™

Cambridge IGCSE

BUSINESS STUDIES 0450/11

*5364094467*

Paper 1 Short Answer and Data Response October/November 2020

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. Blank pages are indicated.

11_0450_11_2020_1.12
© UCLES 2020 [Turn over
 2

1 SRB is a bank which provides loans to business customers. SRB plans to make 100 managers’
jobs redundant from its 80 branches. This would remove one level of hierarchy. This is part of its
plan to save $1m in costs over the next 2 years. The Managing Director said: ‘SRB is working with
the trade union about this plan. SRB will make more use of delegation.The bank has to respond
to increased competition from online banks. SRB could either advertise more or develop new
products and services.’

(a) Define ‘trade union’.

A group of workers who join together to protect their rights and interests.
...........................................................................................................................................

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

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

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

(b) Define ‘level of hierarchy’.

The level of authority in a business structure.

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

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

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

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

(c) Outline two advantages of SRB using delegation.

The managers workload decreases and they have more time to focus on
Advantage 1:.....................................................................................................................
other tasks and problems, such as how to respond from the increased competition
...........................................................................................................................................
from online banks.
...........................................................................................................................................

...........................................................................................................................................
Employees at SRB feel more motivated, as they are being trusted by the
Advantage 2:.....................................................................................................................
managers to do the task.
...........................................................................................................................................
This creates less problems with the trade union
...........................................................................................................................................

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

© UCLES 2020 11_0450_11_2020_1.12

 3

see ms
(d) Explain two factors SRB should consider when deciding which managers to make redundant.

Amount of time manager has been working for SRB

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

...........................................................................................................................................
If the manger has been working for longer at SRB, than they should not be
Explanation: ......................................................................................................................
made redundant, as they have a close relation with the customers which SRB
...........................................................................................................................................
provides loans to, and therefore, they can help SRB satisfy the customers and make
...........................................................................................................................................
better decisions.
...........................................................................................................................................
Age
Factor 2:............................................................................................................................

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

If the manager is close to retirement age, then SRB should make the manager
Explanation: ......................................................................................................................
redundant, as they would have to pay more recruitment costs later when the manager
...........................................................................................................................................
retires, which will not help them save costs ($1m over the next 2 years).
...........................................................................................................................................

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

(e) Do you think that more advertising is a better way for a business to respond to increased
competition than introducing new products and services? Justify your answer.
Ad: ADV- reminds customers about the product/service, and how it is better than competitior
...........................................................................................................................................
DADV- costs of advertisement are higher
...........................................................................................................................................
New product/service: ADV- opens up a new market
...........................................................................................................................................
DADV- there are costs of research and development
...........................................................................................................................................
EV- Support new prod and service
...........................................................................................................................................
1. increased sales revenue and profit will offset the costs of R&D
2. new market, less competition and can also set high price
...........................................................................................................................................

...........................................................................................................................................
Advertising products will help raise awareness about it to the customers, which increases

revenues for the business. However, the costs of advertisements may be difficult to offset
...........................................................................................................................................
with the increase in revenue. There are also costs with developing a new product/service, however,
...........................................................................................................................................
a new product/service will open up a new market and spread risks for the company. Furthermore,
...........................................................................................................................................
since it is new, the product will not be in a competitive market, and the business can set a high price
...........................................................................................................................................
to the product, through methods such as market skimming, which will allow the business to increase
........................................................................................................................................... [6]
its revenue and profits and improve cash inflow

© UCLES 2020 11_0450_11_2020_1.12 [Turn over

 4

2 YMG is a private limited company. It is the largest manufacturer of soft drinks in country V. YMG
produces 1 billion litres a year using flow production. The Managing Director wants YMG to expand.
He said: ‘I plan to increase production to 3 billion litres over the next 5 years. This will allow us to
start selling our products in new markets in other countries. I know import quotas and lack of local
knowledge can cause problems but there are ways we can overcome them.’ The Managing Director
also plans to invest $60m in new technology to improve efficiency.

(a) Define ‘flow production’.

Mass production using a production line.

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

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

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

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

(b) Identify two methods (other than technology) a business can use to improve efficiency.

Lean production
Method 1:...........................................................................................................................

...........................................................................................................................................
Training workers
Method 2:...........................................................................................................................

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

(c) Outline two sources of finance YMG could use for the new technology.
Bank loan, since it is the largest soft drink manufacturer, it will be easy
Source of finance 1:...........................................................................................................
to obtain a bank loan, as they are seen as less risky.
...........................................................................................................................................

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

...........................................................................................................................................
Selling shares, as they are a private limitted company.
Source of finance 2:...........................................................................................................

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

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

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

© UCLES 2020 11_0450_11_2020_1.12

 5

(d) Explain how each of the following problems might affect YMG when entering new markets in
other countries.
Difficult to satisfy customers
Problem caused by lack of local knowledge: ....................................................................

...........................................................................................................................................
Since YMG will not know the exact preferences of the local community in the new country
Explanation: ......................................................................................................................
they will not know which flavour of soft drink to manufacture. This may affect sales and
...........................................................................................................................................
revenue for YMG, until they gain some local knowledge.
...........................................................................................................................................

...........................................................................................................................................
Limitted output
Problem caused by import quotas: ...................................................................................

...........................................................................................................................................
As YMG can only import a limited number of raw materials from it's supplier in
Explanation: ......................................................................................................................
country V, they may not be able to reach their targeted increased production of 3billion
...........................................................................................................................................
litres over the next 5 years.
...........................................................................................................................................

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

(e) Do you think a joint venture is the best way for a business to enter a new market in another
country? Justify your answer.
Joint venture: ADV - Brings in new ideas
...........................................................................................................................................
DADV - In case joint venture fails, it will affect both business's reputation
...........................................................................................................................................
Franchise: ADV - Helps with local knowledge
...........................................................................................................................................
DADV - May affect reputation if franchisee doesn't carry out tasks properly.
...........................................................................................................................................
Evalutation: Support joint venture
...........................................................................................................................................
1. Risk shared
2. Established biz can lead to greater source of finance
...........................................................................................................................................

...........................................................................................................................................
By using a joint venture, new ideas can be created, especially if the joint venture consists of
...........................................................................................................................................
two established businesses. This can help the business make better decisions in the unfamilliar
...........................................................................................................................................
market. However, if the joint venture does not do well in the new country, it may affect the reputation of
...........................................................................................................................................
both of the individual business, creating a bad brand image and reducing sales of the business in their
...........................................................................................................................................
home country. The business can also opt for franchising, as it will help them gain local knowlege
which they may lack (franchisee is local, so they know more about local preferences). Customers
...........................................................................................................................................
will be satisfied, so it will increase sales for the business. However, if the franchisee doesn't carry [6]
out the tasks properly, it can also affect the reputation of the business. I think the business should
choose joint venture if they don't mind sharing control, as the risk of business failure in the new country
is shared. Furthermore, two established business who join together will have access to greater amount
© UCLES 2020 11_0450_11_2020_1.12 [Turn over
of capital needed for expansion (eg. purchasing new machinary).
 6

3 Elton is a sole trader. He sells specialist clothing and equipment for sports, including baseball and
hockey. It is a niche market. Elton started his business 5 years ago and it has remained small. A
wide range of inventory is important. Elton has been looking at the financial performance of his
business. The profit margin for 2018 was 35%. An extract of the accounts is shown in Table 3.1.

Table 3.1
Revenue and cost information for Elton’s business for 2018 and 2019 ($)

2018 2019

Revenue ($) 24 000 25 000

Cost of sales ($) 7 200 Y 7000

Gross profit ($) 16 800 18 000

Expenses ($) 8 400 10 000

Profit ($) X 8400 8 000

Profit margin 35% 32%
(a) Define ‘sole trader’.
Ownership of the business is in the hands of one individual
...........................................................................................................................................

gpm - 2018: ...........................................................................................................................................

70%
2019: 72%
...........................................................................................................................................

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

(b) Calculate X and Y.

$8400
X : .......................................................................................................................................
$7000
Y: ....................................................................................................................................... [2]

(c) State four factors that can influence the amount of inventory a business might hold.

Perishability of items
Factor 1:............................................................................................................................

...........................................................................................................................................
Production method (eg. batch production likely to have more inventory)
Factor 2:............................................................................................................................

...........................................................................................................................................
Amount of sales
Factor 3:............................................................................................................................

...........................................................................................................................................
Stock control system
Factor 4:............................................................................................................................

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

© UCLES 2020 11_0450_11_2020_1.12

 7

(d) Explain one advantage and one disadvantage to Elton of operating in a niche market.
Low competition
Advantage:........................................................................................................................

...........................................................................................................................................
Easier to attract customers into his shop.
Explanation: ......................................................................................................................

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

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

...........................................................................................................................................
Lack of economies of scale
Disadvantage:....................................................................................................................

...........................................................................................................................................
This leads to higher unit costs, so Elton is not able to lower the cost of sales
Explanation: ......................................................................................................................
from $7000.
...........................................................................................................................................

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

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

(e) Do you think Elton should be pleased with the financial performance of his business? Justify
your answer using appropriate ratios.
Elton's gross profit margin has increased from 70% to 72%. However, his profit margin has
...........................................................................................................................................
decreased from 35% to 32%. Elton should be satisfied with his control over variable costs (as shown
...........................................................................................................................................
by the increase in gross profit margin), and his gross profit and sales are rising. However, he should be
...........................................................................................................................................
concerned over the increase in expenses from $8400 to $10000 (which led to a decrease in profit
...........................................................................................................................................
margin).
...........................................................................................................................................

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

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

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

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

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

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

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

© UCLES 2020 11_0450_11_2020_1.12 [Turn over

 8

4 KTF makes building materials, including cement and bricks. Last year KTF had sales of $25bn.
KTF’s objectives have often changed since it was started 60 years ago. The Managing Director
wants KTF to expand. KTF is going to take over one of its main competitors. The newly expanded
business will have combined sales of $40bn. The Managing Director said: ‘Many stakeholder groups
will be affected by this decision.’ She knows there are many external factors that affect business
activity including the business cycle, interest rates and legal controls to protect the environment.

(a) Define ‘business cycle’.

Fluctuations of the economic activity that the economy experiences over time.
...........................................................................................................................................

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

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

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

(b) Identify two reasons why a business might change its objectives.
Business has achieved current objectives
Reason 1:..........................................................................................................................

...........................................................................................................................................
Changes in the market, like the business left the old market and joined the new one.
Reason 2:..........................................................................................................................

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

(c) Outline one advantage and one disadvantage to KTF of taking over the other business.

Reduces competition, as this is one of the main competitors for KTF.

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

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

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

...........................................................................................................................................
Clash of culture for a business who started 60 years ago.
Disadvantage:....................................................................................................................

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

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

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

© UCLES 2020 11_0450_11_2020_1.12

 9

(d) Explain how two external stakeholder groups might be affected by the take over.

Banks
Stakeholder group 1:.........................................................................................................

Explanation: ......................................................................................................................
KTF will demand a higher loan, as taking over their main competitor will be expensive.

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

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

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

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

Stakeholder group 2:.........................................................................................................

Government

Government can recieve higher taxes from KTF as they will be having combined sales
Explanation:.......................................................................................................................
of $40bln, which was greater than their original sales of $25bln.
...........................................................................................................................................

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

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

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

(e) Do you think businesses will be more affected by new legal controls to protect the environment
than an increase in interest rates? Justify your answer.

...........................................................................................................................................
Legal controls to protect the environment will mean that the business may have to buy
...........................................................................................................................................
new machinery to reduce pollution will increase the business's expenses. However,
...........................................................................................................................................
increase in interest rates may mean that consumers will find it difficult to borrow money, or may not
...........................................................................................................................................
borrow money at all, so demand for the goods produced by the business decreases. Despite so,
...........................................................................................................................................
legal controls will have a much greater effect on the business because they can always avoid
...........................................................................................................................................
increased interest rates by finding other sources of finance, however, they can't avoid legal
...........................................................................................................................................
controls imposed by the government
...........................................................................................................................................

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

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

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

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

© UCLES 2020 11_0450_11_2020_1.12

 10

BLANK PAGE

© UCLES 2020 11_0450_11_2020_1.12

 11

BLANK PAGE

© UCLES 2020 11_0450_11_2020_1.12

 12

BLANK PAGE

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable
effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will
be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge Assessment
International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at
www.cambridgeinternational.org after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2020 11_0450_11_2020_1.12