Cambridge O Level

BUSINESS STUDIES 7115/21

*5283418492*

Paper 2 Case Study May/June 2024

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 two drawbacks for EP of having a tall organisational structure.

high human resource costs

Drawback 1: ......................................................................................................................

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

high human resource costs lead to higher overheads

Explanation: ......................................................................................................................
and less profit in a competitive market.
...........................................................................................................................................

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

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

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

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

slow decision making

Drawback 2: ......................................................................................................................

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

the taller the organizational makes the

Explanation: ......................................................................................................................
decision making process slower, which impacts the
...........................................................................................................................................
overall performance negatively
...........................................................................................................................................

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(b) Consider the following two ways EP could use to increase added value. Which way should
EP use? Justify your answer.

• Increasing prices
• Reducing raw material costs

increasing prices could be a good strategy for EP

Increasing prices: .............................................................................................................
provided they offer high-quality value-added products
...........................................................................................................................................
because their competitors are offering low quality products.
this could give EP a competitive advantage over
...........................................................................................................................................
the market and customer would pay higher price for good
quality
...........................................................................................................................................

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

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

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

...........................................................................................................................................
reducing raw material costs may compromise the
Reducing raw material costs: ...........................................................................................
quality of EP's products, which may end up EP
losing its reputation and market share. EP might
...........................................................................................................................................
lose its existing customer base as well because
...........................................................................................................................................
the low-quality products are already available in
the market with cheaper prices.
...........................................................................................................................................

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

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

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

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

It is recommended that EP must maintain its quality

Recommendation: ............................................................................................................
standards which give EP competitive advantage over the
...........................................................................................................................................
market. Therefore, EP has a good opportunity to increase
its prices to deliver quality products to its customers and
...........................................................................................................................................
emerge as a quality products leader in the market.
...........................................................................................................................................

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

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2 (a) Explain two advantages and two disadvantages of using external recruitment to find EP’s new
manager.

External recruitment helps in bringing new marketing

Advantage 1: ....................................................................................................................
ideas and perspectives.
...........................................................................................................................................

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

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

the outsiders will be able to easily identify weaknesses

Advantage 2: .................................................................................................................... in
EP's system.
...........................................................................................................................................

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

...........................................................................................................................................
The new outsider employees may take longer time
Disadvantage 1: ................................................................................................................
to learn and understand EP's systems and market
environment
...........................................................................................................................................

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

...........................................................................................................................................
The external recruitment may demoralize the existing the
Disadvantage 2: ................................................................................................................
employees which may result into bad performance and
insecurities.
...........................................................................................................................................

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(b) Consider the following three ways EP could use to increase the sales of its products. Which
would be the best way for EP to use? Justify your answer.

• Advertising using social media

• Emailing special offers to existing customers
• Setting up a website

Advertising using social media: ........................................................................................

advertising on social media platform is the best
...........................................................................................................................................
way to generate sales because EP can reach out to
potential customers through multiple social media
...........................................................................................................................................
platforms including Facebook, Instagram, YouTube,
...........................................................................................................................................
twitter and TikTok etc.
but,
...........................................................................................................................................
It is Easier to leave bad reviews, can lead to fewer purchases of cups and the
bad reviews may be unfair if only a small proportion of reviews are bad
...........................................................................................................................................

Emailing special offers to existing customers: ..................................................................

emailing special offers to existing customers may help in retaining the customer
...........................................................................................................................................
and is a cost-effective method, however the drawback is that many customers
...........................................................................................................................................
do not see their emails frequently and new customers cannot be reached using
this method
...........................................................................................................................................

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

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

Website is a good platform to showcase the products

Setting up a website: ........................................................................................................
but website requires optimization through social media
...........................................................................................................................................
tools and its continuous updation, domain fee and its
maintenance costs is high.
...........................................................................................................................................

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

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

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

advertising on social media is the best way to increase sales

Recommendation: ............................................................................................................
as new customers are attracted, and it is the most cost
...........................................................................................................................................
effective method. Setting up website is also a good method
but without social media marketing and optimization
...........................................................................................................................................
the website would not get good amount of orders.
...........................................................................................................................................

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3 (a) Explain four reasons why consumer spending patterns for a product might change.
New technology and trends impact the spending patterns for a
Reason 1: .........................................................................................................................

product which could decrease or increase its demand.

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

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

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

the selling platform has changed the spending pattern

Reason 2: .........................................................................................................................
for many customers as they switched from offline to online
...........................................................................................................................................
buying of products.
...........................................................................................................................................

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

Availability of product is a critical factor for consumer spending

Reason 3: .........................................................................................................................
pattern. For example, consumer would prefer to buy imported
...........................................................................................................................................
products if the local products are not available
...........................................................................................................................................

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

Many consumers prefer to spend money for quality rather than

Reason 4: .........................................................................................................................
price. Therefore, quality is a critical factor of spending pattern
...........................................................................................................................................

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(b) Consider the following two ways EP could increase efficiency in its factory. Which would be
the best way for EP to use? Justify your answer.

• Improving labour skills

• Introducing more automation and technology

Improving labour skills: .....................................................................................................

skilled labour force will certainly help EP in increasing efficiency in its factory
...........................................................................................................................................
but value addition and quality enhancement requires more automation and
technology.
...........................................................................................................................................

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

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

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

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

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

Introducing more automation and technology: .................................................................

automation and technology may help EP improving overall performance

...........................................................................................................................................
and product quality while reducing labour cost and wastage.
nevertheless the upfront capital cost may increase in the beginning but
...........................................................................................................................................
overall automation and technology will bring in cost effective to EP.
...........................................................................................................................................

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

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

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

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

Although skilled labour helps in improving the

Recommendation: ............................................................................................................
overall efficiency of the factory, but EP requires
...........................................................................................................................................
to compete the market based on high quality
standards. In order to maintain the quality
...........................................................................................................................................
standards and produce value added products
...........................................................................................................................................
with cost effectiveness EP requires automation
and technology
...........................................................................................................................................

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4 (a) Explain two factors EP should consider when choosing a source of finance.

Existing loans
Factor 1: ...........................................................................................................................

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

Explanation: if the business already has several loans, then this may
......................................................................................................................
not be an option, due to the already high expense of
...........................................................................................................................................
interest payments on the loans.
...........................................................................................................................................

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

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

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

Legal form of business

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

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

Explanation:EP is a private limited company so issuing shares

......................................................................................................................
is an option, and new shares can be sold to raise finance
...........................................................................................................................................

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

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(b) Using Appendix 3 and other information, consider the following two products EP makes. Which
product should EP stop making? Justify your answer.

• Product A
• Product B

sales volume of product A is higher than product B.

Product A: .........................................................................................................................
total cost is lower than the product B by $210,000
...........................................................................................................................................
profit margin is higher than product B. demand is increasing
10 percent every year.
...........................................................................................................................................
but,
...........................................................................................................................................

Price is lower by $30 per product at $40 per unit

...........................................................................................................................................
GPM is lower by 12.5% compared to product B
...........................................................................................................................................
Sales are increasing lower rate of 10% per year than for
Product B
...........................................................................................................................................

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

Product B: .........................................................................................................................

GPM is higher at 62.5%

...........................................................................................................................................
Price per unit is higher at $40 per unit leading to higher
...........................................................................................................................................
revenue
Revenue is higher at $400000
...........................................................................................................................................
Demand is increasing at double the rate of Product A each year
so sales are likely to increase to 12000 units leading to higher
...........................................................................................................................................
revenue of $480000 in the future
...........................................................................................................................................

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

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

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

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

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

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

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