Cambridge International Examinations

Cambridge Ordinary Level

BUSINESS STUDIES 7115/12

*5509364994*

Paper 1 October/November 2017

1 hour 30 minutes

Candidates answer on the Question Paper.

No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your Centre number, candidate number and name in the spaces at the top of this page.
Write in dark blue or black pen.
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Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

The businesses described in this question paper are entirely fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part question.
The total number of marks for this paper is 80.

This document consists of 9 printed pages and 3 blank pages.

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1 FlyAway is an airline business. It is in the tertiary sector. It offers low-price flights for business
customers in country J. Customers have to pay extra for luggage and food on the flight. It is a very
competitive market. The Marketing manager knows that improving customer service is important.
Bookings and advertising are done through FlyAway’s ticket shops and its website. The Marketing
manager cannot decide whether to close its ticket shops and use only e-commerce.

Table 1: Selected information about two of FlyAway’s routes

Route Average number of Average price per ticket Break-even number of

passengers per flight ($) passengers per flight

1 85 80 70

2 110 60 90

(a) What is meant by ‘tertiary sector’?

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(b) Calculate the revenue gained from an average flight on route 2.

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(c) Identify and explain two ways in which break-even information could help FlyAway.

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

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

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

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(d) Identify and explain two ways in which FlyAway could improve customer service.

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

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

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(e) Do you think FlyAway should use only e-commerce? Justify your answer.

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2 CGM makes high quality shoes using job production. The production method makes use of
specialisation. CGM operates in a niche market. CGM managers know that all business activity
creates external costs, so they always try to act in ways that protect the environment. The Operations
Director wants to increase profit. CGM could either buy cheaper raw materials or introduce new
technology into the production process. The new technology would cost $30 000 and could reduce
the number of employees from 30 to 26.

(a) Identify two advantages of specialisation.

Advantage 1:.....................................................................................................................

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Advantage 2:.....................................................................................................................

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(b) What is meant by ‘external cost’?

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(c) Identify and explain two ways in which CGM could try to protect the environment.

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

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

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

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

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(d) Identify and explain one advantage and one disadvantage to CGM of using job production.

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

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

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Disadvantage:....................................................................................................................

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

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(e) Do you think CGM should introduce new technology into the production process? Justify your
answer.

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3 Yanis owns a busy restaurant in the city centre. He employs 4 skilled chefs and 6 workers to serve
in the restaurant. All employees are on part-time contracts. The chefs are paid a high hourly wage
rate, but receive no bonuses. Yanis is worried that too many chefs leave. He is thinking of other
ways in which he could motivate the chefs. Yanis wants to open another restaurant but is worried
about problems linked to growth. He has prepared a balance sheet as part of his business plan.
An extract is shown in Table 2. The current ratio was 1.2:1 in 2016.

Table 2: Extract from balance sheet as at 30 September 2017 ($ 000)

Non-current assets 160

Current assets 60

Current liabilities 40

Non-current liabilities 120

(a) Identify two main parts (other than finance) of a business plan.

Part 1:................................................................................................................................

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(b) What is meant by ‘non-current assets’?

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(c) (i) Calculate the current ratio as at 30 September 2017.

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(ii) Explain what the two current ratio results show about Yanis’s business.

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(d) Identify two possible problems for Yanis if he expands his business. Explain what he might
do to overcome each problem.

Problem 1:.........................................................................................................................

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Explanation of how to overcome the problem:..................................................................

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Problem 2:.........................................................................................................................

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Explanation of how to overcome the problem:..................................................................

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(e) Do you think Yanis should change the way he motivates his chefs? Justify your answer.

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4 VIS provides a range of insurance services including insurance for cars and electrical products.
Last year retained profit decreased. The Managing Director blames higher taxation and also thinks
that some markets have become more competitive. Customer complaints have also increased.
The Managing Director plans to change the business organisational structure by removing both
the regional directors and regional managers. She said: ‘Shorter chains of command may help. I
know some employees may need training.' She cannot decide on a suitable method of
communication to inform employees about the changes to the organisational structure.

(a) Identify two reasons why markets can become more competitive.

Reason 1:..........................................................................................................................

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Reason 2:..........................................................................................................................

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(b) Identify two methods of training that a business might use.

Method 1:...........................................................................................................................

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(c) Identify and explain two ways in which higher taxation might affect VIS.

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

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

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(d) Identify and explain two advantages to VIS of changing its organisational structure.

Advantage 1:.....................................................................................................................

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

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Advantage 2:.....................................................................................................................

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

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(e) Recommend the best method of communication VIS should use to inform employees about
the changes to its organisational structure. Justify your answer.

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