goods which can improve the society, for
example spending to build more hospitals. More hospitals and lead to more healthy individuals which
...........................................................................................................................................
can cause an external benefit form Ruben's business.

...........................................................................................................................................

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(b) Consider the following three possible ethical issues for Ruben’s business:

• Advertising aimed at children

• Seeking profit maximisation by paying low wages
• Only buying from local suppliers.

Which do you think will have the greatest effect on Ruben’s business? Justify your answer.

Advertising aimed at children: ..........................................................................................

Firstly, Ruben is giving free toys to children with their food which can increase brand
...........................................................................................................................................
loyalty, and cause those children to come again at Ruben's outlet which will increase
sales revenue. This might encourage children to eat unhealthy food since a young age
...........................................................................................................................................
and can cause private cost to those children. Also advertising aimed at children can be
effective as between 2019 and 2020, demand for fast food has risen by 5% of children
15 and under. More advertising can lead to more demand and more sales.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Seeking profit maximisation by paying low wages: ..........................................................

If Ruben pays low wages, expenses of the business will reduce and will increase profit. However, as
...........................................................................................................................................
wages will be paid at the minimum wage, workers might get demotivated to work which can result in poor
quality of service at the outlet leading to less orders. Moreover, the wages may not be enough for the
...........................................................................................................................................
workers and can go on strikes which can cause lost output and may also harm the franchise brand image.
This will not be beneficial for Ruben.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Only buying from local suppliers: ......................................................................................

If Ruben buys chicken and burger patty from local suppliers, then Transporation time can reduce and can
...........................................................................................................................................
increase the speed of production. Moreover, transportation cost can also reduce as less distance has to
be travelled for the delivery. However local supplier can be expensive which can increase the cost and
production and reduce gross margin.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Conclusion: .......................................................................................................................
Overall seeking profit maximization will have the biggest effect as if Ruben pays his 4 full time or 8
...........................................................................................................................................
parttime employees at minimum wages, then that can leave RB and join RB's competitors which gives
better wages. Lower labor force can result in low productivity leading to lower revenue and less growth.
...........................................................................................................................................
Buying from local suppliers will have little effect on the business as he is likely to be doing this anyway.
Lastly, children will not always have the control over money. So even if there is advertising aimed at
children, parents may not the food as it is unhealthy.
...........................................................................................................................................

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3 (a) Explain the possible effect of four legal controls over employment on Ruben’s business.

Paying at legal minimum wage rate

Legal control 1: .................................................................................................................

Effect on Ruben’s business: .............................................................................................

Ruben must his employees at or above the legal minimum wage. He will pay them at minimum wage
...........................................................................................................................................
but should pay above it to increase motivation to serve customers.

...........................................................................................................................................

Hygenic working conditions

Legal control 2: .................................................................................................................

Effect on Ruben’s business: .............................................................................................

The condition of the outlet, or the kitchen where chicken will be cooked, should be hygienic and
...........................................................................................................................................
not hazardous..
...........................................................................................................................................

Unfair dismissal
Legal control 3: .................................................................................................................

Effect on Ruben’s business: .............................................................................................

Ruben shouldn't make his 8 part time employees redundant without a proper reason. A reason like
...........................................................................................................................................
recrimination will not be accepted.
...........................................................................................................................................

Legal minimum age to work

Legal control 4: .................................................................................................................

Effect on Ruben’s business: .............................................................................................

The age of the 4 full time or the 8 part time employs should be above the legal age or it will be considered
...........................................................................................................................................
as child labor which is illegal.
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(b) Consider the benefits of having part-time employees or full-time employees. Which do you
think Ruben should choose for his business? Justify your answer.

Part-time employees: ........................................................................................................

Firstly, employing part time employees is way cheaper than employing full time employees. Also as
...........................................................................................................................................
Ruben will his employees at the minimum wage, so his overall expenses will reduce, which increase
profit margin. Moreover, it easier to ask part time employees to work at busier times when there is huge
...........................................................................................................................................
rush in the outlet of Ruben. Also there will be 8 part time employees, so there will be many ideas which
can make creative burgers as the franchisee is allowed to add local dishes to the menu. However,
...........................................................................................................................................
employing 8 workers will take time than employing 4 workers which, which can result in lower
productivity. In addition, part time employees may leaven RB after their training is over which can cuse
...........................................................................................................................................
RB to have high labour turn over.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Full-time employees: ........................................................................................................

Firstly, fulltime employees will be there all day so they can handle the rush all day. Secondly, full timer
...........................................................................................................................................
workers are like to be more invested into their work than part time due to higher wages. This will
increase efficiency at the RB. Full time workers are likely to stay at the firm, than leaving it, so it will
...........................................................................................................................................
reduce administrative, recruitment and training costs. However, the 4 full time employees will have
higher wages than 8 parttime employees. Also, as full time employees are working all day, they may
...........................................................................................................................................
notice fatigue and can get tired, which can result in lower productivity.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Recommendation: ............................................................................................................

Overall, Ruben should employ the 8 parttime employees as, they will be working at a restaurant where
...........................................................................................................................................
large number of employees is required for maximum efficiency, rather than employees who stay longest
at the workplace. So therefore he should employ the 8 parttime employees as there will be many
...........................................................................................................................................
workers so it will ensure maximum productive. This might not be possible with just 4 full time
employees.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

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4 (a) Explain two ways the market research data shown in Appendix 1 could help Ruben make
business decisions.

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

...........................................................................................................................................

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

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

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

...........................................................................................................................................

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

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

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(b) Consider the advantages and disadvantages of the three sources of finance outlined in
Appendix 3 if Ruben chooses to buy the franchise. Which source of finance should Ruben
choose? Justify your choice using cost calculations for each source.

Bank loan 1 year: ..............................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Bank loan 3 years: ............................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Inheritance from grandparents: ........................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Recommendation: ............................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

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