Cambridge International Examinations

Cambridge International General Certificate of Secondary Education

BUSINESS STUDIES 0450/12

Paper 1 Short Answered Structured Response May/June 2017
MARK SCHEME
Maximum Mark: 80

Published

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.

Cambridge will not enter into discussions about these mark schemes.

Cambridge is publishing the mark schemes for the May/June 2017 series for most Cambridge IGCSE®,
Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level
components.

® IGCSE is a registered trademark.

This syllabus is approved for use in England, Wales and Northern Ireland as a Cambridge International Level 1/Level 2 Certificate.

This document consists of 17 printed pages.

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Question Answer Marks Guidance

1(a) What is meant by ‘market research’? 2 Do not award examples of primary research or
secondary research.
Clear understanding [2]: e.g.

Process of finding out what consumers want or need [1] before a

product is made [1]
Process of finding out what consumers want or need [1]
depending on age group, income and location [1]
Process of gathering (primary and secondary) data [1] on the buying
habits and attitudes of potential customers [1]
Process of gathering data about customers, competitors and
market trends [2]

Some understanding [1]: e.g. find out what customers want, find out
about competition

1(b) Identify what will happen to each of the following when Cheung’s 2 Do not award ‘fixed costs will change’ as this is
shop rent increases. too vague.

Application [2 ⋅ 1]: award 1 mark for each correct answer.

(i) Variable cost: No change / same

(ii) Fixed cost: Increase

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Question Answer Marks Guidance

1(c) Identify and explain two possible reasons why Cheung thinks the 4 Application marks may be awarded for
shop is in a good location. appropriate use of the following: city-centre,
small, clothing or related words such as t-shirts,
Knowledge [2 ⋅ 1]: award 1 mark for each way identified fashion, children, competitive market, market
research, wholesaler in nearby town, need to
Application [2 ⋅ 1]: award 1 mark for each explanation in context increase revenue or reduce other costs,
manufacturer in another country, increase in rent.
Points might include:
Do not award location factors on its own as this
Near potential target market OR customers [k] so need to be does not necessarily explain why this may make it
somewhere where there are lots of children [app] a good location. E.g. transport cost is a factor but
Busy area OR high footfall [k] as many people likely to visit city it is low transport costs, which makes it a good
centre [app] location.
Good access OR there is parking [k]
Good Image of site [k] as sell fashion items [app] Do not award shop as application as it is stated
There are utilities or other facilities [k] to reduce other costs [app] in the question.
Proximity (far from or near) to competitors [k]
Note: Points such as ‘In city centre’ or
Near to other shops and services [k]
‘competitive market’ are too vague to be awarded
Low transport costs OR already has relationship with supplier [k] as as knowledge.
near wholesaler [app]

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Question Answer Marks Guidance

1(d) Identify and explain two ways that Cheung could use to increase 6 Application marks may be awarded for
revenue. appropriate use of the following: city-centre,
small, shop, clothing or related words such as t-
Knowledge [2 ⋅ 1]: award 1 mark for each way identified shirts, fashion, children or parents, competitive
market, market research, wholesaler,
Application [2 ⋅ 1]: award 1 mark for each relevant reference made to manufacturer in another country.
this business

Analysis [2 ⋅ 1]: award 1 mark for each relevant explanation Note: this business is a retailer not a
manufacturer.
Points might include:
Do not award the same analysis twice. E.g.
Increase advertising (allow only once) [k] attracting or persuading or persuade OR encourage OR attract are the same
encourage new customers [an] to his shop [app] analysis points, as is create awareness OR
Sell to different target market [k] so do not sell only to children [app] inform. To be awarded, development must be
so able to attract different customer [an] different in each point e.g. attract more existing
Increase prices [k] increases amount of revenue per item sold [an] customers or different types of customer.
Lower price or offer price promotions OR discounts [k] acts as
incentive to buy more [an] Do not award ways to lower costs as this does
not answer the question.
Offer new OR additional products [k] e.g. different clothing [app] to
appeal to a new market segment [an]
Do not award free sample as not appropriate for
Loyalty schemes [k] could encourage existing customers to buy
this context.
more from him [an]
Use of sales promotions e.g. competitions [k]
Increase quality [k]
Use e-commerce or sell via website [k]

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Question Answer Marks Guidance

1(e) Do you think Cheung should change his supplier? Justify your 6 Application marks may be awarded for
answer. appropriate use of the following: wholesaler, city-
centre, small, shop, clothing or related words
Knowledge [1]: award 1 mark for identification of relevant point(s) such as t-shirts, fashion, competitive market,
market research, increase in rent cost,
Application [1]: award 1 mark for a relevant reference made to this looking to reduce costs or increase revenue,
business manufacturer in another country.

Analysis [2]: award up to 2 marks for relevant development of point(s) Do not award fabric or materials as application
as this suggests it is a manufacturer.
Evaluation [2]: award up to 2 marks for justified decision made as to
whether Cheung should change his supplier Note: Can award points that focus on either
advantages OR disadvantages of using a
Points might include: wholesaler OR buying inventory from overseas.

Build relationship with supplier [k] in the nearby town [app]

Wholesaler offers choice OR variety OR feedback [k] which could
help increase revenue [app]
Wholesaler breaks bulk [k] helpful for a small shop [app] as do not
have to worry about storing additional stock [an]
More time OR paperwork [k] if buy from manufacturer overseas [app]
Cheaper to buy direct [k] from overseas manufacturer [app] as do
not have to pay anything to third party [an]
Purchasing economies of scale OR buy in larger quantities when buy
direct [k] leading to lower average costs [an] of its clothing [app]
Quicker access to inventory (stock) [k] from wholesaler [app] so can
satisfy any increases in demand [an]
Not able to check quality [k] as manufacturer is based in another
country [app]

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Question Answer Marks Guidance

2(a) What is meant by ‘liquidity’ 2 Do not award measures of liquidity such as

current asset ratio or acid test ratio as these do
Clear understanding [2]: ability of a business to pay back its short-term not explain the term.
OR day to day debts

OR ability of a business to pay its current liabilities using its current

assets

OR A measure of how quickly you can turn (current) assets into cash to
pay short term debts

Some understanding [1]: whether business can pay its debts OR how
easily is it to convert assets to cash OR Amount of cash available

2(b) Identify two reasons why a director might want to measure 2

business performance.

Knowledge [2 ⋅ 1]: award 1 mark for each reason

Points might include:

See how well meeting objectives OR see how well business is doing
OR indicates what a business objective might be e.g. level of
profitability or levels of sales or productivity
Aid decision making OR Identify strengths and weaknesses OR
Identify what needs to be done to improve OR practical examples
such as to determine rewards for employees
Way to compare with competitors
To compare with previous years OR Spot trends
Report to shareholders

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Question Answer Marks Guidance

2(c)(i) Calculate the Return on Capital Employed (ROCE) for 2016 2

Good application [2]: e.g. 25 or 25%

Some understanding [1]: e.g. profit / capital employed *100 [1]

OR incomplete answer 1000 / 4000 [1]

2(c)(ii) Explain what this result shows about LWM’s performance 2 Answer can compare results between years or
outline what the ratio figure means.
Good application [2]: ratio has fallen [1] which shows that profitability
fallen OR not using capital as efficiently as last year OFR rule does apply but answer must be linked
to their ROCE ratio calculation.
OR ratio fallen from 33% to 25% [2]

OR for every $100 invested the business generates $25 in profit [2]

Some application [1] e.g. not as good

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Question Answer Marks Guidance

2(d) Identify and explain one advantage and one disadvantage to LWM 6 Application marks may be awarded for
of using batch production. appropriate use of the following: increased
competition, correct use of data from table 1,
Knowledge [2 ⋅ 1]: award 1 mark for one relevant advantage and one correct use of numbers e.g. 66%, 15, (Different)
disadvantage identified size, tyres or related words such as wheels or
rubber, liquidity is important.
Application [2 ⋅ 1]: award 1 mark for each relevant reference made to
this business Do not award points that can be applied to any
other production method.
Analysis [2 ⋅ 1]: award 1 mark for each relevant explanation
Do not award variety in jobs or economies of
Advantages might include: scale unless qualified by the word some or
compared to another method of production.
Flexible OR easy to switch production [k] to help meet changes in
demand [an] for the 15 different sizes [app] Do not award ‘motivated’ or ‘demotivated’ as
Variety of products [k] leading to possibly more sales [an] of tyres knowledge unless explained. The analysis must
[app] explain the impact on the business e.g. lower
Some variety in workers’ jobs [k] output.
Some economies of scale [k] helping reduce unit cost [an]
Less effect on production if machinery breaks down [k] Do not award knowledge mark for reference to
whole production as this implies flow. Answer
Spread risk as not focusing on only one type of product [k]
must relate to idea of it being semi-finished or
between stages to be awarded.
Disadvantages might include:

Time lost switching OR reset machines between batches [k] could

lead to lower productivity / lost output [an]
A fault with one product is likely to affect entire batch [k] which
could increase waste [an]
Inventory (Stock) may be sitting around between stages [k]
Added cost of moving OR storing semi-finished goods [k]
Demotivating for employees as work is repetitive [k]

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Question Answer Marks Guidance

2(e) Explain two ways in which LWM might respond to increased 6 Application marks may be awarded for
competition. Recommend which way LWM should choose. Justify appropriate use of the following: correct use of
your answer. numbers e.g. 60 or 40 million, 15
(different) sizes, correct use of data from Table 1,
Knowledge [1]: award 1 mark for each relevant way(s) identified tyres or related words such as wheels or rubber,
liquidity is important, batch production.
Application [1]: award 1 mark for a relevant reference made to this
business Do not award the same analysis twice. E.g.
persuade OR encourage OR attract are the same
Analysis [2]: award up to 2 marks for relevant development of point(s) analysis points, as is create awareness OR
inform. To be awarded development must be
Evaluation [2]: award up to 2 marks for justified decision made as to different in each point e.g. attract more existing
which is the best option for LWM to choose. For second mark must customers or different types of customer.
explain why choice made is better than the other option
Note: Maximum of 4 marks if candidates only
Points might include: discuss 1 valid way.

Introduce new products [k] as its main product accounts for 66% of
its sales [app + an]
Lower prices [k] for its 15 different sizes [app] customers might want
cheaper products [an];
Merge or takeover [k] with another tyre company [app] which would
increase its market share [an]
Advertise OR use promotion [k] to raise awareness [an] of its tyres
[app]
Keep costs low [k] so able to offer more competitive prices [an]
Keep improving existing products OR quality [k] allowing them to
stay ahead of the competition [an]
Provide good customer service [k] so that customers want to keep
buying from them [an]

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Question Answer Marks Guidance

3(a) What is meant by an ‘economic boom’? 2 Note: For two marks must recognize that GDP
Clear understanding [2]: strong rise in level of economic activity OR increasing and the speed of growth.
Period of time when GDP rising rapidly
Maximum of 1 mark for identifying features.
Some understanding [1]: e.g. economy doing well [high GDP] or rise in
level of economic activity or GDP rising Answers must refer to the whole economy not a
single business or product.
OR identifies a relevant feature(s) MAX 1 mark, such as:

Low OR falling unemployment OR shortage of skilled workers,

Rising inflation
Resource shortages
High levels of disposable income
Increased number of business start ups
High levels of consumer confidence OR demand
High levels of business confidence OR profits

3(b) Identify two factors which might affect demand for Manisha’s 2
products.

Knowledge [2 ⋅ 1]: award one mark per factor

Points may include changes in any of the following:

Price charged by Manisha

Fashion and trends
Consumer tastes and preferences
Stage in economic cycle OR changes in economic factors e.g.
interest rates, taxes
Level of consumer income
Actions of competitors e.g. new products or changes in prices
Complementary goods
Increase in population
Level OR effectiveness of advertising
Quality of product

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Question Answer Marks Guidance

3(c) Identify and explain two ways in which higher interest rates might 4 Application marks may be awarded for
affect Manisha’s business. appropriate use of the following: correct use of
numbers e.g. 500%, celebration cakes or related
Knowledge [2 ⋅ 1]: award 1 mark for each way identified words such as ingredients, shop or bakery,
economic boom,3 employees, increase in
Application [2 ⋅ 1]: award 1 mark for each explanation in context demand, sole trader, work every day, profitable
(at last), friend (as business partner), product
Points might include: quality is important, started her business 5 years
ago.
Increase in cost (of borrowing) OR expenses OR cash outflows [k] if
used loan to purchase shop [app]
Reduced demand for products OR consumers reduce spending [k]
as can afford fewer cakes [app]
Look to sell assets for cash to reduce existing loans [k]
Workers may want a pay rise [k]
May have to increase prices (to remain profitable) [k]
Business less likely to expand OR reduce investment [k] so may
struggle to meet the increase in demand [app]

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Question Answer Marks Guidance

3(d) Identify and explain two reasons why product quality might be 6 Application marks may be awarded for
important to Manisha’s business. appropriate use of the following: correct use of
numbers e.g. 500%, celebration cakes or related
Knowledge [2 ⋅ 1]: award one mark for each relevant reason identified words such as ingredients, shop or bakery,
[max 2] economic boom,3 employees, increase in
demand, sole trader, work every day, profitable
Application [2 ⋅ 1]: award 1 mark for each relevant reference made to (at last), interest rates increased, friend (as
this business business partner), started her business 5 years
ago.
Analysis [2 ⋅ 1]: award 1 mark for each relevant explanation
Do not award the same analysis twice. For
Points might include: example persuade OR encourage OR attract are
the same analysis points, as is create awareness
Helps maintain customer loyalty [k] which could lead to repeat OR inform. To be awarded development must be
purchases OR buy again and again OR keep buying [an] different in each point e.g. attract more existing
Increase or ensure sales [k] as if cake does not taste right [app] customers or different types of customer.
people will find alternatives [an]
Poor quality damages reputation OR brand image [k] so sales may
fall [an]
No need to replace faulty products [k] which will help reduce costs
[an] of ingredients [app]
Charge/maintain high prices [k] for her cakes [app] which could
improve her profit margin [an]
Way to add value [k]
To meet legal requirements OR poor quality could damage people’s
health [k] as it’s a food product [app]
To gain competitive advantage [k]
To reduce complaints [k]

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Question Answer Marks Guidance

3(e) Do you think Manisha should have a business partner? Justify your 6 Application marks may be awarded for
answer. appropriate use of the following: correct use of
numbers e.g. 500%, celebration cakes or related
Knowledge [1]: award 1 mark for identification of relevant point(s) words such as ingredients, shop or bakery,
economic boom,3 employees, increase in
Application [1]: award 1 mark for a relevant reference to this business demand, sole trader, work every day, profitable
(at last), interest rates increased, friend (as
Analysis [2]: award up to 2 marks for relevant development of point(s) business partner), started her business 5 years
ago, product quality is important.
Evaluation [2]:award up to 2 marks for a justified decision made as to
whether Manisha should have a business partner

Points might include:

Share workload OR responsibility [k] so does not have to work

everyday [app] which could reduce her own stress OR allow her
more free time [an]
More ideas OR skills [k] from her friend [app] which could make the
business more competitive [an]
Extra source of finance [k] which is important as interest rates high
[app] so less need to borrow money [an]
Still has unlimited liability status OR liability for debts [k] as being a
sole trader [app] but possible losses can be shared [an]
Loss of some control [k] over type of cakes made [app]
Risk of disagreements OR slow decision making [k] so less
responsive to changes in customer demand [an]
Have to share profits made [k]

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Question Answer Marks Guidance

4(a) What is meant by a ‘stakeholder group’? 2 Do not award examples as this does not explain
the term.
Clear understanding [2]: any person or people with a (direct) interest in
the (performance) and activities of a business Do not award answers that define individual
stakeholders e.g. people interested in business
An individual or group which has an interest in a business because they and who want to invest in it (as this defines a
are affected by its activities (and decisions) [2] shareholder).

Some understanding [1]: someone affected by a business

Anybody inside or outside the business who cares about its operations
[1]

4(b) What is meant by ‘private sector’? 2 Do not award ‘privately owned’ as does not
explain term OR ‘owned by the people’ as it is too
Clear understanding [2]: e.g. when business activities are owned by vague.
individuals OR groups of individuals
Note: for two marks, must have idea of ownership
Some knowledge [1]: not government controlled or run by and by whom.
individuals/owned by shareholders

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Question Answer Marks Guidance

4(c) Identify and explain two effects on Steppa of a high number of 4 Application marks may be awarded for
workers leaving the business each year. appropriate use of the following: correct use of
numbers e.g. 200 employees, shoes or related
Knowledge [2 ⋅ 1]: award 1 mark for each effect words, revenue increased by 10%, happy workers
good for business, high hourly wage, democratic
Application [2 ⋅ 1]: award 1 mark for each explanation in context leadership.

Points might include: Note: candidates can be awarded for identifying

two separate costs such as training and
Additional training costs [k] as new workers need to learn how to recruitment. ‘Increased costs’ can only be
make shoes [app] awarded if there is no other reference to costs
Additional recruitment costs [k] to maintain its 200 employees [app] made in their answer.
Time taken to recruit new employees [k]
Damage to reputation OR harder to recruit [k] Points can refer to either a positive or negative
Reduction in output OR efficiency [k] effect
Impact on motivation of other workers OR increased workload for
Do not award expensive or time consuming
remaining workers [k] so not be able to maintain happy workers [app]
unless explained.
New employees can provide new ideas [k]
Hard to maintain quality [k] so revenue does not increase by 10%
[app]

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Question Answer Marks Guidance

4(d) Identify and explain two possible advantages for Steppa of using a 6 Application marks may be awarded for
democratic leadership style. appropriate use of the following: correct use of
numbers e.g. 200 employees, shoes or related
Knowledge [2 ⋅ 1]: award one mark for each relevant advantage words, revenue increased by 10%, happy workers
identified good for business, high hourly wage, private
sector.
Application [2 ⋅ 1]: award 1 mark for each relevant reference made to
this business Do not award analysis marks for improved
motivation OR workers feel important OR works
Analysis [2 ⋅ 1]: award 1 mark for each relevant explanation harder as this does not explain the advantage to
the business.
Points might include:
Do not award definitions of democratic
Improves motivation OR sense of belonging [k] leading to increased leadership
output OR productivity [an] as they are happy workers [app]
Help keep worker loyalty [k] could help reduce high number of
workers leaving [app] leading to lower recruitment costs [an]
Creates time to do other jobs [k] leading to fewer mistakes [an]
Better decision making possible [k]
More ideas [k]
Better communication OR better feedback [k]
Positive work environment OR better relations between managers
and workers [k]
Workers have better understanding of business’ objectives [k]

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Question Answer Marks Guidance

4(e) Explain two methods of non-financial reward that Steppa might use 6 Application marks may be awarded for
to increase employee motivation. Recommend which method appropriate use of the following: correct use of
Steppa should use. Justify your answer. numbers e.g. 200 employees, shoes or related
words, revenue increased by 10%, happy workers
Knowledge [1]: award 1 mark for identification of relevant method(s) good for business, high hourly wage, democratic
leadership.
Application [1]: award 1 mark for a relevant reference to this business
Do not award answers referring to financial
Analysis [2]: award up to 2 marks for relevant development of point(s) methods such as bonus, share options, pension
or pay rises as question does not allow this.
Evaluation [2]: award up to 2 marks for a justified decision made as to
which of the two non-financial methods Steppa should use Do not award change leadership style e.g.
democratic
Points might include:
Do not award ‘makes them work harder’ as
Offer fringe benefits e.g. holidays or discounts [k] on shoes [app] analysis on its own unless explained e.g. ‘makes
Job rotation [k] would be more interesting OR not as boring as doing them work harder to earn more money’.
the same thing [an]
Team working [k] could lead to increased output OR increased Note: Maximum of 4 marks if candidates only
efficiency [an] discuss 1 valid method. Award examples of fringe
Training [k] so workers feel more valued as they gain more skills [an] benefits only once.
Praise [k] as feel their work has been recognised [an]
Opportunities for promotion [k]
Increased responsibility [k]
Award schemes such as employee of the month [k]
Job enrichment [k]
Job enlargement [k]

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