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BUSINESS STUDIES 0450/12

*4158426049*

Paper 1 Short Answer and Data Response October/November 2024

1 hour 30 minutes

You must answer on the question paper.

No additional materials are needed.

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 [ ].

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

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1 Avtar owns a car repair business which operates in the private sector. It is a small business with 2
full-time employees. Avtar wants to find out the best way for a business to increase added value.
Avtar’s business needs finance for many reasons. Avtar wants to know how an economic recession
might affect his business.

(a) Identify two features of a private sector business.

Private ownership: owned and controlled by individuals or private

Feature 1: .........................................................................................................................
entities rather than governments.
...........................................................................................................................................

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Profit motive: Operated with the primary goal of generating profits
Feature 2: .........................................................................................................................
for its owners or shareholders.
........................................................................................................................................... [2]

(b) Identify two reasons why a business might remain small.

Owner's preference for Personal control
Reason 1: .........................................................................................................................

...........................................................................................................................................
Focus on a niche market
Reason 2: .........................................................................................................................

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........................................................................................................................................... [2]

(c) Outline one reason why Avtar might need each of the following types of finance:

Afta might need it to cover immediate expenses like payroll

Short-term finance: ...........................................................................................................
or inventory, ensuring smooth operations. This ensures smooth business operations
...........................................................................................................................................
without cash flow interruptions.
...........................................................................................................................................

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

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It could be for larger investments, like upgrading equipment or
Long-term finance: ............................................................................................................
expanding his garage, which pay off over time. This investment can help increase the
...........................................................................................................................................
business's capacity, improve efficiency, and enhance long-term profitability.
...........................................................................................................................................

........................................................................................................................................... [4]
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(d) Explain two ways an economic recession might affect Avtar’s business.

Way 1: ...............................................................................................................................
Reduced customer spending

...........................................................................................................................................
In a recession, Avtar's customers might delay non-urgent car repairs, directly
Explanation: ......................................................................................................................
hitting his sales and profits. This means less cash flow to cover everyday costs, and he
...........................................................................................................................................
might struggle to keep the business afloat.
...........................................................................................................................................
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...........................................................................................................................................

Way 2: ...............................................................................................................................
Difficulty in accessing credit

...........................................................................................................................................
Banks often become more cautious during a recession. If Avtar needs a
Explanation: ......................................................................................................................
loan to invest in his business or cover shortfalls, he might face higher interest rates or
...........................................................................................................................................
stricter lending criteria, making it tougher for him to secure the funds he needs.
...........................................................................................................................................
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........................................................................................................................................... [6]

(e) Explain two ways a business can increase added value. Which is likely to be the best way for
a business to use? Justify your answer.
First way would be by enhancing the quality of products, a business can differentiates
...........................................................................................................................................
itself from competitors, for example, Avtar could use better quality parts for repairs,
...........................................................................................................................................
ensuring customer satisfaction and trust. High quality products often command high prices
...........................................................................................................................................
and build customer loyalty, which translates into added value. Second way that Avtar
...........................................................................................................................................
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could use is effective branding and marketing can significantly boost a value of business.
...........................................................................................................................................
This involves creating a strong brand identity and communicating it consistently
...........................................................................................................................................
across all platforms. For this business, this might include a professional website,
...........................................................................................................................................
social media presence, and customer testimonials that highlight the quality of product and
...........................................................................................................................................
services. Best way for Avtar's business, Improving product quality is likely the best way because
...........................................................................................................................................
using high quality parts and offering exceptional service, Avtar can build a strong reputation,
...........................................................................................................................................
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leading to repeat business and word-of-mouth referrals. This focus on quality directly impacts customer
...........................................................................................................................................
satisfaction and loyalty, leading to long-term success.
........................................................................................................................................... [6]

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2 SNT is an ethical business. It manufactures a range of soft drinks using batch production. In 2023
SNT produced 300 000 bottles of soft drinks each week. There are many factors which affect how
much inventory the business should hold. SNT’s directors are planning to expand the business into
new markets in other countries by forming a joint venture. They are considering licensing as another
way to help overcome the potential problems of entering these new markets.

(a) Define ‘licensing’.

...........................................................................................................................................
Licensing is an agreement where one party(the licensor) grants another party( the licensee)

...........................................................................................................................................
permission to use certain rights, properties or sources ,typically in exchange for a fee

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or royalities.
...........................................................................................................................................

........................................................................................................................................... [2]

(b) Identify two factors which might affect how much inventory a business should hold.

Demand forecast
Factor 1: ...........................................................................................................................

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

Factor 2: ...........................................................................................................................
Storage costs

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........................................................................................................................................... [2]

(c) Outline two benefits to SNT of using batch production.

Efficiency and cost savings: This allows SNT to produce items in large quantities
Benefit 1: ..........................................................................................................................
at once, which can lead to economies of scale. It also expresses that lower costs per unit
...........................................................................................................................................
due to bulk purchasing of materials and more efficient use of machinery and labor.
...........................................................................................................................................

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

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Flexibility in production: SNT can switch between different products or variations
Benefit 2: ..........................................................................................................................

without significant downtime. If there is a need to adapt to changing market demands

...........................................................................................................................................
or customer preferences, this would be advantageous. SNT can produce a batch of one
...........................................................................................................................................
product, then quickly reconfigure equipment to produce a different batch.
........................................................................................................................................... [4]
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(d) Explain one advantage and one disadvantage to SNT of forming a joint venture when entering
new markets in other countries.

Local Market knowledge

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

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

Explanation: ......................................................................................................................
This provides insights into the new market, reducing risks and enhancing
market entry success. This knowledge can help SNT navigate potential pitfalls,
...........................................................................................................................................
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and implement effective marketing strategies.

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

...........................................................................................................................................
Sharing profits and Control
Disadvantage: ...................................................................................................................

...........................................................................................................................................
It requires sharing decision making and profits, potentially leading to
Explanation: ......................................................................................................................
conflicts and reduced financial gains.
...........................................................................................................................................
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...........................................................................................................................................

........................................................................................................................................... [6]

(e) Do you think the advantages to a business of being ethical are greater than the disadvantages?
Justify your answer.
In my opinion, I think being ethical to advantages are greater because firstly,
...........................................................................................................................................
Ethical businesses often enjoy a positive reputation, which builds trust and loyalty among
...........................................................................................................................................

customers. Consumers are increasingly valuing companies that demonstrate social

...........................................................................................................................................
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responsibility, leading to stronger, more dedicated customer base. Secondly, ethical

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

practices create a positive work environment, increasing employee morale and retention.
...........................................................................................................................................
However, sometimes prioritizing ethics over profit might lead to a loss of market share to
...........................................................................................................................................
competitors who cut corners. It can also be more expensive, impacting profit margins.
...........................................................................................................................................
Overall, the long-term benefits of being ethical, such as enhanced reputation and
...........................................................................................................................................
employee satisfaction, outweigh the disadvantages of increased costs and potential competitive
...........................................................................................................................................
disadvantage. Ethical practices foster trust and sustainability, which are invaluable assets for
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...........................................................................................................................................
long-term success.
...........................................................................................................................................

........................................................................................................................................... [6]

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3 HRO manufactures children’s toys. It is a private limited company. The main objective of HRO’s
shareholders is to increase profit. This might conflict with the objectives of other stakeholder groups,
including its 30 suppliers. HRO’s Managing Director knows that market research can help when
making marketing decisions. The Finance Director is preparing HRO’s statement of financial position.
An extract is shown in Table 3.1.

Table 3.1
Extract from HRO’s statement of financial position at 30 June 2024 ($000s)

Non-current assets 480

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Current assets 250

Current liabilities 200

Non-current liabilities 300

(a) Define ‘non-current assets’.

Non-current asset means items owned by the business for more than one year.
...........................................................................................................................................

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

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

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........................................................................................................................................... [2]

(b) Calculate HRO’s current ratio. Show your working.

Current ratio= current assets/current liabilities

Working: ...........................................................................................................................
250/200=1.25
...........................................................................................................................................

...........................................................................................................................................
$1.25
Final answer: .................................................................................................................... [2]

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(c) State whether each of the following would be classified as a current asset or as a current
liability.

Trade receivables: ............................................................................................................

current asset

...........................................................................................................................................
current liability
Trade payables: ................................................................................................................

...........................................................................................................................................
Current liability
Overdraft: ..........................................................................................................................
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...........................................................................................................................................
Current asset
Inventory: ..........................................................................................................................

........................................................................................................................................... [4]

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(d) Explain one way the objective of HRO’s shareholders to increase profit might conflict with the
objectives of each of the following stakeholder groups:

Customers: .......................................................................................................................
To boost profits, HRO might increase the prices of products which conflicts

with customers' desire for affordable pricing.

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

When HRO increases prices to satisfy shareholders' profit expectations,

Explanation: ......................................................................................................................
it places a financial burden on customers. This can lead to customer dissatisfaction and
...........................................................................................................................................
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potentially drive them to competitors who offer better value for money and also this could
...........................................................................................................................................
affect on long-term profitability.
...........................................................................................................................................

HRO might pressure suppliers to lower their prices or accept delayed

Suppliers: ..........................................................................................................................
payments to reduce costs, conflicting with suppliers' need for fair compensation.
...........................................................................................................................................

If HRO insists on lower prices to cut expenses and increase its own profits,
Explanation: ......................................................................................................................
suppliers' profit margins shrink, impacting their financial health. Additionally, If HRO extends
...........................................................................................................................................
payment terms to hold onto cash longer, suppliers may face cash flow challenges.
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...........................................................................................................................................

........................................................................................................................................... [6]

(e) Do you think the advantages to a business of using primary market research are greater than
the disadvantages? Justify your answer.

...........................................................................................................................................
In my view, primary research provides data tailored to the business's specific needs,
aiding in more informed decision-making. The data is current, reflecting the latest market
...........................................................................................................................................
trends and customer preferences. However, conducting primary research can be
...........................................................................................................................................
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expensive and time-consuming, straining resources. The data collected can be influenced
...........................................................................................................................................
by the way questions are framed, leading to biased or inaccurate results.
...........................................................................................................................................
While primary market research has challenges such as higher costs and potential biases,
...........................................................................................................................................
the advantages generally outweigh the disadvantages. The tailored and up-to-date enable
...........................................................................................................................................
businesses to make strategic decisions that align closely with their goals and market conditions.
...........................................................................................................................................
Thus, the benefits of obtaining precise and relevant data often justify the investment.
...........................................................................................................................................
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...........................................................................................................................................

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

........................................................................................................................................... [6]

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4 TLA is a large hotel with 200 rooms and 3000 employees. Many of these employees are members
of a trade union. The Managing Director is planning to expand the business but is worried about
possible diseconomies of scale as TLA grows. The Human Resources Director has been asked to
recruit 2 new managers. She knows it is important that all managers use the most appropriate
leadership style. All of TLA’s new employees receive induction training.

(a) Identify one advantage and one disadvantage to employees of being members of a trade
union.

Advantage: Employees have collective bargaining power, leading to better wages and working
.......................................................................................................................
conditions.

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

Disadvantage: ...................................................................................................................
Strikes and industrial actions organized by trade union can lead to loss of
income for employees.
........................................................................................................................................... [2]

(b) Identify one benefit and one limitation of a business using induction training.
Induction training helps new employees quickly integrate into the company,
Benefit: .............................................................................................................................
enhancing their understanding of roles and expectations.
...........................................................................................................................................

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It can be time-consuming and costly to provide comprehensive
Limitation: .........................................................................................................................
induction training for all new hires.
........................................................................................................................................... [2]

(c) Outline one reason why each of the following stages of recruitment might be important for
TLA:
It provides a clear outline of the role's responsibilities and requirements.
Job description: ................................................................................................................
A detailed job description helps candidates understand what is expected of them, ensuring
...........................................................................................................................................
that only qualify applicants with the relevant skills and experience apply.
...........................................................................................................................................

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...........................................................................................................................................
It attracts potential candidates to apply for the job.
Job advertisement: ...........................................................................................................
An effective job advertisement reaches a wide audience and highlights the key benefits of working
...........................................................................................................................................
at TLA. By creating an appealing and informative ad, TLA can attract a diverse pool of
...........................................................................................................................................
qualified candidates.
........................................................................................................................................... [4]
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(d) Explain two possible diseconomies of scale as TLA grows.

Communication breakdown
Diseconomy of scale 1: ....................................................................................................

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

As TLA expands, the organization structure becomes more complex

Explanation: ......................................................................................................................
with additional layers of management and an increased number of employees.
...........................................................................................................................................
Miscommunication can result in coordination problems, delays in decision-making, and
...........................................................................................................................................
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decreased efficiency, ultimately increasing the average cost per unit of output.
...........................................................................................................................................
Managerial inefficiencies
Diseconomy of scale 2: ....................................................................................................

...........................................................................................................................................
With growth, it becomes more challenging for managers at TLA to effectively
Explanation: ......................................................................................................................
oversee all operations and staff. This could lead to oversight, decreased employee motivation, and
...........................................................................................................................................
reduced productivity.

...........................................................................................................................................
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Also, managerial inefficiencies can cause duplication of efforts, mistakes.

........................................................................................................................................... [6]

(e) Do you think the advantages of managers using a democratic leadership style are greater than
the disadvantages for a business? Justify your answer.
The advantages of a democratic leadership style are greater than the disadvantages
...........................................................................................................................................
Firstly, involving employees in decisions can improve relations between management and staff,
...........................................................................................................................................
which is particularly important in a unionized environment. Motivated employees are more
...........................................................................................................................................
productive, provide better customer service, and more likely to stay with the company.
...........................................................................................................................................
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Secondly, employees on the front lines have firsthand knowledge of operations and customer
...........................................................................................................................................
preferences. This could lead to more effective and innovative solutions. However,
...........................................................................................................................................
when it comes to drawbacks, slower decision making really delay important decisions.
...........................................................................................................................................
Also, with many voices contributing, there can be conflicting opinions and ideas, leading to
...........................................................................................................................................
disagreements. If not handled properly, it can create a fragmented workforce and reduce
...........................................................................................................................................
efficiency, and negatively affect on customer service. To conclude this, the advantages of
...........................................................................................................................................
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a democratic leadership style are greater than disadvantages.

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

........................................................................................................................................... [6]

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