Business IGCSE All 2020 Papers PDF

™
Cambridge IGCSE
BUSINESS STUDIES 0450/12

*6148412007*
Paper 1 Short Answer and Data Response February/March 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.
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STUDENTS RESOURCE Airport Road
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1 HSN uses batch production to make breakfast cereals. The products are sold using several
distribution channels. HSN employs 600 production workers. HSN has problems with many
employees leaving. Following the dismissal of the Operations Manager, the Human Resources
Director has to recruit a new manager. She said: ‘The person must have good communication skills
to help solve the communication barriers HSN has with employees.’ The Human Resources Director
has to decide whether to use internal recruitment or external recruitment for the new manager.
(a) Define ‘dismissal’.
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........................................................................................................................................... [2]
(b) State two distribution channels a business might use.
Distribution channel 1: ......................................................................................................
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Distribution channel 2: ......................................................................................................
........................................................................................................................................... [2]
(c) Outline two possible problems to HSN of many employees leaving.
Problem 1: ........................................................................................................................
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Problem 2: ........................................................................................................................
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(d) Explain how each of the following could cause communication barriers within HSN.
Language: .........................................................................................................................
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Medium of communication: ...............................................................................................
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(e) Do you think external recruitment is better than internal recruitment when recruiting a new
manager for a large business? Justify your answer.
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2 Gomez is a sole trader. He provides painting and decorating services to business customers. His
business does not benefit from any economies of scale because it is small. Gomez has to pay his
suppliers within 1 month. However, he gives customers 3 months to pay. Gomez uses an old van
he has borrowed from his father to travel to his customers’ offices and shops. As the van often
breaks down, Gomez is thinking of buying a new van. A cash-flow forecast for the next 3 months
is shown in Table 2.1.
Table 2.1
Cash-flow forecast for Gomez’s business ($)
April May June
Cash in 3 000 2 800 2 600
Cash out 2 600 3 000 Y
Net cash flow X (200) 200
Opening balance 200 600 400
Closing balance 600 400 600
(a) Define ‘economies of scale’.
...........................................................................................................................................
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........................................................................................................................................... [2]
(b) Calculate X and Y.
X: ......................................................................................................................................
Y: ...................................................................................................................................... [2]
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(c) Outline two factors Gomez should consider when choosing a source of finance for the new
van.
Factor 1: ...........................................................................................................................
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Factor 2: ...........................................................................................................................
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(d) Explain one advantage and one disadvantage to Gomez of being a sole trader.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
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Disadvantage: ...................................................................................................................
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Explanation: ......................................................................................................................
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........................................................................................................................................... [6]
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(e) Do you think asking customers to pay more quickly is the best way for a small business to
improve its cash-flow? Justify your answer.
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3 Globalisation has changed the way many businesses operate. VKW makes cell (mobile) phones.
It uses just-in-time inventory control. VKW exports 40% of its products. It imports most of its raw
materials to help reduce total costs. All 800 of VKW’s employees understand the importance of
quality assurance. The Operations Director has asked all suppliers to ensure they do not use child
labour. She is also concerned that many governments are planning to increase import controls
such as quotas.
(a) Define ‘globalisation’.
...........................................................................................................................................
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...........................................................................................................................................
........................................................................................................................................... [2]
(b) State two advantages to a business of using quality assurance.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
........................................................................................................................................... [2]
(c) Outline two ways VKW might be affected by increased import controls.
Way 1: ...............................................................................................................................
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Way 2: ...............................................................................................................................
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(d) Explain one advantage and one disadvantage to VKW of using just-in-time inventory control.
Advantage: .......................................................................................................................
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Explanation: ......................................................................................................................
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Disadvantage: ...................................................................................................................
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Explanation: ......................................................................................................................
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(e) Do you think that businesses should be concerned about ethical issues such as child labour?
Justify your answer.
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4 WFG is a private limited company in country X. It owns 120 supermarkets, of which 20 are operated
as franchises. One of WFG’s objectives is to expand by opening 30 more shops in the next 18
months. The Managing Director said: ‘Market research shows that fewer people are going to the
local markets every day to buy their food. It is important for us to set prices at the right level.’ The
Managing Director is thinking about whether to introduce new technology into the business.
(a) Define ‘market research’.
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........................................................................................................................................... [2]
(b) State two objectives (other than expansion) a business might have.
Objective 1:........................................................................................................................
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Objective 2:........................................................................................................................
........................................................................................................................................... [2]
(c) State four factors a business should consider when deciding the price of a product.
Factor 1:............................................................................................................................
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Factor 2:............................................................................................................................
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Factor 3:............................................................................................................................
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Factor 4:............................................................................................................................
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(d) Explain two factors WFG should consider when deciding whether to introduce new technology
into its business.
Factor 1: ...........................................................................................................................
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Explanation:.......................................................................................................................
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Factor 2:............................................................................................................................
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Explanation:.......................................................................................................................
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(e) Do you think selling franchises is a better way for a retail business to expand than opening
more of its own shops? Justify your answer.
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Cambridge IGCSE™

Paper 1 Short Answer/Structured Response March 2020
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 International will not enter into discussions about these mark schemes.
Cambridge International is publishing the mark schemes for the March 2020 series for most Cambridge
IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.
This document consists of 23 printed pages.

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0450/12 Cambridge IGCSE – Mark Scheme March 2020
PUBLISHED
Question Answer Marks Notes
1(a) Define ‘dismissal’.
Award two marks for a full definition. Award one mark for a 2 For both marks, candidates must show that it is the
partial definition. business that ends the employment and indicate why the
employee has been asked to leave the business.
Termination by the employer because the employee has
broken company rules or is not performing work to the
required standard [2]
OR When the employment is ended against the will of

the employee, usually for not working in accordance with
the employment contract [2]
OR When employee told or made to leave their job

because their work or behaviour is unsatisfactory [2]
Partial definition e.g. When employee told/made to leave

their job [1]
OR Termination of employment against the wishes of the

employee [1]
OR Employer ends employment [1]

1(b) State two distribution channels a business might use.
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Award one mark per distribution channel. 2 Only award the first two responses given.
Two from:
• Wholesalers
• Retailers
• Direct to customers/Online/Internet/website
• Use of agents
Other appropriate responses should also be credited.
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PUBLISHED
1(c) Outline two possible problems to HSN of many employees leaving.
Award one mark for each relevant problem. 4 Answers must focus on problems for the business.
Award one mark for each relevant reference to this Do not award answers which identify the impact on
business. employees/other stakeholders.
Points might include: Application marks may be awarded for appropriate use of
• Cost of recruiting new/replacing workers [k] as employ the following:
600 employees [app] • 600 (employees)
• Cost of training new employees [k] to use batch • Batch production
production [app] • Breakfast cereal
• Disruption to production/lower productivity/lower
output [k] of breakfast cereals [app]
• Can damage business reputation [k] so difficult to
recruit new manager/so harder to use external
recruitment [app]
• Takes managers time away from other aspects of the
business [k] such as reducing communication barriers
[app]
• Time taken to recruit new/replace workers [k]
• Time taken to train new employees [k]

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PUBLISHED
1(d) Explain how each of the following could cause communication barriers within HSN.
Award one mark for identification of how each 6 Answers must focus on how the communication barrier is
communication barrier arises (max two). created/arises, not the impact it has on the business.
Award one mark for each relevant reference made to this Application marks may be awarded for appropriate use of
business (max two). the following:
• 600 (employees)
Award one mark for each relevant explanation (max two) • Batch production
• (Breakfast) cereal
Points might include: • (Several) distribution channels
Language:
• Use of new/different jargon/technical terms/difficult Do not award solutions.
words/vocabulary [k] when using batch production
[app] so employees may not understand the message
[an]
• Use foreign/different language [k] when making
cereals [app]
Medium of communication:
• The wrong channel may be used/workers may not be
able to use the method selected [k] so messages may
not be seen [an] by all 600 employees [app]
• Physical breakdown of medium [k] so that the

message is never received [an] which is important as
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use several distribution channels [app]
• Message may be lost/distorted (if have a long chain of
command) [k] so may be misinterpreted [an]
• No feedback is received [k]

PUBLISHED
1(e) Do you think external recruitment is better than internal recruitment when recruiting a new manager for a large
business? Justify your answer.
Award up to two marks for identification of relevant issues. 6 Advantages of one method can be presented as
Award up to two marks for relevant development of points. disadvantages of the other method but do not award the
Award two marks for justified decision as to whether same point twice.
external recruitment is better than internal recruitment
when recruiting a new manager for a large business. For both evaluation marks justification must clearly relate
to a large business.
Points might include:
External recruitment: No not award ‘no need to train’ unless refers to induction
• Wider pool/choice of candidates [k] improving chances training.
of finding the most appropriate person [an]
• Bring in new ideas/experience/skills [k] could help
increase efficiency [an]
• Avoids risk of upsetting other employees when
someone who is internal is promoted [k]
Internal recruitment:
• Quicker/cheaper than external recruitment [k] which
reduces expenses [an]
• Acts as an incentive/motivation for employees [k] so
reducing labour turnover [an]

• People know the business [k] so can start work more
quickly [an]
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• Company knows the people/employee [k]
• Suitable candidates may not be available [k]
• Would create another vacancy for the business to fill
[k]

PUBLISHED
1(e) • Justification might include:

External recruitment might be more expensive [k]
which will increase costs [an]. However, the business
might have no choice as there may not be suitable
internal applicants [k]. So, there may be no new ideas
which could increase efficiency [an]. Therefore, using
external recruitment would be better as it may result in
the appointment of a manager whose cost savings will
soon outweigh the cost of external recruitment [eval]
especially as this is more likely in a large business
[eval].
2(a) Define ‘economies of scale’.
Award two marks for a full definition. Award one mark for a 2 Do not award examples.
partial definition.
Do not award answers which refer to price.
Factors that lead to lower average costs as a business
increases in size [2]

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OR
Reduction in average costs as a result of increasing the

scale of operations [2]
Partial definition e.g. benefit of increasing in

size/growth/expansion [1]

PUBLISHED
2(b) Calculate X and Y
Award one mark for each correct calculation. 2 $ sign is not required.
X: 400
Y: 2400
2(c) Outline two factors Gomez should consider when choosing a source of finance for the new van
Award one mark for each relevant factor. 4 Answers must focus on factors to consider, not sources of
finance.
Award one mark for each relevant reference to this
business. Points might include: Application marks may be awarded for appropriate use of
the following:
• Amount needed/how much it will cost [k] as cash • Sole trader
available is only $600 [app] • Small business
• Cost of finance/interest rate [k] for this painting • Correct use of data from Table 2.1
business [app] • Borrowed from father
• Amount of security/whether he has any security to • Painting/decorating
offer [k] as has borrowed old van [app]
• Size/type of business [k] may be viewed as a higher
risk as he is a sole trader [app]
• Time needed to repay/time to obtain finance [k]

• Current level of debt/loans/gearing [k]
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• Whether to buy or lease [k]
• Amount of finance/money available in
business/liquidity [k]

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2(d) Explain one advantage and one disadvantage to Gomez of being a sole trader.
Award one mark for identification of each relevant 6 Analysis must explain how it represents an
advantage/disadvantage (max two). advantage/disadvantage.
Award one mark for each relevant reference made to this Do not award quick/easy to set up as this is an established
business (max two). business.
Award one mark for each relevant explanation (max two) Application marks may be awarded for appropriate use of
the following:
Points might include: • (Old) van
Advantage: • Borrowed from father
• Painting / decorating
• Keeps all the profit [k] so if successful will make more • Customers are offices / shops
money/will encourage him to do better [an] from • Customers given 3 months credit
painting business [app] • Pay suppliers within 1 month
• Own boss/has complete control [k] so can make • Correct use of data from Table 2.1
decisions more quickly [an]
• Does not have to give information about his business
to anyone else/secrecy in business matters [k]
• Has freedom to choose own holidays/hours of
work/prices to charge [k] such as whether to offer
customers 3 months credit [app]
Has close contact with customers [k] so able to

•
respond quickly to changes in demand [an]
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2(d) Disadvantage:
• Unlimited liability [k] so if business is not able to pay
the suppliers within 1 month [app] could lose his
personal possessions [an]
• Limited sources of finance/difficult to raise funds [k] to
buy new assets [an] such as the van [app]
• May have limited range of skills [k] as only a small
business [app]
• No continuity/if ill who will take control [k]
• Has to work long hours/difficult to take holidays [k]
otherwise may lose out on potential sales/revenue [an]
• No one to share the risks/losses with [k]
• Not able to benefit from economies of scale [k]
2(e) Do you think asking customers to pay more quickly is the best way for a small business to improve its cash flow? Justify
your answer.
Award up to two marks for identification of relevant 6 Analysis and Evaluation must focus on whether asking
points/alternative methods. customers to pay more quickly is the best way for a small
business to improve its cash flow.
Award up to two marks for relevant development of points.

Award two marks for justified decision as to whether
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asking customers to pay more quickly is the best way for a
small business to improve its cash-flow.
Points might include: For both evaluation marks justification must clearly relate
• Asking customers to pay more quickly means: to a small business.
• Less/no need to borrow [k] so no interest paid so does
not increase cash outflows [an]
• Customers may be unable or unwilling to pay more
quickly [k] so may look for alternative suppliers so
reducing cash inflows [an]

PUBLISHED
2(e) Other ways of improving cash-flow could be discussed:

• Delay payment to suppliers/change terms [k] which
delays cash outflows [an] but suppliers may stop
providing products may not have enough stock
leading to fewer sales so lowering cash inflows [an]
• Selling (unwanted) assets [k] which generates cash
inflow [an]
• Reduce amount of inventory ordered/held [k] which
reduces cash outflows [an]
• Debt factoring [k] which will provide immediate cash
[an] but does not receive full amount of money owed
by customers so overall cash inflow is less [an]
• Overdraft/short term loan [k] as will inject more cash
into the business [an] but interest must be paid/loan
repaid at some point which will reduce cash outflows
[an]
Accept practical solutions such as:

• Lower fixed costs [k]
• Buy cheaper materials/cut unnecessary expenditure
[k]
• Sell more products/increase cash sales [k]

Justification might include:
• As the business is small, it may be better to ask
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suppliers for more time to pay as the business may
not have many customers so does not want to risk
losing them by asking them to pay more quickly [eval]
[eval].

PUBLISHED
3(a) Define ‘globalisation’.
Award two marks for a full definition. Award one mark for a 2
partial definition.
The process by which countries are connected with each

other because of the trade of goods and services [2]
OR The process of countries becoming more

interconnected [2]
OR Increase in worldwide trade and movement of people

between countries [2]
OR Freer movement of people and capital between

countries [2]
Partial definition e.g. increase in trade around the world [1]

OR increased movement of capital around the world [1]

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PUBLISHED
3(b) State two advantages to a business of using quality assurance.
Award one mark per advantage. 2 Only award the first two responses given.
Points might include: Do not award points such as improve customer

• Lower cost/reduce cost of wastage/fewer satisfaction.
mistakes/less rework (of faulty products)
• Encourages teamwork Do not award answers such as better quality and increase
• Fewer customer complaints/improve/maintain sales as they are to vague.
reputation (as consistent quality)
• Better brand image/fewer customer returns
• Reduce inspection costs
• Allows business to know at what stage mistakes
happen

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3(c) Outline two ways VKW might be affected by increased import controls.
Award one mark for each relevant way. 4 Application marks may be awarded for appropriate use of
the following:
Award one mark for each relevant reference to this • trying to reduce total costs
business. • phones
• 40 per cent exported
Points might include: • (Most) raw materials are imported
• Increased import costs/more expensive to import [k] at • quotas
a time when trying to reduce total costs [app]
• Can export less products/fewer sales in other Do not award examples.
countries [k] which is a problem as export 40% of its
phones [app] Do not award lower prices or increased sales in other
• May not be able to obtain sufficient number/range of countries.
parts so delay/halt production [k] so difficult to use
just-in-time [app] For knowledge must identify the effect of import control.
• May have to spend time finding local suppliers [k] as
currently most raw materials are imported [app]
• Might have to charge higher prices [k]
• Domestic sales might rise [k]

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PUBLISHED
3(d) Explain one advantage and one disadvantage to VKW of using just-in-time inventory control.
Award one mark for identification of each relevant 6 Application marks may be awarded for appropriate use of
advantage / disadvantage (max two). the following:
• reduce total costs
Award one mark for each relevant reference made to this • phones
business (max two). • 40 per cent exported
• 800 (employees)
Award one mark for each relevant explanation (max two). • Quality assurance
• Imports most of its raw materials
Advantage:
• Less inventory held [k] to make phones [app] so less
chance of wastage [an]
• Lower storage costs [k] because there is less
space/smaller warehouse needed [an] which also
helps reduce total costs [app]
• Improve working capital/cash-flow [k] as less money
tied up as stock [an]
• Less risk of inventory becoming obsolete/damaged [k]
which helps quality assurance [app]
Disadvantage:

• Parts might not arrive in time/limited inventory held [k]
especially as many are imported [app] causing
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production delays [an]
• No extra stock/materials available to meet unexpected
orders [k] could lead to lower revenue/sales [an]
• Little room for mistakes in production as little/no
inventory kept for rework [k]
• May not have good relationship/communication with
suppliers/requires a lot of planning to make sure
goods delivered on time [k]
• No economies of scale possible [k] leading to higher
average costs [an]

PUBLISHED
3(e) Do you think that businesses should be concerned about ethical issues such as child labour? Justify your answer.
Award up to two marks for identification of relevant issues. 6 Candidates can discuss points in relation to ethical issues
other than child labour.
Advantages of being ethical can be disadvantages of
Award two marks for justified decision as to whether being unethical but do not award the same point twice.
businesses should be concerned about ethical issues such
as child labour. Do not credit answers which refer to legal or quality issues
as these do not answer the question.
• Being ethical may enhance image/reputation [k] so Do not award examples of how a business can be ethical.
more customers want to buy its products [an] which
may increase revenue [an]
• People want to support ethical businesses/help attract
customers/being ethical can help increase sales [k]
• Can help attract investors (who want to be associated
with such businesses) [k] leading to access to more
finance [an]
• Help attract/retain employees [k] leading to higher
productivity [an]
• Can charge/may have to set higher prices [k] so
customers may switch to cheaper competitors [an]

• Being ethical can conflict with profit objective/short
term profits may fall [k]
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• Being ethical may mean paying higher wages which
can increase costs [k] which a business might not be
able to afford [an]
• Pressure groups might organise a boycott [k]

PUBLISHED
3(e) Justification may include:
Being ethical may enhance image [k] so more customers

want to buy its products [an] which may increase revenue
[an]. However, being ethical may increase costs [k]. So,
the business would have no option, even though in the
short-term profits may fall [eval], in the long term this could
be outweighed by the additional revenue received. [eval]
4(a) Define ‘market research’.
Award two marks for a full definition. Award one mark for a 2 To award both marks response must refer to at least two
partial definition. stages of the research process, not for example primary or
secondary market research.
Process of gathering, analysing and interpreting
information about the market [2] Do not award examples.
OR Process of collecting, recording and analysing data

about customers, competitors and market for a product [2]

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Partial definition e.g. find out what customers want [1] OR
find out about competition [1]

PUBLISHED
4(b) State two objectives (other than expansion) a business might have.
Award one mark per objective 2 Only award the first two responses given.
Objectives might include: Do not award growth as this is the same as expansion.
• survival/stay in business beyond first two years/break-
even/improve cash flow
• make a profit
• increase market share/increase sales/increase
revenue/enter new markets (or examples such as start
selling online)/become market leader
• return to shareholders/increase return on capital
employed
• be socially/ethically/environmentally responsible (or
examples but allow only once)
• provide a service to the community
• cuts costs/improve profit margin/add value

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4(c) State four factors a business should consider when deciding the price of a product.
Award 1 mark per factor. 4 Only award the first four responses given.

• Cost of production/examples of costs e.g. cost of
materials/labour/transport (allow only once)/break-
even/profit mark up
• Level of demand or factors such as
recession/income/what people are willing or able to
afford/price elasticity of demand
• Actions of competitors/level of competition/price
charged by competitor/where or when the product is
sold/whether there are any substitutes/whether it is a
niche or mass market/size of market
• Business objectives/profit margin/add value
• Type of product/quality of product/what is being
sold/brand image
• Availability of economies of scale
• Government or legal controls/tax
• Stage in product life cycle/new product

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4(d) Explain two factors WFG should consider when deciding whether to introduce new technology into its business.
Award one mark for identification of each relevant factor 6 Answers must focus on a retail business and appropriate
(max two). types of new technology.
Award one mark for each relevant reference made to this Application marks may be awarded for appropriate use of
business (max two). the following:
• 120 or 30 or 150
Award one mark for each relevant explanation (max two). • Supermarkets or shops
• Local markets or food
Points might include: • 20 or franchises
• Cost of technology [k] as has 120 locations [app]
which they may not be able to afford [an]
• Cost of training time taken for training/are workers
able or willing to learn how to use it [k] as need to offer
training for the 20 franchises [app] increasing its
expenses [an]
• Potential efficiency gains [k] to lower average cost [an]
so able to lower the prices of its food [app]
• How many workers may lose jobs/number of
redundancies [k]
• Level of demand [k] as most people buy at local
markets [app] so may not be able to justify cost [an]

• Opportunity cost [k]
• Availability of power/electricity [k]
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• Sufficient space available [k] as if not the rent might
increase [an]
• Customer ability to operate the technology [k] as if
cannot use could result in fewer sales/less revenue
[an]

PUBLISHED
4(e) Do you think selling franchises is a better way for a retail business to expand than opening more of its own shops?
Award up to two marks for identification of relevant points. 6 Do not award answers which refer to advantages and/or
disadvantages to franchisees.
Do not award more sales as this would apply to both
Award two marks for justified decision as to whether options.
selling franchises is a better way for a retail business to
expand than opening more of its own shops. For both evaluation marks justification must clearly relate
to a retail business.
Selling franchises:
• Franchisee pays fee to franchisor to use the brand
name [k] so franchisor does not have to raise as much
capital [an]
• Can expand more quickly (than if franchisor had to
finance all new outlets) [k]
• Franchisees are responsible for day-to-day
management [k] so franchisor has time to focus on
more strategic objectives [an]
• Franchisee should have local knowledge [k] which
could help increase sales/revenue [an]

• Franchisor receives a percentage of revenue/profits
[k]
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• Franchisor shares risks with franchisee [k]
• Brand/customer awareness increases [k]
• All products sold must be obtained from the franchisor
[k]
• Wrong decision or poor management by one
franchisee can damage reputation for whole business
[k] reducing sales/revenue [an]
• Franchisor may have to provide training and support
[k] which will increase franchisors costs [an]

PUBLISHED
4(e) More of its own shops:

• Have total control over the operations [k]
• Keep all the profits [k]
• Need to raise all the capital [k]

• Franchisees will pay towards the start-up costs [k]
which will help reduce the amount the business has to
raise [an]. However, the franchisor may lose control [k]
which may damage their reputation [an]. It might be
better to sell franchises, as it will reduce the costs
especially if it wants to open a large number of shops
quickly [eval]. This can improve its chances of being
able to expand as much as the retail business wants
[eval].

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™
Cambridge IGCSE

Paper 2 Case Study February/March 2020
INSERT 1 hour 30 minutes
INFORMATION
• This insert contains the case study.
*8605031596-I*
• You may annotate this insert and use the blank spaces for planning. Do not write your answers on the
insert.
03_0450_22_2020_1.11
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2
Bright Windows (BW)
Bob recently set up BW, a window washing business after he had been unemployed for 7 months.
Many home owners are extremely busy and find it difficult to find the time to wash the windows in
their houses. Increasing incomes have also led to a high demand for window washing services.
The primary market research carried out by Bob before setting up his business confirmed this high
demand. Bob used sampling when carrying out a questionnaire.
Bob is a sole trader. He invested $2 000 to get his business started and to provide working capital.
He needed $250 to purchase ladders, buckets and cleaning products. He also needed transport
to travel between customers houses. Bob decided to lease a van at a cost of $150 per month. Bob
has to pay wages to his 2 part-time employees of $300 per month each.
Bob only has a few regular customers and he needs to promote the business to attract more
customers. He is considering printing leaflets, advertising in local newspapers or just relying on
social media. He has to decide which method of promotion to use. He hopes his regular customers
will tell their friends about BW’s excellent services. If the promotion is successful he will need to
ensure his employees can meet this higher demand.
Appendix 1
Text message from one BW employee to another BW employee
10:44
Employee 1 >
I like working with Bob,

he is a good boss. I am
happy he asks us what
we think. I do not want
to work for anyone else
but I would like to work
more hours.
Employee 2:
My last employer
always told me what to
do. I do not like having
to make decisions.
Working fewer hours
and being flexible with
the times I work makes
it easier to look after
my family.
© UCLES 2020 03_0450_22_2020_1.11

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3
Appendix 2
Summary of costs, price and demand for BW
Fixed cost per month $1250
Variable cost per house cleaned $1
Price per house $11
Average number of customers per month 225
Appendix 3
Article in the national newspaper
Main News 10 February 2020
Should window washing become more environmentally friendly?
The most effective products used to wash windows contain chemicals which damage the
environment. However, these products reduce the time taken to wash windows by 50%.
Many window washing businesses use plastic bottles as containers for all their cleaning products.
Most of these bottles cannot be refilled or recycled.
Washing windows can use a lot of water which reduces the amount of water available for other
uses. Recently a new machine has been developed for washing windows which is very efficient
and recycles the water it uses. Each machine costs $1000.
The Government is being encouraged by environmental pressure groups to introduce legal controls
over the window washing industry.
© UCLES 2020 03_0450_22_2020_1.11

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™
Cambridge IGCSE

*8605031596*
Paper 2 Case Study February/March 2020

1 hour 30 minutes
You will need: Insert (enclosed)
INSTRUCTIONS
INFORMATION
• The insert contains the case study.
03_0450_22_2020_1.11
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2
1 (a) Explain four reasons why a person may set up their own business.
Reason 1: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 3: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 4: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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3
(b) Explain the benefits to BW of employing part-time employees and full-time employees. Do you
think Bob should continue to employ only part-time employees? Justify your answer.
Part-time employees: ........................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Full-time employees: ........................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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4
2 (a) Explain two reasons why Bob used sampling when carrying out a questionnaire.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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5
(b) Explain the following three methods of promotion BW could use. Which method should Bob
use? Justify your answer.
• Leaflets
• Advertise in local newspaper
• Social media
Leaflets: ............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advertise in local newspaper: ...........................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Social media:.....................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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6
3 (a) Explain two reasons why working capital is important to BW.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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7
(b) Consider the three main styles of leadership Bob could use in his business. Which leadership
style do you think he should use? Justify your answer.
Leadership style 1: ...........................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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8
4 (a) (i) Calculate the break-even level of output for BW using the information in Appendix 2.
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................ [2]
(ii) Calculate the margin of safety for BW using the information in Appendix 2.
................................................................................................................................
................................................................................................................................
................................................................................................................................
................................................................................................................................ [2]
(iii) Identify four ways break-even analysis can be useful to a business.
Way 1: ...................................................................................................................
................................................................................................................................
Way 2:....................................................................................................................
................................................................................................................................
Way 3:....................................................................................................................
................................................................................................................................
Way 4:....................................................................................................................
................................................................................................................................ [4]
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9
(b) Consider the following three options for BW. Which option should Bob choose to improve
BW’s reputation? Justify your answer.
Option 1: Use cleaning products that contain chemicals

Option 2: Use bottles that can be refilled with cleaning products
Option 3: Purchase a new window washing machine
Option 1: ...........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Option 2: ...........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Option 3: ...........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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Cambridge IGCSE™

Paper 2 Case Study March 2020
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 International is publishing the mark schemes for the March 2020 series for most Cambridge
IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

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Question Answer Marks
1(a) Explain four reasons why a person may set up their own business. 8
Award one mark for each relevant reason (maximum of four). Relevant
reasons might include:
• Made redundant – need to provide an income as lost job

• To be own boss – independence from instructions from others/employer
• Able to decide how to spend time – flexible working hours/choose when
to take time off
• To make a profit – as may receive a higher income than working for
another business
• Gap in the market identified/able to put own ideas into practice/can
make use of personal skills and interests/be creative/ethical principles
• To gain recognition and status – to become well known and respected
Award a maximum of one additional mark for each explanation. For

example:
Redundancy means loss of job (1) so setting up a business replaces the
income which was lost (1).
1(b) Explain the benefits to BW of employing part-time employees and full- 12

time employees. Do you think Bob should continue to employ only
part-time employees? Justify your answer.
Level Description Marks
3 Sound application of knowledge and understanding 9–12

of relevant business concepts using appropriate
terminology.
Detailed discussion of the two alternatives.
Well-justified conclusion.
Candidates discussing the two alternatives in detail,

in context and with well-justified conclusion including
why the alternative was rejected should be rewarded
with the top marks in the band.

terminology.
Detailed discussion of at least one alternative.
Judgement with some justification/some evaluation

of choice made.
Candidates discussing the two alternatives in detail

and applying it to the case should be rewarded with
the top marks in the band.

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1(b)
1 Limited application of knowledge and understanding 1–4
of relevant business concepts.
Limited ability to discuss the alternatives with little/no

explanation.
Simple judgement with limited justification/limited

evaluation of choice made.
Candidates outlining the two alternatives in context

should be rewarded with the top marks in the band.
0 No Creditable Response 0
Relevant points might include:

Advantages
Part-time • More flexible hours of work – increases motivation of

employee the two part-time employees
• Easier to increase the employee hours during busy
times cleaning windows – allows for BW to meet
customer demand effectively
• Easier to recruit part-time employees – because hours
may be more flexible and fit in with family commitments
• May reduce labour costs compared to employing full-
time employees – as may only employ workers when
needed at busy times in the window washing
business/may be willing to accept a lower wage rate
than $300 per month
Full-time • More likely to be trained and seek training – increases

employee productivity of employees as clean windows faster
• Reduce labour turnover – more likely to see the
window cleaning job as long-term rather than
temporary/lower recruitment costs
• More committed to the cleaning business – leads to
more motivated workers which increases efficiency
• More likely to be suitable for promotion as gained more
skills and experience if BW expands in the future – may
allow promotion from the two internal applicants and
reduces recruitment costs
• Easier to communicate with than part-time employees –
as in work for more hours a day

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1(b)
Conclusion Justification might include:
• As the business is new and may not have a lot of
customers then part-time employees might be cheaper
in terms of wage costs than full-time employees and
willing to only work at busy times – therefore saving
BW costs.
• If BW is planning to expand in the future then full-time
employees may be better as they will gain more skills
and be suitable to take on more responsibility – helping
Bob to cope and delegate some of his tasks managing
the window cleaning business. Which would be more
difficult to do with part-time employees.
2(a) Explain two reasons why Bob used sampling when carrying out a 8
questionnaire.
Award one mark for each relevant reason (maximum of two reasons).
Relevant reasons might include:

• To reduce the time taken to carry out the questionnaire – takes a lot of
time to ask the whole population – sampling means reduced number of
questionnaires have to be collated and analysed
• To reduce the cost of carrying out the questionnaire – reduced number
of questionnaires printed – reduced postage/time taken by staff to carry
out questionnaire
• More accurate or relevant information – as potential customers can be
targetted – so answers only relate to potential customers and results
are not influenced by answers from people not interested in the service
Award a maximum of three additional marks for each explanation – one of

which must be applied to this context – of the reasons for using sampling
when carrying out a questionnaire.
For example: To reduce costs for the business (1) because if the whole
population is asked about cleaning windows this will be very expensive
(App) therefore choosing a small number of people will be less expensive
(1). This is important for a small business which will have other costs to pay
(1).
Application could include: window cleaning business; window washing

service; busy home owners; increasing incomes for potential customers;
only has a few regular customers at the moment; need to decide the best
ways to promote the business; confirm there is a high demand for these
services.

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2(b) Explain the following three methods of promotion BW could use. 12

Which method should Bob use? Justify your answer.
• Leaflets
• Advertise in local newspaper
• Social media

terminology.
Detailed discussion of at least two methods.
Well-justified recommendation.
Candidates discussing the three methods in detail, in

context and with well-justified recommendation
including why the alternative methods were rejected

terminology.
Detailed discussion of at least one method.

of choice made.
Candidates discussing two methods or more in detail


Limited ability to discuss the methods with little/no

explanation.

Candidates outlining the three methods in context


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2(b) Relevant points might include:

Leaflets • Cheap method of advertising – low printing costs
• Handed out in the streets to a wide range of
people and can be delivered to households and
offices where windows may require cleaning –
giving a wide distribution to potential customers
• Could contain promotion, e.g. discount off first
windows cleaned – increases the likelihood of
attracting customers
• Can be kept for later use – provides reminder of
contact details for customers – more likely to
use the window cleaning business in the
future
• However, home owners may not read the
leaflets and just throw them away – waste of
money and ineffective
Advertisements • Will reach the target market of home owners in

the local area – targeted advertising
• Relatively cheap to place advertisements
compared to national advertising – reduces
advertising costs as only targeting local home
owners/too expensive for a new business
• Information/discount coupons can be cut out
and kept for later use – reminds potential
customers of contact details for the cleaning
service
• A lot of information about cleaning services
can be included in the advertisement – may
encourage more customers if persuaded by the
additional information
• However, only black and white so may not be as
attractive – not eye-catching
• Many younger households do not read
newspapers and so may not see the advertising

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2(b)
Social Media • Can be free with no cost – unless paid for
advertising – seen by many younger consumers
although may not be home owners
• Reputation of the cleaning business helps
encourage new customers – spread quickly as
easier to share
• Allows video and audio to be added – makes the
advertisement more attractive – may be more
likely to persuade customers to have their
windows cleaned
• Advertising can be carried out across the local
area and not national area – so more targeted
on potential customers
• However, limited number of family and friends of
the small number of current regular
customers – restricting sales
• Customers may not trust posts on social media
– may think they are fake
Recommendation Justification might include:

• As the business is new then it will need to
keep marketing costs low and therefore leaflets
might be the best method to use as they are low
cost. They can be put through the doors of
prospective customers and may be more
effective in directly targeting these customers.
These customers may not read local
newspapers and social media may not reach
them.
• Advertising in local newspapers is likely to reach
the target market in the local area as the
business is a service and is only aimed at
the local population. Social media may be less
effective as it will reach a wide range of people
who may not all live locally to BW.
• Social media is the cheapest of the three
methods and can easily be seen by many home
owners. This will be especially effective if
regular customers put favourable posts about
BW cleaning services. This will not need BW to
do anything or spend money printing leaflets or
paying for advertising.

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3(a) Explain two reasons why working capital is important to BW. 8
Award one mark for each relevant reason (maximum of two).

• Needed to pay for day-to-day expenses – if lack of working capital then
may not be able to pay wages – not able to supply services as workers
will not work if not paid
• Not able to buy supplies of cleaning materials – not able to satisfy
customer needs – gain poor reputation with customers as being
unreliable
• So the business does not lack liquidity – to avoid cash flow problems –
so does not become insolvent/cease trading/not survive
• Holding too high a level of inventories – not good use of cash if working
capital too high – other opportunities to gain profit are missed
Award a maximum of three additional marks for each explanation – one of

which must be applied to this context – of the reasons why working
capital is important to BW.
For example:
Needed to pay day-to-day expenses (1) as BW will need to buy cleaning

materials to carry out the services (App). If there is insufficient working
capital then it will be difficult for BW to continue trading (1) because without
wages paid cleaning materials available BW cannot continue operating (1).
Application could include: window cleaning business; window washing

service; cleaning materials; busy home owners; only has a few regular
customers at the moment; wages $300 per month; lease van at cost of $150
per month; new business.

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3(b) Consider the three main styles of leadership Bob could use in his 12
business. Which leadership style do you think he should use? Justify
your answer.

terminology.
Detailed discussion of two or more leadership styles.
Candidates discussing the three leadership styles in

detail, in context and with well-justified
recommendation including why the alternative styes
were rejected should be rewarded with the top marks
in the band.

terminology.
Detailed discussion of at least one leadership style.

of choice made.
Candidates discussing two or more leadership styles

in detail and applying it to the case should be
rewarded with the top marks in the band.

of relevant business concepts. Limited ability to
discuss the leadership styles with little/no
explanation.

Candidates outlining the three leadership styles in

context should be rewarded with the top marks in the
band.

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Autocratic • The manager expects to be in charge and have
all orders followed – such as which cleaning
materials should be used
• Manager keeps himself separate from the two
part-time employees
• Bob will make all the decisions and keep
information to himself – employee 2 likes to be
told what to do
• Communication is one-way with employees
having no opportunity to comment or take part in
any decisions about the cleaning services
which can be demotivating
• Decision making is quick
Democratic • Gets employees involved in decision-making –

and employee 1 is happy to be asked what he
thinks
• Information about future plans of the window
cleaning business shared with employees and
discussed before owner makes the final decision
• Communication is both downward and upward
allowing the experience of both part-time
employees to be considered by the owner,
leading to possibly better decisions being made
• Motivating for employees as they feel more
involved in the business – less likely to leave
• May be time consuming to ask employees –
reducing the work carried out by the two
employees
• Unpopular decisions may need to be made and
employee ideas ignored
Laissez-faire • Main objectives of the new business shared

with employees but then they are left to organise
their own work and take decisions without any
interference which can be motivating
• Communication can be difficult as the leader has
little involvement in the decisions being made
• Employees can be motivated as are valued and
trusted in to make the decisions
• Employees can be creative with fresh ideas
about how to wash windows more quickly
• Not suitable if a clear direction is needed and
consistent approach to customers

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3(b)
Recommendation Justification might include:
• Autocratic might be best so that Bob gives clear
instructions to be followed by his two part-time
employees. They may not be there all the time
or working together and mistakes may be made
if decisions are left to these two people. They
will not have all the information about the
business and what the future plans are.
• Democratic might be suitable as there are only
two employees and Bob may have a close
working relationship with them. This may make
autocratic less likely to be used as it may require
Bob to keep his distance from his employees
and this would not make for a good working
relationship in the business.
• Laissez-faire is not suitable as consistent
customer service is required to maintain a good
reputation for cleaning windows and for the
business to gain more customers.
4(a)(i) Calculate the break-even level of output for BW using the information 2
in Appendix 2.
Two marks for correct calculation. One mark for correct method/formula but
wrong answer.
Fixed Cost
Break-even output = (1)
Price − Variable cost per unit
$1250 ÷ ($11–$1)(1) = 125 (1)
Note: If answer is only 125 with no working then award two marks.
4(a)(ii) Calculate the margin of safety for BW using the information in 2

Appendix 2.
Two marks for correct calculation. One mark for correct method but wrong
answer. OFR applies.
Margin of safety = Actual output – break-even output (1)

225 – 125 (1) = 100 (1)
Note: If answer is only 100 with no working then award two marks.

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4(a)(iii) Identify four ways break-even analysis can be useful to a business. 4
Award one mark for each way (maximum of four)

• Predicts how many sales the business needs to make to break-even
• Predicts how much sales could fall by and still make a profit
• Shows potential profit/loss for the business at different levels of output
• Shows possible effect of change in price on the break-even level of
output/profit
• Shows possible effect of change in costs on the break-even level of
output/profit
• May be useful to show to the bank manager to indicate a profit is
predicted and therefore more likely to gain a bank loan
4(b) Consider the following three options for BW. Which option should Bob 12
choose to improve BW’s reputation? Justify your answer.
Option 1: Use cleaning products that contain chemicals.

Option 2: Use bottles that can be refilled with cleaning products.
Option 3: Purchase a new window washing machine.

terminology.
Detailed discussion of two or more options.
Candidates discussing all three options in detail, in

including why the alternative options were rejected

terminology.
Detailed discussion of at least one option.

of choice made.
Candidates discussing two or more options in detail


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4(b)
Limited ability to discuss each option with little/no

explanation.

Candidates outlining all three options in context

Relevant points might include:

Option 1 • Faster to clean windows – more
efficient/improved customer satisfaction
Use cleaning • More efficient by 50 per cent if using these
products that chemicals so more windows washed per hour –
contain chemicals possibly increasing profit
• However, bad reputation from using chemicals
as not environmentally friendly and pressure
groups may campaign against them – although
legal at the moment, the law may change in the
future so may have to change later anyway
Option 2 • Slightly higher transport cost of taking the

containers to be refilled as would need more
Use bottles that than one – but may be the cleaning products are
can be refilled cheaper if use own bottle
with cleaning • Good reputation from being ethical as previously
products they may have used plastic bottles which were
not environmentally friendly
• Time taken by employees to get containers
refilled – reduces efficiency
• Cost to buy bottles may increase costs
initially/short run – but lower costs in the long
run as they do not need to keep being replaced
Option 3 • High cost of purchase – $1000 – difficult to raise

finance as a new business
Purchase a new • Ethical and may encourage more customers in
window washing the local area with increasing income to use
machine BW
• Reduces the amount of water required to clean
windows – may save money
• Improved reputation with the local community –
as they may benefit from less wastage of water
– as the machine recycles the water

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4(b)
Recommendation Justification may include:
• Choose Option 1 as although costs may be
slightly higher the increased efficiency and
cleaning more windows per hour increases
reputation for a fast service. Customers may not
know about the new machine or bottles being
refilled and therefore this may not improve BW’s
reputation.
• Choose Option 2 as plastic bottles would not
need to go to waste and this can be a USP in
advertising if other window washing businesses
do not use these, hence improving BW’s
reputation. It is also a lot cheaper than paying
$1000 for a new machine.
• Choose Option 3 as it may be better in the long
term as water is important and BW will not be
wasting it. It also means that BW can wash
windows without having to gain water from the
house if the owners are out. This may increase
efficiency and improve the reputation for being
careful with the scarce resource of water. BW’s
reputation will not be enhanced as much if it
refills bottles, as this may not be noticed by
customers and they may not be aware of the
chemicals being used.

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™
Cambridge IGCSE

*1512326670*
Paper 1 Short Answer and Data Response May/June 2020

1 hour 30 minutes
INSTRUCTIONS
INFORMATION
06_0450_11_2020_1.14
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2
1 Kara’s business makes wax candles. She sells them to retailers at low prices. She gives retailers
60 days to pay. Kara has to pay her suppliers when raw materials are delivered. Kara used
crowd-funding to set up her business. The bank would not give Kara a loan as she did not have a
business plan. Last year revenue was $50 000. Demand is increasing but Kara is not yet able to
benefit from economies of scale. She said: ‘Cash-flow is a problem. All cash inflows are used to
buy inventory.’
(a) Define ‘crowd-funding’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) State two economies of scale.
Economy of scale 1...........................................................................................................
...........................................................................................................................................
Economy of scale 2...........................................................................................................
........................................................................................................................................... [2]
(c) Outline two reasons why a bank might want Kara to produce a business plan before agreeing
to give a loan.
Reason 1: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
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........................................................................................................................................... [4]
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3
(d) Explain two factors Kara should consider when deciding whether to increase prices.
Factor 1: ...........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Factor 2: ...........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think delaying payments to suppliers is the best way for a small business to improve
its cash-flow? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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........................................................................................................................................... [6]
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4
2 BCK is a multinational company which operates many gold mines. One of BCK’s objectives is to
contribute to sustainable development. The Managing Director said: ‘We value all of our stakeholders.
With 10 000 employees it is important to have the right leadership style. BCK needs well-motivated
employees.’ The Managing Director also thinks that effective communication with suppliers is very
important.
(a) Define ‘multinational company’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) State two ways of motivating employees.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
........................................................................................................................................... [2]
(c) State four factors that might affect the leadership style used by a manager.
Factor 1: ...........................................................................................................................
...........................................................................................................................................
Factor 2: ...........................................................................................................................
...........................................................................................................................................
Factor 3: ...........................................................................................................................
...........................................................................................................................................
Factor 4: ...........................................................................................................................
........................................................................................................................................... [4]
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5
(d) Explain two ways BCK could contribute to sustainable development.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think using communication methods based on information technology (IT) is the best
way for a large business to communicate with its suppliers? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
........................................................................................................................................... [6]
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6
3 NWA is a large and profitable airline business. It has grown quickly over the past 10 years and new
aeroplanes have helped to improve its brand image. NWA offers low priced flights for tourists to
50 countries. Sales promotion is an important part of NWA’s marketing mix. The Finance Director
is worried that NWA has a high level of debt as its main source of finance is bank loans. The
organisational chart of NWA has many levels of hierarchy with narrow spans of control.
Table 3.1
Cost and price data for a typical NWA flight (2019)
Price per customer $40
Fixed costs $2 000
Variable cost per customer $24
Maximum number of customers 200
(a) Define ‘brand image’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate the break-even number of customers for a typical NWA flight. Show your working.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) Outline two possible problems for NWA of having a high level of debt.
Problem 1: ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Problem 2: ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
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7
(d) Explain how two methods of sales promotion could increase sales for NWA.
Method 1: ..........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Method 2: ..........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think that having many levels of hierarchy is the best type of organisational structure
for a large business? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
........................................................................................................................................... [6]
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8
4 BMT is a business partnership owned by 2 brothers. The brothers received government support
when they started BMT 6 years ago. BMT now has 30 employees who make high quality watches.
The business tries to achieve lean production. Demand has increased each year and in 2019 BMT
sold 8000 watches. BMT makes some parts for watches and all the other parts are imported. BMT
had to consider a number of factors, including exchange rates, when deciding whether to import
parts for watches.
(a) Identify two reasons why a government might support business start-ups.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
........................................................................................................................................... [2]
(b) State two types of business organisation (other than partnership).
Type 1: ..............................................................................................................................
...........................................................................................................................................
Type 2: ..............................................................................................................................
........................................................................................................................................... [2]
(c) Outline two disadvantages of BMT being a business partnership.
Disadvantage 1: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage 2: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
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9
(d) Explain two ways BMT could achieve lean production.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think the exchange rate is the most important factor for a business to consider when
deciding whether to import parts for a high quality product? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2020 06_0450_11_2020_1.14

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Cambridge IGCSE™

Paper 1 Short Answer/Structured Response May/June 2020
MARK SCHEME
Maximum Mark: 80
Published
Students did not sit exam papers in the June 2020 series due to the Covid-19 global pandemic.
This mark scheme is published to support teachers and students and should be read together with the
question paper. It shows the requirements of the exam. The answer column of the mark scheme shows the
proposed basis on which Examiners would award marks for this exam. Where appropriate, this column also
provides the most likely acceptable alternative responses expected from students. Examiners usually review
the mark scheme after they have seen student responses and update the mark scheme if appropriate. In the
June series, Examiners were unable to consider the acceptability of alternative responses, as there were no
student responses to consider.
Mark schemes should usually be read together with the Principal Examiner Report for Teachers. However,
because students did not sit exam papers, there is no Principal Examiner Report for Teachers for the June
2020 series.
Cambridge International is publishing the mark schemes for the June 2020 series for most Cambridge
IGCSE™ and Cambridge International A & AS Level components, and some Cambridge O Level
components.

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0450/11 Cambridge IGCSE – Mark Scheme May/June 2020
PUBLISHED
1(a) Define ‘crowd-funding’. 2
Award 2 marks for a full definition. Award 1 mark for a partial definition.
Asking a large number of people each for a small amount of money to raise
finance for a project [2]
Partial definition: asking general public/people to give money [1]
1(b) State two economies of scale. 2
Award 1 mark per economy of scale.
Two from:
• Purchasing/bulk buying
• Marketing
• Technical
• Financial
• Risk bearing
• Managerial
1(c) Outline two reasons why a bank might want Kara to produce a 4
business plan before agreeing to give a loan.
Award 1 mark for each relevant reason.

Award 1 mark for each relevant reference to this business.

• Supports request for finance/shows ability to repay [k] increasing chance
of getting finance for her candle business [app]
• Shows planning/thought seriously about issues [k] such as recognising
that cash-flow is a problem [app]
• Provide (important) information about business [k] such as demand is
increasing [app]
• Shows what security/assets the business has which can be used to
support any loan [k]
Note: The focus of the question is from the viewpoint of the bank and not the
business.

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1(d) Explain two factors Kara should consider when deciding whether to 6
increase prices.
Award 1 mark for identification of each relevant factor (max 2).

Award 1 mark for each relevant reference made to this business (max 2).
Award 1 mark for each relevant explanation (max 2).

• Level of competition/selling price of competitors [k] for candles [app] as
a higher price could mean fewer customers [an]
• Cost of production [k] as a higher price should improve her profit margin
[an] especially as she does not benefit from economies of scale [app]
• Price elasticity of demand [k] as if price elastic a higher price will result
in a greater fall in demand [an] so revenue this year may not be $50 000
[app]
• Brand image/reputation [k] as higher price might suggest better quality
[an]
1(e) Do you think delaying payments to suppliers is the best way for a 6
small business to improve its cash-flow? Justify your answer.
Award up to 2 marks for identification of relevant points or alternative ways.

Award up to 2 marks for relevant development.
Award 2 marks for justified decision as to whether delaying payments to
suppliers is the best way for a small business to improve its cash-flow.

• Delaying payment will allow them to delay cash outflow [k]
• Suppliers may be unwilling to supply materials [k] and without the
necessary materials would not be able to generate any cash inflows [an]
Other options might include:

• Ask customers to pay more quickly [k] but could result in fewer
customers leading to lower cash inflows [an]
• Arrange an overdraft/short-term loan [k] but could be charged interest
which would increase cash outflows [an]
• Sell unwanted non-current assets [k] which would free up cash currently
tied up in the business [an]
• Buy cheaper materials [k] which would reduce cash outflows [an]

• As the business is small suppliers may not be willing to offer credit as
they are seen as too high a risk so this may not be an option for a small
business. [eval] [eval]

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2(a) Define ‘multinational company’. 2
A business with factories, production or service operations in more than one

country [2]
A business with production or service operation in another country outside
its normal area of operation [2]
Partial definition e.g. works/operates in more than one country [1]
2(b) State two ways of motivating employees. 2
Award 1 mark per way.

• financial bonuses
• performance related pay
• fringe benefits (or examples but allow only once)
• profit share
• provide opportunities for promotion
• job rotation
• job enrichment
• job enlargement
• training opportunities
• increase rate of pay
• employee of the month/award schemes
• praise
2(c) State four factors that might affect the leadership style used by a 4
manager.
Award 1 mark for each relevant factor.
Points may include:

• Personality of leader/manager
• Skills of leader
• Skills of employees
• Work to be done
• Size of business
• Organisational structure

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2(d) Explain two ways BCK could contribute to sustainable development. 6
Award 1 mark for identification of each relevant way (max 2).


• Reduce output [k] of gold [app] so only extract amount required (to meet
demand) [an]
• Use renewable energy [k] so need to use fewer natural resources [an]
when operating its mines [app]
• Restore land to nature when finished [k] so land can be reused for other
purposes [an]
• Increase efficiency [k] of its 10 000 employees [app] so waste fewer
resources [an]
• Change methods of working [k]
2(e) Do you think using communication methods based on information 6

technology (IT) is the best way for a large business to communicate
with its suppliers? Justify your answer.
Award up to 2 marks for identification of relevant issues. Award up to 2

marks for relevant development of points.
Award 2 marks for justified decision as to whether using communication
methods based on information technology (IT) is the best way for a large
business to communicate with its suppliers.

• Phone call as can obtain immediate feedback [k] but may not be able to
contact the person when needed [an]
• Emails allow the receiver to read the message when it’s convenient to [k]
but may not read it/see it as junk mail [an] but could contain lots of
detailed information [an]
• Choice could depend on location of supplier e.g. local or in another
country/how much information need to include [k]
Other methods
• Meetings [k] allows for feedback [an] but can be difficult to arrange a
suitable time when everyone can attend [an]
• Letter [k] have a copy that can refer back to [an] but language used may
not be clear if use technical language [an]

• Yes, especially if its urgent as electronic methods are usually quicker –
so action/changes can be made sooner so that operations are not delayed
– which could be very costly especially for large business. [eval] [eval]

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3(a) Define ‘brand image’. 2
Unique name of a product that distinguishes it from other products or brands

[2]
Partial definition e.g. something that makes the product easy to recognise
[1]
3(b) Calculate the break-even number of customers for a typical NWA 2

flight. Show your working.
Award 2 marks for correct calculation. Break-even: 125 [2]
Correct formula and incorrect answer e.g. 2000 / (40 – 24) [1]
OR fixed cost/selling price – variable cost per unit [1]
3(c) Outline two possible problems for NWA of having a high level of debt. 4
Award 1 mark for each relevant problem.


• Difficult to arrange additional finance [k] especially as its main source of
finance are bank loans [app]
• High cost of repayment/high expenses [k] making it difficult to keep
prices at $40 [app]
• Increase financial risk [k] when buying planes [app]
• Cash flow/liquidity problems [k] despite business being profitable [app]

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3(d) Explain how two methods of sales promotion could increase sales for 6
NWA.
Award 1 mark for identification of each relevant method (max 2).


• Sponsorship (of events or clubs) [k] can help boost its reputation [an]
thereby helping further improve its brand image [app]
• Short-term price discounts/special offers [k] aimed at tourists [app] as
more people are able to afford/willing to buy as its cheaper [an]
• Loyalty schemes [k] such as frequent flying programme [app] to
encourage customers to return many times [an]
• Competitions [k] as people may buy more to increase their chances of
winning the prize [an]
• Gifts [k]
• After sales service [k]
3(e) Do you think that having many levels of hierarchy is the best type of 6
organisational structure for a large business? Justify your answer.

Award 2 marks for justified decision as to whether having many levels of
hierarchy is the best type of organisational structure for a large business.

• Having levels of hierarchy (tall hierarchy) means a long chain of
command [k] which can slow down communication as messages have
to pass through many levels to reach the intended person [an] which
could slow down decision making [an]
• Senior managers are more remote from employees [k] which can
demotivate employees and lower efficiency/output [an]
• Managers have fewer employees to supervise [k] which could result in
fewer opportunities for delegation [an]
• Can provide more opportunities for promotion [k]
• Having a wider structure would lead to a short chain of command/each
manager having to be responsible for more people [k] which could mean
managers lose control [an]

• No as it could depend on the leadership style of the manager – if they
have an autocratic style – a tall structure may be better as this will allow
them to have greater control over what all the employees in a large
organisation do [eval] [eval]

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4(a) Identify two reasons why a government might support business start- 2
ups.
Award 1 mark per reason.

• reduce unemployment
• increase competition
• increase output
• benefit society
• small businesses can grow
4(b) State two types of business organisation (other than partnership). 2
Award 1 mark for each type of business organisation.

• sole trader
• private limited company
• public limited company
• franchise
• social enterprise
• charity
• public corporation
4(c) Outline two disadvantages of BMT being a business partnership. 4
Award 1 mark for each relevant disadvantage.


• Unlimited liability/ each responsible for debts of other [k] so if business
cannot pay its debts there is risk to the personal assets of each brother
[app]
• Fewer sources of finance (than limited company) [k] restricting plans to
expand the watch business [app]
• Possible disagreements/slower decision making [k] such as whether to
import parts [app]
• Have to share profits [k]

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4(d) Explain two ways BMT could achieve lean production. 6
Award 1 mark for identification of each relevant way (max 2).


• Just in Time [k] ordering parts as and when needed for the watches
[app] which reduces storage costs [an]
• Kaizen [k] helps to eliminate mistakes and errors [an] when making
these high-quality products [app]
• Cell production/team working [k] of its 30 employees [app]
• Kanban [k]
4(e) Do you think the exchange rate is the most important factor for a 6
business to consider when deciding whether to import parts for a high
quality product? Justify your answer.

Award 2 marks for justified decision as to whether the exchange rate is the
most important factor for a business when deciding whether to import parts
for a high quality product.

Exchange rates
• Appreciation in own exchange rates would mean have to pay less to
import materials [k] which lowers costs [an] so may be able to lower
prices or improve profit margin [an]
• Changing rates are difficult to plan for [k] may result in having much
higher costs than budget [an]
• Exchange rate depreciate [k] lead to higher cost of imported materials [an]
could mean have to increase prices which could lower sales [an]
Other factors might include:

• The quality of parts/materials [k] as it may not be possible to obtain the
resources locally [an]
• Import tariffs [k] this would increase the price [an]
• Import quotas [k] this could limit the amount of parts that can be brought
into the country [an]

• As it is for a high-quality product, exchange rate is not as important as
the materials because customers may be willing to pay the higher price
to get the right quality which could cover the financial impact of any
changes in the exchange rate. [eval] [eval]

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™
Cambridge IGCSE

*7560769113*

1 hour 30 minutes
INSTRUCTIONS
INFORMATION
06_0450_12_2020_1.13
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2
1 DWT makes solar panels in country Y. This is a low-cost country which is experiencing rapid
economic growth. DWT’s production method makes use of specialisation. All 120 of DWT’s
employees know that ensuring quality production is important. DWT imports some of its raw materials.
The Government of country Y plans to introduce import tariffs of 50%. DWT’s Managing Director
said: ‘This decision will affect all of our stakeholders. Why do governments introduce trade restrictions
such as import controls?’
(a) Define ‘specialisation’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two reasons why a government might introduce import controls.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
........................................................................................................................................... [2]
(c) Outline two ways DWT could try to ensure quality production.
Way 1: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
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3
(d) Explain one objective of each of the following stakeholder groups of DWT.
Customers: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Pressure groups: ..............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think that all businesses will benefit from operating in a country which is experiencing
rapid economic growth? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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........................................................................................................................................... [6]
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4
2 MLC makes motorcycles. The Managing Director has been analysing MLC’s costs. An extract of
this information is shown in Table 2.1. To reduce average costs, MLC plans to close its factory and
relocate production to another country. Only 50 of the existing employees will be offered jobs at
the new location. The trade union has been informed. All the new employees will be given either
on-the-job training or off-the-job training. This planned relocation will have an impact on MLC’s
income statement.
Table 2.1
Cost and other information for MLC’s current factory (2019)
Total output (units) 3 000
Total cost $1 200 000
Number of employees 200
(a) Define ‘trade union’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Calculate the average cost of one motorcycle. Show your working.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(c) State four features of an income statement.
Feature 1: .........................................................................................................................
...........................................................................................................................................
Feature 2: .........................................................................................................................
...........................................................................................................................................
Feature 3: .........................................................................................................................
...........................................................................................................................................
Feature 4: .........................................................................................................................
........................................................................................................................................... [4]
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5
(d) Explain two possible problems for MLC of relocating its operations to another country.
Problem 1: ........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Problem 2: ........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think on-the-job training is a better method of training for a manufacturing business to
use than off-the-job training? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
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6
3 Kala always wanted to be an entrepreneur. She used to work for a business which downsized its
workforce 5 years ago. She then decided to start up CHL. She produced a business plan which
helped her obtain finance. Kala now designs customised sports clothes for women. Kala sells these
products directly to customers using e-commerce. She has a loyal customer base of 25-40 year
olds. However, Kala is worried about increased competition in this niche market. One idea she has
is to target different market segments.
(a) Define ‘business plan’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two reasons why a business might downsize its workforce.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
........................................................................................................................................... [2]
(c) Outline two reasons why Kala’s business might need finance.
Reason 1: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
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7
(d) Explain one advantage and one disadvantage to Kala of using e-commerce to sell her products.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think selling to different market segments is the best way for a small business to respond
to increased competition? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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........................................................................................................................................... [6]
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8
4 ALB is a large bank. It has 300 branches and 5 000 employees. ALB provides a range of financial
services to its business customers. As it operates in a competitive market, ALB aims to maintain
customer loyalty. Last year ALB’s profit decreased to $3 000m. The Managing Director is analysing
ways to reduce ALB’s costs. She also has to decide how new legal controls over employment
issues might affect the business. The Government plans to improve protection of employees by
changing laws on the minimum wage and health and safety.
(a) Define ‘profit’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) State two problems of using the number of employees to measure the size of a business.
Problem 1: ........................................................................................................................
...........................................................................................................................................
Problem 2: ........................................................................................................................
........................................................................................................................................... [2]
(c) Outline two possible ways ALB can try to reduce its costs.
Way 1: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
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9
(d) Explain two ways ALB could improve customer loyalty.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think changes in legal controls over employment issues will always reduce business
profits? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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........................................................................................................................................... [6]
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Cambridge IGCSE™

MARK SCHEME
Maximum Mark: 80
Published
2020 series.
components.

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PUBLISHED
1(a) Define ‘specialisation’. 2
Way in which work is divided so each worker concentrates on a specific task

so become expert at it [2]
When people and businesses concentrate on what they are best at [2]
Partial definition e.g. workers do only one job [1]
1(b) Identify two reasons why a government might introduce import 2

controls.
Award 1 mark per reason.

• Protect jobs from cheap labour in other countries
• To improve trade deficit
• Protect newly started/infant industries
• To earn more revenue from tariffs
• Protect local businesses from low priced competition
• Protect important national or strategic industries
1(c) Outline two ways DWT could try to ensure quality production. 4
Award 1 mark for each relevant way.


• Quality control [k] so check products before they are exported [app]
• Quality assurance [k] when making solar panels [app]
• Training/recruit skilled employees [k] to make full use of specialisation
[app]
• Use better quality materials [k] which could afford to pay for as it is a low-
cost country [app]
• Use new technology/CAM/CAD [k]

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PUBLISHED
1(d) Explain one objective of each of the following stakeholder groups of 6

DWT.
Award 1 mark for identifying the objective of each stakeholder group (max 2).

Customers
• would want high quality products [k] to achieve value for money [an]
which is why quality production is important [app]
• may want affordable prices [k]
Pressure groups
• encourage the use of sustainable methods [k] such as solar panels
[app] to protect the environment [an]
• reduce/limit amount of pollution/environmental damage [k]
1(e) Do you think that all businesses will benefit from operating in a country 6
which is experiencing rapid economic growth? Justify your answer.
Award up to 2 marks for identification of relevant issues.

Award up to 2 marks for relevant development of points.
Award 2 marks for justified decision as to whether all businesses will benefit
from operating in a country which is experiencing rapid economic growth.

• Economic growth increases consumer incomes [k] which increases
demand for most goods [an]
• Rapid economic growth can lead to higher rate of inflation [k] which
raises firms’ costs/reduces profit margin [an]
• Patterns of consumer demand might change [k] reducing revenue for
some businesses [an]
• Could lead to shortage of skilled workers [k] so have to offer pay to
attract/retain employees leading to higher costs [an]

• No - unlikely all businesses will benefit as it depends on what they sell as
if they sell basic goods, customers may switch to more expensive items
as their incomes increase leading to fewer sales for some businesses
and higher sales for others. [eval] [eval]

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PUBLISHED
2(a) Define ‘trade union’. 2
Group of workers who join together to ensure their interests/rights are

protected [2]
Organisation which represents the workers and fights for improvements to pay
and conditions [2]
Partial definition e.g. A group who fight for workers’ rights [1]
2(b) Calculate the average cost of one motorcycle. Show your working. 2
Award 2 marks for a correct calculation: 400
Award 1 mark for correct method e.g. 1 200 000/3000

OR total cost / total output
2(c) State four features of an income statement. 4
Award 1 mark for each relevant feature.

• Revenue
• Cost of sales
• Gross Profit
• Profit (for the year)
• Retained Profit
• Expenses
2(d) Explain two possible problems for MLC of relocating its operations to 6
another country.
Award 1 mark for identification of each relevant problem (max 2).


• Access to suitable employees/not easy to find employees [k] as at new
site will need 150 new employees [app] increasing recruitment/training
costs [an]
• Access to/cost of suitable land [k] as will need a big space[an] to make
motorcycles [app]
• Different legal controls/standards [k] in the new factory [app] which may
mean have to change how/where operate [an]
• Could be further away from market/suppliers/need to find new suppliers
[k] which increases transport costs [an]
• Communication problems [k] as may need to learn a new language [an]
so takes longer to complete on-the-job training [app]

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PUBLISHED
2(e) Do you think on-the-job training is a better method of training for a 6

manufacturing business to use than off-the-job training? Justify your
answer.
Award up to 2 marks for identification of relevant points.

Award 2 marks for justified decision as to whether on-the-job training is a
better method of training for a manufacturing business to use than
off-the-job training.

Off-the-job training:
• Not necessarily tailored to individual business [k]
• Have to pay more/high cost for specialists [k] which increases costs [an]
• Skills might not be available in the business [k] so benefit from new
techniques/ideas [an]
• Allows for mistakes to be made when learning [k] so less likely to waste
resources when working/lower risk of damaging business reputation [an]
On-the-job training:
• Can reinforce errors/bad habits of trainer [k] reducing sales/damage
reputation [an]
• Fewer new ideas/skills will be taught [k]
• Control what is taught/employees learn exact way business wants things
done [k] so workers only learn skills needed [an]
• Employees can carry on working [k] so some output is still produced [an]
• Cheaper (than off-the-job) [k]
Justification may include:

• No, as it depends what the training is for – if using new techniques/
machines the business may not have a suitable person to train others
so on-the-job is not an option so it would have no choice and would
have to use off-the-job training. [eval] [eval]
3(a) Define ‘business plan’. 2
A document containing the business aims/objectives and important details

about the operations, finance and owners of a business [2]
States aim and/or objectives and shows how business aims to achieve them
[2]
Partial definition e.g. a document showing what the business intends to do

[1]

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PUBLISHED
3(b) Identify two reasons why a business might downsize its workforce. 2
Award one mark per reason (max 2).

• Economic crisis
• Factory/shop/office closure
• Merger or takeover
• Need to reduce costs
• Changes in management/strategy
• Automation or replaced by machinery
• Excess workforce
• Relocation
3(c) Outline two reasons why Kala’s business might need finance. 4
Award 1 mark for each relevant reason (max 2).

Award 1 mark for each relevant reference to this business. (max 2).

• Increase working capital/examples such as buy inventory or
materials/pay day to day costs [k] so prevent cash flow problems [app]
• To expand/buy more non-current assets [k] so she can enter different
market segments [app]
• To pay for market research and advertising [k] of her sportswear [app]

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PUBLISHED
3(d) Explain one advantage and one disadvantage to Kala of using e- 6

commerce to sell her products.
Award 1 mark for identification of each relevant advantage and

disadvantage (max 2).

Advantages:
• Able to target customers [k] who are mainly women [app] so better able
to attract attention of people most likely to buy her products [an]
• Less rent/fewer employees needed [k] which can help reduce costs [an]
for her sportswear [app]
• Easy to update [k] so keep customers informed [an] about the ways the
products can be customised [app]
• Widen market/more potential customers [k] which can increase revenue
[an]
Disadvantages:
• Difficult to stand out from competition [k] at a time when she is worried
about increased competition [app] leading to lower sales [an]
• Not everyone has access to internet [k]
• No passing trade [k] so could mean fewer sales [an]
• Increased costs of postage/distribution [k] as need to arrange for
delivery/vans [an]
• Need to pay for pop-ups to advertise on popular sites [k]
• Lack of personal service [k]
• Customers may want to try before buy [k]

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PUBLISHED
3(e) Do you think selling to different market segments is the best way for a 6
small business to respond to increased competition? Justify your
answer.

Award 2 marks for justified decision as to whether selling to different market
segments is the best way for a small business to respond to increased
competition.

Targeting a new segment:
• Wider market base [k] could increase sales revenue [an]
• Spreads risk [k] as not reliant on one market for sales [an]
• Need to know reaction/current level of competition [k] as customers
may be loyal to other businesses so not easy to obtain sales [an]
• High cost and time involved developing new products [k]
• Cost of promotion [k] as need to attract customer’s attention [an]
Other issues or ways could be discussed such as:

• Could change prices e.g. lower prices could lead to lower profit
margin/seen as lower quality [k] which could lower sales [an]
• Size of market could be a factor as if niche market [k] this will limit number of
possible sales [an]

• Yes, selling to other segments means spreading risk [k] as not reliant
on one market for sales [an]. This is much better than charging lower
prices [k] could reduce revenue [an] if they cannot generate enough
extra sales to cover the price reduction which could be a major issue for
especially for a small business who not have the sufficient funds to be
keep lower prices [eval] so could struggle to remain competitive [eval]
4(a) Define ‘profit’. 2
Profit is the amount of money that a business makes once costs have been
subtracted from the revenue [2]
Total revenue minus total costs [2].
Partial definition e.g. money left after costs paid [1]
Note: For both marks must have idea that there is both sales and cost
element to profit.

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PUBLISHED
4(b) State two problems of using the number of employees to measure the 2
size of a business.
Award 1 mark per problem.

• Might use a lot of machines,
• Difficult to count part-time employees
4(c) Outline two possible ways ALB can try to reduce its costs. 4
Award 1 mark for each relevant way.


• Reduce number of employees [k] by making some of the 5000
employees redundant [app]
• Close number of branches [k] from 300 [app]
• Reduce amount of wastage [k] by using less paper when dealing with
business customers [app]
4(d) Explain two ways ALB could improve customer loyalty. 6
Award 1 mark for identification of each relevant method (max 2).


• Communicate with customers e.g. newsletters, social media [k] so that
they remember your business [an] when they next need financial
services/help from bank [app]
• Offer good quality service [k] so customers want to return [an] to the 300
branches [app]
• Train staff [k] so all 5000 employees [app] are able to offer a good
quality service [an]
• Ask for feedback e.g. surveys [k] to find out how/what they need to do to
improve [an]
• Resolve complaints quickly [k] so that customers don’t change to
another bank [an] as it is a competitive market [app]
• Offer rewards/ loyalty programs [k] such as discounts for business
customers who also use them for its personal banking [an]
• Offer extra services such as online/mobile phone app [k]

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PUBLISHED
4(e) Do you think changes in legal controls over employment issues will 6
always reduce business profits? Justify your answer.

Award up to 2 marks for justified decision as to whether changes in legal
controls over employment issues will always reduce business profits.

• Health and safety changes could mean needing to provide more training
[k] increasing costs [an] but leading to more motivated/more efficient
employees [an]
• Can depend on how much the minimum wage increases [k] as may
already pay above the new rate so may not affect them [an]
• Can depend on the type of business [k] as health and safety may be
more of an issue if it is a manufacturing business [an]

• Yes, because any changes in legal control are likely to result in the
business at least having to do something even if it is only to check they
are compliant, which will cost time and money to do. [eval] [eval]

03214567519 | 0315 4567519 | 03134567519
™
Cambridge IGCSE

*8417120905*

1 hour 30 minutes
INSTRUCTIONS
INFORMATION
06_0450_13_2020_1.12
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2
1 RGP owns a number of luxury hotels. The directors are planning to open a new hotel with 200
rooms. The hotel’s location will be in the city centre. The Human Resources Director said: ‘One of
my roles is to recruit the 300 employees RGP will need from the local community. I think selecting
new employees with the right personality is more important than their experience. Everyone will
have 6 weeks of induction training.’ She knows that effective communication between employees
and customers will be important to the success of the hotel.
(a) Define ‘induction training’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two ways a business could advertise a new job vacancy.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
........................................................................................................................................... [2]
(c) Outline two reasons why effective communication between RGP’s employees and customers
is important.
Reason 1: .........................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
Reason 2: .........................................................................................................................
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3
(d) Explain one advantage and one disadvantage to RGP of choosing a location in the city centre.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think selecting employees with the right personality is more important than their
experience for a tertiary sector business? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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4
2 RVC uses batch production to manufacture a large range of products including soap and shampoo.
Many of the products are at different stages of the product life cycle. The Marketing Director has
been reviewing some data for one brand of soap, as shown in Table 2.1. She said: ‘Last year sales
were 80 000 units a week. I want to know the current level of profit and margin of safety.’ The
Marketing Director has to decide on a suitable extension strategy. The choice is between new
packaging or targeting new markets.
Table 2.1
Cost, price and sales data for one brand of RVC’s soap
Selling price $2.50
Fixed costs per week $20 000
Average variable costs $0.90
Number of sales per week 40 000
(a) Define ‘margin of safety’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Identify two stages of the product life cycle.
Stage 1: ............................................................................................................................
Stage 2: ............................................................................................................................ [2]
(c) Using Table 2.1, calculate the weekly profit. Show your working.
...........................................................................................................................................
...........................................................................................................................................
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........................................................................................................................................... [4]
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5
(d) Explain one benefit and one limitation to RVC of using batch production.
Benefit: .............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Limitation: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think targeting new markets is a better extension strategy than new packaging for a
manufacturing business ? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
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...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2020 06_0450_13_2020_1.12 [Turn over

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6
3 PCS is a multinational company in the private sector. It makes 500 brands of soft drinks which are
sold in plastic bottles. PCS has a large marketing budget for promotion. Many of the countries
where PCS sell its products have introduced legal controls to reduce the amount of litter (trash).
PCS plans to start recycling plastic bottles. PCS’s Operations Manager said: ‘Everything has an
opportunity cost. We want to protect the environment but recycling costs money.’
(a) Define ‘opportunity cost’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) State two features of a private sector business.
Feature 1: .........................................................................................................................
...........................................................................................................................................
Feature 2: .........................................................................................................................
........................................................................................................................................... [2]
(c) Identify four aims of promotion.
Aim 1: ...............................................................................................................................
...........................................................................................................................................
Aim 2: ...............................................................................................................................
...........................................................................................................................................
Aim 3: ...............................................................................................................................
...........................................................................................................................................
Aim 4: ...............................................................................................................................
........................................................................................................................................... [4]
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7
(d) Explain two advantages to PCS of being a multinational company.
Advantage 1: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advantage 2: ....................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
(e) Do you think all manufacturing businesses should use recycled materials? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
© UCLES 2020 06_0450_13_2020_1.12 [Turn over

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8
4 LXA is a private limited company based in country Z. It makes children’s clothing. LXA sells its
products in competitive markets in several countries. LXA’s directors are considering different ways
for the business to grow. The Finance Director has prepared some financial information before
meeting with some of LXA’s stakeholders. An extract is shown in Table 4.1. The Marketing Director
wants LXA to start producing clothing for adults.
Table 4.1
Extract of LXA’s financial data
2019 2018
Working capital ($000) 180 200
Acid test ratio 0.5 0.7
Return on Capital Employed

6% 8%
(ROCE)
Gross profit margin 20% 25%
(a) Define ‘Return on Capital Employed’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
(b) Define ‘working capital’.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [2]
© UCLES 2020 06_0450_13_2020_1.12

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9
(c) Outline two possible problems for LXA if the business grows.
Problem 1: ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Problem 2: ........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [4]
(d) Explain one way each of the following stakeholder groups might use LXA’s financial information.
Suppliers: ..........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Shareholders: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
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10
(e) Do you think a business should use the same marketing mix to sell its products to different
age groups? Justify your answer.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [6]
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Cambridge IGCSE™

MARK SCHEME
Maximum Mark: 80
Published
2020 series.
components.

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PUBLISHED
1(a) Define ‘induction training’. 2
Introduction given to a new employee explaining the businesses activities

and processes and allow them to meet other employees [2]
Partial definition e.g. new employees learn about the business when they
start [1]
1(b) Identify two ways a business could advertise a new job vacancy. 2
Award 1 mark per way.
Two from:
• Job Centre
• specialist/trade magazines
• Recruitment agency
• jobs website/own website
• word of mouth
• local paper/television/radio
• notice inside/outside the business
1(c) Outline two reasons why effective communication between RGP’s 4

employees and customers is important.
Award 1 mark for each relevant reason.


• To make sure customer needs are understood [k] by all 300 employees
[app]
• To make sure employees carry out customer’s requests correctly [k] in
the hotel [app]
• To prevent mistakes or errors [k] which could damage its reputation for
luxury [app]
• To tell customers about fire practice [k] to keep everybody safe in the 200
rooms [app]

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PUBLISHED
1(d) Explain one advantage and one disadvantage to RGP of choosing a 6

location in the city centre.
Award 1 mark for identification of each relevant advantage/disadvantage

(max 2).
Advantage:
• Many people passing/close to customers [k] to the hotel [app] which could
increase possible demand/revenue [an]
• Prestige/image [k] as known for its luxury [app] this helps supports this
image to attract its target market [an]
• Good infrastructure, e.g. water, electricity, internet/transport links [k] so
customers can get there without any difficulty [an]
Disadvantage:
• Cost/availability of suitable land [k] as need large space for 200 rooms
[app] which is likely to be more expensive [an]
• Availability of suitable employees [k] as need to find them from local
community [app] which could increase the time/cost to find [an]
• Likely to be lots of competition [k] so might not gain as many customers
[an]
• Government regulations [k] could stop them from opening in some
locations [an]

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1(e) Do you think selecting employees with the right personality is more 6
important than their experience for a tertiary sector business? Justify
your answer.

Award 2 marks for justified decision as to whether selecting employees with
the right personality is more important than their experience for a tertiary
sector business.

Personality:
• More likely to make mistakes [k] which could damage reputation [an]
• Higher cost of training [k] which will increase expenses [an]
• May be more willing to learn [k] so can quickly adapt to business
requirements [an]
• Skills can be taught but it is not easy to change someone’s personality [k]
Experience:
• May expect higher wages [k] increasing labour costs [an]
• Likely to make less mistakes or provide better service [k] reducing
amount of waste [an]
• Reduces possible number of candidates [k] so could take more time to
recruit [an]
• Know they have ability/skills to do the job [an]

Experience means a person already knows how to respond to
customers in most situations straightaway [k] which can help the
business offer a better/more professional service to its customers [an]
which can encourage customer loyalty [an]. However, you can teach
someone these skills more easily than you can change their personality.
Personality is more important because you need people who are willing
to learn/able to interact naturally with customers especially in a tertiary
sector business where good customer service is important. [eval] [eval]
2(a) Define ‘margin of safety’. 2
Difference between current level of output and break-even output [2]
Partial definition e.g. Extras made over what you need to cover costs [1]

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2(b) Identify two stages of the product life cycle. 2
Award 1 mark per stage.
Two from:
• development
• introduction
• growth
• maturity
• decline
2(c) Using Table 2.1, calculate the weekly profit. Show your working. 4
Award 4 marks for correct calculation $44 000
Method e.g.
Revenue: 40 000 × $2.50 = $100 000 [1]
Total cost = Variable cost (40 000 × 0.9 = 36 000 [1] + 20 000 = $56 000 [1]
Revenue – Total cost = $40 000
OR
40 000 × 1.6 [1] = 64 000 [1OF] – fixed costs 20 000 [1] = profit $44 000
[1OF)
If correct answer given with no working shown, award 4 marks.
Note: OFR can apply

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2(d) Explain one benefit and one limitation to RVC of using batch 6
production.
Award 1 mark for identification of each relevant benefit/limitation (max 2).


Benefit:
• Flexible [k] easier to change between different soaps [app] to better
meet customer demands [an]
• Some economies of scale [k] as make 80 000 units each week [app]
which can help reduce average costs [an]
• Less impact if machinery breaks down [k] so some output made [an]
• Spread risk as can make more than one type of product [k]
• Variety of products [k] could lead to more sales [an]
• Some variety in work can motivate workers [k] leading to less
absenteeism [an]
Limitation:
• Time lost switching/resetting machines between batches [k] could lead to
lost output [an]
• Added cost of moving or storing semi-finished goods [k]
• Inventory may be sitting around between stages [k] increasing costs
[an] so may not have sufficient money to introduce its extension strategy
[app]
• One fault could affect entire batch [k] increasing waste [an]

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2(e) Do you think targeting new markets is a better extension strategy than 6
new packaging for a manufacturing business? Justify your answer.

Award 2 marks for justified decision as to whether targeting new markets is
a better extension strategy for a business to use than new packaging.

Target new markets:
• Widen customer base [k] can lead to additional revenue [an]
• Cost of market research/promotion [k] will add to expenses [an]
• Different tastes [k]
• Lack of distribution network [k]
• Existing competition in other markets [k]
New packaging:
• No guarantee packaging will appeal to customers [k] so sales revenue
may continue to fall [an]
• Extra time and cost of development new packaging [k]
• Can help create new interest [k]

• Yes, targeting new markets may be better as the business would not have
to risk losing existing customers by changing the packaging which could
result in less revenue to be able to pay for the cost of any extension
strategy introduced. [eval] [eval]
3(a) Define ‘opportunity cost’. 2
The benefit that could have been gained from an alternative use of the same
resource [2]
Next best alternative forgone/given up (by choosing another item) [2]
Partial definition e.g. what you give up when you decide to do something
else [1]

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3(b) State two features of a private sector business. 2
Award 1 mark for each feature identified.

• Not government owned/owned by individuals
• Profit motive
• Finance arranged by owners
3(c) Identify four aims of promotion. 4
Award 1 mark per aim.
Four from:
• Increase sales/persuade/attract customers
• Increase market share/compete with competitors’ products
• Inform/raise awareness/introduce new products
• Create brand image/improve image
• Ensure customer loyalty
3(d) Explain two advantages to PCS of being a multinational company. 6
Award 1 mark for identification of each relevant advantage (max 2).


• Access to new markets/increase sales [k] as people might want their
500 brands [app] which will increase revenue [an]
• Spread risk [k] when selling soft drinks [app] so fall in demand in one
market can be balanced out by rising sales in other countries [an]
• Better access to raw materials [k] such as plastic for bottles [app] so
able to maintain output [an]
• Benefit from economies of scale e.g. purchasing, financial [k] lowering
average costs [an]
• Reduce transport costs/help distribution (as produce goods nearer market)
[k]
• Avoid barriers to trade [k]
• Reduce tax liability/take advantage of favourable laws [k]

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3(e) Do you think all manufacturing businesses should use recycled 6

materials? Justify your answer.

Award 2 marks for justified decision as to whether all manufacturing
businesses should use recycled materials.

• Recycling can reduce amount of pollution [k] so reduces costs of waste
[an]
• Uses energy and resources to recycle [k] increasing business costs [an]
• Can improve business reputation [k] but recycled materials can be
expensive [an]
• Can depend on what they are making [k]
• Can help improve brand image [k] which can make them more
competitive [an]

• No, because it can depend on what they are making as for some
manufacturing businesses there may not be appropriate recycled
materials available/suitable to use so this is not an option. [eval] [eval]

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4(a) Define ‘Return on Capital Employed’. 2
Amount of profit made for each dollar invested [2]

(Capital) Profit/capital employed × 100 [2]
Partial definition e.g. profit from capital invested [1]
4(b) Define ‘working capital’. 2
How much liquid assets a business has to pay its day to day costs [2]
Current assets – current liabilities [2]
Partial definition e.g. money for everyday expenses / funds used to buy
inventory [1]
4(c) Outline two possible problems for LXA if the business grows. 4
Award 1 mark for each relevant problem.


• Poor communication [k] as already operates in several countries [app]
• Lack of finance [k] especially as considering selling clothing for adults
[app]
• Slower decision making [k] in this private limited company [app]
• Larger business more difficult to control [k]
• Lower levels of employee motivation as workers remote from managers
[k]

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4(d) Explain one way each of the following stakeholder groups might use 6
LXA’s financial information.
Award 1 mark for identification of each relevant factor (max 2).

Suppliers:
• Liquidity position [k] to know whether the business is likely to be able to
repay them [an] for clothing [app]
• Assess risk of default [k] as acid test ratio fallen to 0.5 [app] which shows
have fewer liquid assets [an]
• See level of debts [k]
Shareholder:
• Help make decisions on keeping, buying or selling shares [k] as may not
be happy ROCE reduced [an] by 2% [app]
• Check performance e.g. profit [k] as operate in competitive markets
[app] as if business is successful it may increase value of shares [an]
• Assess (possible) level of dividend [k] to know whether will receive a
return on their investment [an]
4(e) Do you think a business should use the same marketing mix to sell its 6
products to different age groups? Justify your answer.

Award 2 marks for justified decision as to whether a business should use
the same marketing mix to sell its products to different age groups.

• Same marketing mix is cheaper [k] so reducing marketing costs [an]
which helps to keep prices low [an]
• Depending on your customers you may want to advertise in different
locations using different media [k] to attract different target audiences
[an]

• No, because it is unlikely that the price, promotion, place and product will
be exactly the same so they would have to change something otherwise
they would risk losing/missing out on sales which is the whole point of
targeting different market segments. [eval] [eval]

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™
Cambridge IGCSE

Paper 2 Case Study May/June 2020
INFORMATION
*7669816049-I*
insert.
06_0450_21_2020_1.8
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2
Freshfruit Juicebar (FJ)
Simon set up FJ in country Z. It makes fresh fruit drinks. Simon had a well paid job with a large
food and drinks company but he wanted to create his own business. He left his job 6 months ago
to set up FJ. Simon wants to provide people with a healthy alternative to the mass produced drinks
that are available in most shops.
Simon is willing to work hard to make FJ a success. He has lots of ideas for new drinks. He has
been making the drinks at his house and selling them at a market stall. He does not have enough
space to produce a higher output on his own. The first drinks FJ produced were made from just 2
types of fruit to keep costs down. The business has been profitable. Simon now wants to expand
the business rapidly and he needs to raise $100 000 to open a factory. He will need to recruit
production workers. He is considering using crowd-funding instead of a bank loan to raise the
necessary finance.
Simon wants to produce a new type of drink. He has carried out market research using three
methods to help him decide which fruit drink to produce and what price to charge. He has estimated
demand, costs and prices for two possible new drinks, as outlined in Appendix 3. He must decide
which one FJ should produce.
Simon plans to open more fruit drink market stalls in busy areas of the city. He needs to recruit a
manager to operate all of FJ’s drink stalls. This person will need to be reliable and able to make
their own decisions. Simon may have to pay to train the new manager. If these market stalls are
successful, Simon can start opening market stalls in other cities.
Appendix 1
Main News - 12 May 2020
The Government in country Z wants to promote healthy eating and drinking to make people more
productive at work and also live longer. The Government plans to spend more money on providing
information about healthy food and drinks. It hopes that this will encourage people to think about
what they are eating and drinking.
The Government is also worried about slow economic growth. It has recently increased government
spending on improving public transport and paying higher wages to public sector employees.
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3
Appendix 2
Three applicants for the position of manager of the fruit drink market stalls
Joe Zabeen Jim
Expected wage
$6 per hour $15 per hour $10 per hour
rate
4 years part-time work in a 15 years as an 6 years working as a

Experience café when studying for a assistant manager of a manager in a restaurant in
degree large shop in a mall the city centre
3 A levels, Degree 5 IGCSEs
Qualifications Hygiene certificate (required No qualifications Hygiene certificate (required

if working with food and if working with food and
drinks) drinks)
Reason for Long hours of work with few Wants to gain a Wants more of a challenge
changing job holidays promotion at work
Appendix 3
Information on two possible new fruit drinks.

Drink A Drink B
Forecast weekly demand 2 000 5 000
Average variable cost of fruit $4.00 $1.00
Fixed costs per week $500 $500
Selling price $5.00 $2.00
Number of types of fruit used 6 2
Likely market segment High income consumers Low income consumers
© UCLES 2020 06_0450_21_2020_1.8

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™
Cambridge IGCSE

*7669816049*

1 hour 30 minutes
INSTRUCTIONS
INFORMATION
06_0450_21_2020_1.8
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2
1 (a) Explain four characteristics that make Simon a successful entrepreneur.
Characteristic 1: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Characteristic 2: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Characteristic 3: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Characteristic 4: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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3
(b) Explain the three main methods of production FJ could use to produce its products in the
factory. Which method should FJ use? Justify your answer.
Method 1: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Method 2: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Method 3: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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4
2 (a) Explain one advantage and one disadvantage to Simon of using crowd-funding as a source
of finance for FJ.
Advantage: .......................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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5
(b) Consider the following three methods of market research Simon used. Which do you think is
the best method to use when deciding which product to produce? Justify your answer.
• Online questionnaire
• Accessing government population data
• Focus group
Online questionnaire: ........................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Accessing government population data: ..........................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Focus group: .....................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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6
3 (a) Explain four ways an increase in government spending may affect a business.
Way 1: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 3:................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 4: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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7
(b) Referring to Appendix 2, consider the suitability of the three applicants for the position of
manager. Which applicant should Simon select? Justify your answer.
Joe: ...................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Zabeen:.............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Jim: ...................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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8
4 (a) Explain two reasons why profit is important to FJ.
Reason 1: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2: .........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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9
(b) Consider the two products outlined in Appendix 3. Which product should FJ produce? Justify
your answer using relevant calculations.
Drink A: .............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Drink B:..............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation:.............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2020 06_0450_21_2020_1.8

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Cambridge IGCSE™

MARK SCHEME
Maximum Mark: 80
Published
2020 series.
components.

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PUBLISHED
1(a) Explain four characteristics that make Simon a successful 8

entrepreneur.
Award 1 mark for each relevant characteristic (maximum of four):
Relevant characteristics might include:
• Self-confident – decision to leave full-time job 6 months ago

• Creative – created new drinks to attract additional customers
• Independent – willing to go with own ideas to produce new types of
drinks
• Hard worker – prepared to do all the work himself by making all the
drinks at his home and selling them at a market stall
• Risk taker – gave up a well-paid job and risked losing personal assets
• Effective communicator – persuades others to buy his new drinks when
he is selling them on a market stall
• Optimistic – think positively about new business and wants to rapidly
expand it
• Innovative – creating a healthy alternative to mass produced drinks
Award a maximum of one additional mark for each application of the

characteristic to the context.
Indicative response:
Simon is a risk taker (1) as he risked giving up his well-paid job to start his
own business (app).

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1(b) Explain the three main methods of production FJ could use to produce 12
its products in the factory. Which method should FJ use? Justify your
answer.
Sound application of knowledge and understanding of

relevant business concepts using appropriate terminology.
Detailed discussion of two or more methods.
3 Well-justified recommendation. 9–12
Candidates discussing three methods in detail, in context

and with well-justified recommendation including why the
alternative methods were rejected should be rewarded

2 Judgement with some justification/some evaluation of 5–8

choice made.
Candidates discussing of two or more methods in detail

and applying it to the case should be rewarded with the
top marks in the band.
Limited application of knowledge and understanding of

relevant business concepts.

explanation.
1 1–4
Candidates outlining three methods in context should be

0 No creditable response. 0

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Advantages Disadvantages
• Suitable for one-off • Skilled labour may

drinks be required – higher
• Needs exact wages – higher
requirements of costs
customers • Costs higher as
Job • Higher price charged labour intensive and
for product specially ordered
fruits used
• Production takes
longer than other
two methods
• Flexible way of • Can be expensive if

working – can easily semi-finished drinks
change to produce need moving around
different drinks the factory
• Still some variety for • Machines have to be
workers in their jobs reset between
• More variety of batches
products produced – – delay in
Batch
consumers will have production
more choice – lower
productivity
• Warehouse space
needed for fruits
and finished batches
of drinks – cost of
space
• High output of • Can be boring for

standardised drinks workers – less
• Cost to make each motivated
drink is low • Storage costs may
• Easier for capital be high unless use
intensive production JIT
methods to be used • Capital costs of
• May use lower setting up production
Flow skilled workers as line are high
machines can be • If one machine
used in the breaks down, then
production line the whole production
• May benefit from line may have to be
economies of scale halted with no fruit
as may buy the 2 drinks produced
types of fruit
ingredients in bulk

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1(b)
• Batch will be the best as different types of

healthy drinks will be produced but not in large
enough quantities to make flow production
viable until the business has grown significantly.
Recommendation
• Flow production will allow more automated
machinery to be installed in the factory which will
reduce unit costs than if job or batch production
is used. Lower prices for the fruit drinks may
then be charged leading to higher demand. Also
supply to the additional market stalls can easily
be met and the business can expand quickly.
2(a) Explain one advantage and one disadvantage to Simon of using 8

crowd-funding as a source of finance for FJ.
Award 1 mark for each relevant advantage/disadvantage (maximum of two):
Relevant advantages might include:
• May have no initial fees to be paid to the crowd-funding platform

• Allows public reaction to the new business venture to be tested
• Can be a fast way to raise substantial sums of money
• May be used when other more ‘traditional’ sources are not available
Relevant disadvantages might include:
• Crowd-funding platforms may reject Simon’s proposal if it is not well

thought through
• If total amount required is not raised, then the finance promised will
have to be repaid
• Interest from the public will need to be generated to increase the chance
of successfully raising the amount required
• May allow competitors to steal the idea and reach the market first
Award a maximum of 3 additional marks for each explanation of the

advantage and disadvantage of using crowd-funding. – one of which must
be applied to this context.
For example:
Crowd-funding will allow large amounts of capital to be raised (1) so Simon can
start producing a large output of fruit drinks quickly (app). This will allow
Simon to enter the new market before competitors can copy his drinks (1)
and he will not have to pay back the money, unlike a bank loan. (1)

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PUBLISHED
2(b) Consider the following three methods of market research Simon used. 12
Which do you think is the best method to use when deciding which
product to produce? Justify your answer.
• Online questionnaire
• Accessing government population data
• Focus group

relevant business concepts using appropriate
terminology.
Detailed discussion of two or more methods of market

research.
3 9–12

context and with well-justified conclusion including why
the alternative methods were rejected should be rewarded

terminology.

2 5–8
Judgement with some justification/some evaluation of
choice made.
Candidates discussing two or more methods in detail and

applying it to the case should be rewarded with the top
marks in the band.

Limited ability to discuss the methods of market research

with little/no explanation.
1 1–4
Candidates outlining the three methods of market

research in context should be rewarded with the top marks
in the band.

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• Faster with quicker replies than other forms of

survey
• Cheaper to collect quantitative data about
customer purchases of drinks than interviews
Online • Can collate results about customer consumption
questionnaire of healthy drinks saving Simon time
• But with no interviewer questions may not be
understood and answers less valid
• May not gain a wide range of views if people do
not have the internet
• Quicker to collect than primary sources

• Gives an idea of age groups in the local area and
total size of the market for fruit drinks
Accessing
• But this does tell Simon which fruit juices
government
people will like
population data
• May be out of date
• Data is available to all drink’s businesses
including competitors
• Qualitative data so opinions on different fresh fruit

drinks can be gathered
• Questions can be explained so opinions on which
fruits to include in drinks is more reliable
• Quicker and cheaper than individual interviews
Focus group
• Primary research is up to date and relevant
• But expensive and time consuming to collect
• Discussion could be biased if some of panel
members have strong opinions on which fruits
to include in drinks

• If opinions are required, then focus group or
online questionnaire may be better as gain this
data directly from potential customers. Also, if the
budget for market research is high then a focus
group will gather more qualitative data that may be
more useful in developing the most successful
new fruit drinks.
• If only data on the total market is required, then
accessing government population data might be
Conclusion
best as it is cheap to collect and readily available
giving details of the total size of the market for
fruit drinks. It also does not take much time to
collect unlike a focus group that will need to be set
up, participants selected and invited to attend.
Then the focus group will need to be led by an
experienced market researcher or the data may
be less accurate. An online questionnaire will still
also need to have a suitable sample of
respondents for it to be useful.

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3(a) Explain four ways an increase in government spending may affect a 8

business.
Award 1 mark for each relevant way (maximum of four ways).
Relevant ways might include:
• Government may increase purchases from other businesses –

increasing demands for its products
• May lead to higher inflation - increase business costs
• May reduce unemployment - increase consumer spending
• May lead to a need to increase taxes - reducing consumer spending
Award a maximum of 1 additional mark for explanation of how an increase in

government spending may affect a business.
For example:
Government may increase purchases from other businesses [1] increasing the
revenue of these businesses [1].

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3(b) Referring to Appendix 2, consider the suitability of the three applicants 12

for the position of manager. Which applicant should Simon select?

Detailed discussion of two or more applicants.
3 Well-justified recommendation. 9–12
Candidates discussing all three applicants in detail, in

context and with well-justified recommendation including
why the alternative applicants were rejected should be

Detailed discussion of at least one applicant.
2 Judgement with some justification/some evaluation of 5–8

choice made.
Candidates discussing two or more applicants in detail


Limited ability to discuss the applicants with little/no

explanation.
1 1–4
Candidates outlining all three applicants in context should

be rewarded with the top marks in the band.

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• Inexperienced as only worked part-time

• Doesn’t want to work long hours so may not
work hard for Simon
• Has experience of the food and drink industry
Joe
and already trained in hygiene regulations so
saving time and money
• But cheapest at $6 hourly wage of the three so
costs will be lower
• Experience of management – may be skilled to

manage the market stalls without training
• No qualifications so may not have much ability
to learn – training less effective
• Ambitious so may be keen to do well and impress
Zabeen
Simon
• But the most expensive at $15 per hour to
employ so costs will be higher
• May leave if better job comes along to higher
costs of recruitment as need to replace her
• Has experience of the food industry and

already trained in hygiene regulations so
saving time and money
• Enthusiastic and wants to do more
Jim challenging work – will work hard to impress
Simon
• Has already worked as a manager so no need
to train him in what to do – do the job quicker and
cheaper

• Joe is probably youngest and cheapest (at $6
per hour) of the three applicants to employ but
has the least experience and Simon needs
someone reliable to make the stall successful.
• Zabeen most experience but not on a food or
drinks stall. Also has no formal qualifications and
is the most expensive of the three applicants to
Recommendation
employ. As FJ is a new business it will need to
keep costs down.
• Jim has hygiene certificate and so lower costs
than Zabeen as training not required. Has more
experience than Joe of working in a food and
drinks establishment. He is ambitious so will try
hard and more likely to help make the market
stall successful.

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4(a) Explain two reasons why profit is important to FJ. 8
Award 1 mark for each relevant reason (maximum of 2).

• Return on investment
• Source of retained profit for investment
• Attracts business partners
• Enables Simon to pay a bonus to employees
Award a maximum of 3 additional marks for each explanation of why profit is

important to FJ – one of which must be applied to this context.
For example:
As a return on his investment (1) as Simon gave up his job and risked his
own money in starting FJ (app). If no profit is made, then Simon could have
put his money elsewhere and gained a return on it (1) and he may decide to
close down FJ and start up another business. (1)

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4(b) Consider the two products outlined in Appendix 3. Which product 12

should FJ produce? Justify your answer using relevant calculations.

terminology.
Detailed discussion of both products.

3 9–12
Candidates discussing both products in detail, in

including why the alternative product was rejected

terminology.
Detailed discussion of at least one product.

2 5–8
choice made.
Candidates discussing both products in detail and

marks in the band.

Limited ability to discuss each product with little/no

explanation.
1 1–4
Candidates outlining both products in context should


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4(b) Relevant reasons might include:
• Selling price is $3.00 higher than Drink B

• Targeted at higher income consumers so
may be willing to pay the higher price
• Revenue = $10 000
• Total cost = $8500
• Profit = $1500 per week
• Gross Profit $2000
Drink A
• Gross profit per drink = $1.00
• GPM = 20%
• PM = 15%
• Average cost = $4.25
• Highest quality with more fruits in the drink
• More variety of drinks available as uses 6
different fruits
• Revenue = $10 000 same as Drink A

• Total cost = $5500
• Profit = $4500 per week
• Gross profit = $5000
• Gross profit per drink = $1.00
• GPM = 50%
• PM = 45%
Drink B
• Average cost = $1.10
• Only two fruits in each drink will make the
drink lower quality
• Highest sales - forecast demand is 3000
higher than Drink A
• Break-even = 500 same as break-even for
Drink A = 500

• Choose Drink A as although Drink B will give
the highest profit of the two drinks it is the
lowest quality of drink with only two fruits. As
incomes increase customers may prefer the
higher quality drinks and so drink A may
become more popular and drink B lose sales.
The sales figures are only predictions anyway
and may be different.
Recommendation • Drink B may be best to choose as it has the
highest gross and profit margins and also
makes the highest profit per week. Even though
incomes are rising, and it targets lower
income customers, they may still have high
sales as customers may just buy more of these
drinks. Also, more likely to have higher sales
than Drink A which will make it easier to
expand and sell the drinks after opening more
fruit drink market stalls.

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™
Cambridge IGCSE

INFORMATION
*2299541310-I*
insert.
06_0450_22_2020_1.9
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2
Eco Scooters (ES)
ES makes scooters (small motorcycles) which are sold in country Z. ES is a public limited company
which was founded 40 years ago. It has grown by taking over other smaller scooter manufacturers.
This meant that ES could use the factories and skilled employees of these other businesses. ES
is now planning to take over another scooter manufacturing business based in country Z, either
company ABC or company FGH. Financial information about these companies is shown in Appendix
1.
Currently ES uses a flow production method with many workers and only a few machines. The
work is boring and employees have to work long hours doing the same job. However, wages are
calculated by using time rate and this is higher than the legal minimum wage. There are no other
financial rewards for the workers.
ES currently has 30% market share in country Z. It is planning to export its products and has drawn
up a business plan for this expansion. This plan includes the promotion methods ES is considering
for its scooters in export markets. To start exporting, ES will have to increase production. It needs
to recruit 100 additional production workers and invest $10m in new technology production
machinery. This should ensure higher output as well as higher productivity.
Appendix 1
Financial information (2019) for the two companies ES is planning to take over.
ABC Company FGH Company
Revenue $100m $400m
Cost of sales $50m $160m
Expenses $40m $210m
Return on Capital Employed

20% 25%
(ROCE)
Current ratio 2 3
Acid test ratio 1 1.5
© UCLES 2020 06_0450_22_2020_1.9

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3
Appendix 2
Article in the national newspaper
Main News 10 April 2020
The economy of country Z has grown rapidly over the last 5 years and incomes are high. This has
resulted in inflation. The Government is now taking action to stop inflation rising any further.
Unemployment has now started to increase. This has been welcomed by some businesses but not
all. The demand for luxury products is likely to fall if unemployment continues to rise.
Appendix 3
Email to Managing Director
To: Managing Director

From: Finance Director
Date: 20 April 2020
Re: New laws
The Government has introduced many new laws that will have an impact on ES. These legal controls
include those affecting consumer protection, location decisions and environmental protection. We
will have to consider how each of these new laws will affect our costs and operations.
Please make sure you have carried out a full analysis of what these changes will mean for ES.
© UCLES 2020 06_0450_22_2020_1.9

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™
Cambridge IGCSE

*2299541310*

1 hour 30 minutes
INSTRUCTIONS
INFORMATION
06_0450_22_2020_1.9
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2
1 (a) Explain one benefit and one problem for ES of taking over other businesses.
Benefit: .............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Problem: ...........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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3
(b) Consider the financial information in Appendix 1. Which company should ES take over? Justify
your answer using appropriate ratios.
ABC Company: .................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
FGH Company: .................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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4
2 (a) Explain four ways a business plan can be useful.
Way 1: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 3: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 4: ...............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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5
(b) ES has been considering the following three methods of promotion for its products in export
markets. Which method should ES choose? Justify your answer.
• Advertise on national television

• Advertise on ES website
• Display its products in shopping malls
Advertise on national television:........................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Advertise on ES website:...................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Display its products in shopping malls:..............................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation:.............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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6
3 (a) Explain two benefits to ES of higher productivity.
Benefit 1: ..........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Benefit 2: ..........................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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7
(b) Consider three methods of motivation ES could use for its production workers. Which is the
best method for ES to choose? Justify your answer.
Method 1: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Method 2: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Method 3: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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8
4 (a) Explain how the following four legal controls may affect ES.
• Control over misleading promotion

• Control over faulty products
• Control over location decisions
• Control over pollution
Misleading promotion:.......................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Faulty products: ................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Location: ...........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Pollution:............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
© UCLES 2020 06_0450_22_2020_1.9

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9
(b) Consider the effect on ES of the following two economic changes in country Z. Which change
is likely to have the biggest effect on ES’s profit? Justify your answer.
• Increasing unemployment
• Increasing inflation
Increasing unemployment: ...............................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Increasing inflation: ...........................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
© UCLES 2020 06_0450_22_2020_1.9

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Cambridge IGCSE™

MARK SCHEME
Maximum Mark: 80
Published
2020 series.
components.

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1(a) Explain one benefit and one problem for ES of taking over other 8
businesses.
Award 1 mark for each relevant benefit/problem (maximum of two):
Relevant benefits might include:

• Assets already set up for use – can use existing scooter factories and
skilled employees
• Makes it quicker to grow – as the existing production facilities can be
used to increase the output of scooters – faster than setting up own
factories
• Have access to ready trained/skilled staff
Relevant problems might include:

• High cost of buying other business – may need to sell additional shares
on the stock exchange
• May be difficult integrating the two companies – as the way of working
may be very different in the smaller scooter businesses – and
employees may not like the changes – leading to less efficiency
• More difficult to control larger business – many more skilled employees
in the business – possible diseconomies of scale
Award a maximum of 3 additional marks for each explanation of the benefits

and problems of growing by taking over other businesses – one of which
must be applied to this context.
For example:
The cost of buying other companies is high (1) and ES will have to raise large
amounts of funds to allow them to do this (1). As a public limited company
(app), it could sell additional shares to raise the finance, but this may lead to
the existing shareholders losing some control over the business (1).

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1(b) Consider the financial information in Appendix 1. Which company 12

should ES take over? Justify your answer using appropriate ratios.

terminology.
Detailed discussion of both companies.

3 9–12
Candidates discussing both companies in detail, in

why the alternative company was rejected should be

terminology.
Detailed discussion of at least one company.

2 5–8
choice made.
Candidates discussing both companies in detail and

marks in the band.

Limited ability to discuss each company with little/no

explanation.
1 1–4
Candidates outlining both companies in context should


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1(b) Relevant reasons might include:
• Revenue $300m lower than FGH ($400m for

FGH company - $100m for ABC company)
• Gross profit = $50m
• GPM = 50%
• Profit = $10m
ABC company • Profit Margin = 10%
• ROCE is 5% lower than FGH but still good
return on investment (25% for FGH – 20% for
ABC)
• Liquidity is good and shows that ABC can easily
pay any short-term liabilities
• Gross profit = $240m (Revenue $400m – Cost

of sales $160m)
• GPM = 60%
• Profit = $30m
• PM = 7.5%
FGH company • Profit $20m higher than ABC
• Current ratio is higher than ABC (ABC current
ratio of 2 while FGH current ratio is 3)
• Liquidity is too high and is not making good use
of its current assets. There may be too much
cash being held in the business.

• ABC as profitability higher than FGH even
though GPM is lower overall profitability is
higher. Liquidity is also better for ABC as FGH
has too high an amount of current assets to
Recommendation
current liabilities with a current ratio of 3.
• FGH as the actual profit is higher than for ABC
and GPM higher showing if improve control of
expenses then profitability will be higher as well.
ROCE is 25%, higher than ABC by 5%.

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2(a) Explain four ways a business plan can be useful. 8
Award 1 mark for each relevant way (maximum of four ways):

• Helps gain a bank loan – shows the business is likely to be profitable
and repay the loan
• Organises thoughts about resources needed – identify types of workers
need to recruit
• Can plan and budget for resources needed- e.g. to budget for new
production machinery
• Financial documents will help to show expected returns – to see if it will
bring the return expected by shareholders
Award a maximum of 1 additional mark for each explanation of the way a

business plan can be used.
For example:
Forecast financial documents will show potential profit to be made (1) can
see if it will give a satisfactory return on the investment. (1)

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2(b) ES has been considering the following three methods of promotion for 12
its products in export markets. Which method should ES choose?
• Advertise on national television
• Advertise on ES website
• Display its products in shopping malls

terminology.
Detailed discussion of two or more methods to promote

ES’ products.
3 9–12

why the alternative methods were rejected should be

terminology.

2 5–8
choice made.
Candidates discussing two or more methods in detail


Limited ability to discuss the methods to promote the

products with little/no explanation.
1 1–4
Candidates outlining the three methods to promote the

products in context should be rewarded with the top
marks in the band.

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• Advert for scooters will go out to millions of

people
• Scooters can be shown in very favourable way
• Can reach a target audience for scooters if
shown during programmes likely to be watched
Advertise on
by these target customers e.g. sports
national television
programmes
• Very expensive form of advertising
• Younger consumers may not watch as much TV
as older people so may not reach these
consumers
• Large amount of information can be posted

• Cheap way to advertise
• Can include videos of the scooters
Advertise on ES • Internet searches may not highlight the website
website at the start of the search list and therefore it is
missed
• Internet access may be limited in some
countries where scooters are being exported
• Provides a lot of information

Display its • Can also be persuasive with scooter to look at
products in and sit on
shopping malls • Restricted to a relatively small number of
consumers in the mall

• National TV as the scooters will be seen by the
mass market and will not be seen by many
people in shopping mall displays.
• Website useful for advertising when other forms
of advertising have raised awareness of the
scooters such as after the scooter has been
Recommendation
seen in a mall display.
• Displays in shopping malls will be most useful as
potential customers can sit on the scooters and
see how comfortable they are. This may make
people who have not even thought about buying a
scooter consider them whereas advertisements in
television and on websites may be ignored.

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3(a) Explain two benefits to ES of higher productivity. 8
Award 1 mark for each relevant benefit (maximum 2).
Relevant benefits might include:

• Lower unit costs – increasing gross profit margin - higher profit
• Lower prices – as each scooter costs less to produce – prices are more
competitive with other manufacturers - increased sales
• Increased output – more scooters available to export – increased
revenue
• Output per worker higher – able to increase wages/offer financial
rewards – which could increase motivation – lower labour turnover
Award a maximum of 3 additional marks for each explanation of the benefits

of higher productivity – one of which must be applied to this context.
For example:
Output per worker is higher (1) so ES may be able to offer financial rewards
than just time wage rate payments (app) which can result in more highly
motivated production workers (1) making them less likely to leave and
consequently ES will have lower recruitment costs. (1)

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3(b) Consider three methods of motivation ES could use for its production 12
workers. Which is the best method for ES to choose? Justify your
answer.

terminology.
Detailed discussion of two or more methods.

3 9–12
Candidates discussing three methods in detail, in

the alternative methods were rejected should be

terminology.

2 5–8
choice made.
Candidates discussing two or more methods in detail



explanation.
1 1–4
Candidates outlining three methods in context should


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• Job rotation – moves workers around the production line to carry out
different tasks so makes the job less boring – but the actual tasks
may still be monotonous.
• Job enlargement – adds tasks to the job and therefore the job becomes
more interesting – worker may feel more important as trained to carry out
additional tasks – but worker may not feel able to carry out the additional
task – may not want extra responsibility.
• Increased wage rates – even higher than the legal minimum wage
than they are at present - Taylor states that increased wages will
increase motivation as ‘money is the main motivator’ – however,
Herzberg would argue it is only a temporary motivator and increased
motivation will not last.
• Introduce piece rate – wages paid will increase the higher the output, so
workers will be motivated to increase their output – however, if work is
rushed quality might suffer leading to a poor reputation for the company.
• Pay a bonus – may be paid individually or as a team – higher pay if the
production team increase output – may cause disagreements if only
some of the team are working hard – may be seen as unfair.
Judgement might include:

• Higher pay will only motivate production workers for a short time as the
job is still boring on the flow production line. It might be better to use
job enlargement to add tasks to the job the job of making scooters to
make it more interesting and maintain increased motivation for a longer
period of time. It may also cost less as may only need additional training
and not higher wages to be paid

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4(a) Explain how the following four legal controls may affect ES. 8
• Control over misleading promotion

• Control over faulty products
• Control over location decisions
• Control over pollution
Award one mark for each effect (maximum of four).
Relevant legal controls might include:

• Misleading promotion: restrictions on claims in adverts about the
speed scooters can go or fuel consumption
• Faulty products: consumers have the right to return them to have
your money back if the scooter engine has a fault
• Location – restrictions on where to expand the scooter factory
• Pollution – emissions from scooters may mean production has to
change
Award a maximum of 1 additional mark for each effect applied to this

context.
For example:
Environmental laws may restrict pollution from exhaust fumes (1) this may
mean ES has to change the engines of its scooters which may increase
costs (app).

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4(b) Consider the effect on ES of the following two economic changes in 12

country Z. Which change is likely to have the biggest effect on ES’s
profit? Justify your answer.
• Increasing unemployment
• Increasing inflation

terminology.
Detailed discussion of both economic changes.

3 9–12
Candidates discussing both economic changes in detail,

in context and with well-justified conclusion including
why the alternative change was rejected should be

terminology.
Detailed discussion of at least one economic change.

2 5–8
choice made.
Candidates discussing both economic changes in detail


Limited ability to discuss the economic changes with

little/no explanation.
1 1–4
Candidates outlining both economic changes in context


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• Lower incomes
• Lower sales on expensive items such as
scooters
• However, if scooters are bought instead of cars
Increasing then sales may be higher
unemployment • Easier to recruit employees as larger pool of
unemployed workers available to select the
additional 100 production workers
• Less pressure on wage rate increases to be well
above the legal minimum wage rate
• Higher supplier costs of components for

scooters
• Price of scooter may have to increase –
reducing sales
• Less competitive if imported scooters do not
Increasing
have higher prices
inflation
• Pressure for wage to be increased to much
higher than the legal minimum wage rate –
increasing costs
• But all domestic manufacturers face the same
problems to so may not be less competitive

• Increasing unemployment may lead to lower
wage costs and if revenue from the sale of
scooters also rises then profit will increase.
• Increasing inflation may make it easier for ES to
Conclusion increase prices on its scooters as consumers
expect prices to rise, so revenue increases.
Some of its costs will rise as inflation increases
but if ES does not increase wages, as
unemployment has now started to increase,
then profit may still increase.

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Cambridge IGCSE

INFORMATION
*5788632074-I*
insert.
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2
Excel Cars (EC)
EC has a good reputation for making quality cars. It is a public limited company based in country
Z. EC sells cars in both the domestic and export markets. It makes a range of petrol and diesel
cars. EC is now planning to start producing electric cars.
EC employs 2 000 skilled employees in its factory. The company has a tall organisational structure.
Senior managers often complain they have too many tasks to do. Recently senior managers have
been delegating more tasks to junior managers.
Most models of EC cars have high sales. However, market research information suggests that
customers are changing to buying more environmentally friendly cars which do less harm to air
quality. Sales of diesel cars are forecast to fall. EC may need to change production methods to
start producing new models of cars.
If EC start to produce an electric car model an investment of $200m will be needed for research
and development. All existing production employees will need to be retrained to operate new
technology.
The Operations Director is considering opening a factory in one of EC’s main export markets. He
must choose between country A and country B. Information about these countries is given in
Appendix 3.
Appendix 1
To: Managing Director

From Marketing Director
Date: 10 April 2020
Re: Changing customer needs
We should launch a new model of car next year following the results of our market research. The
markets for petrol and diesel cars are becoming more competitive. Several new car companies
have entered these markets with new models. We need to keep our costs down and we may also
need to consider importing cheaper components for cars. However, the Government of country Z
has increased import tariffs on components for cars and on imported cars.
We already know that the price of most electric cars is much higher than the prices of most petrol
and diesel cars. The market research identified a gap in the market for lower priced electric cars.
The Government is giving grants to new and existing businesses to develop electric cars so that
air pollution can be reduced in country Z. The Government is also providing support for business
start-ups because incomes are low and unemployment is high.
EC has an opportunity to take advantage of customers wanting to buy products that do not harm
the environment. Some customers may be willing to pay higher prices for electric cars than for
petrol or diesel cars because customers feel electric cars are better for the planet.
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Appendix 2
Information about two electric car models EC could produce
Electric car model 1 Electric car model 2
Selling price $20 000 $40 000
Fixed cost per month $4 000 000 $4 000 000
Variable cost per car $15 000 $20 000
Forecast sales per month 1 000 500
Appendix 3
Information about country A and country B
Country A Country B
Wage rates High Low
Skills of workers High skilled – well trained Low skilled – had little or no training
Large market for global car producers Low income country with low sales of
Car market with high sales of cars but not cars but rising incomes will lead to
increasing higher demand
Car manufacturers Many car manufacturers with many

No car manufacturers or suppliers
located in the country component suppliers
Very good road network but traffic Improving road network with little
Road network
congestion is a problem traffic congestion
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Cambridge IGCSE

*5788632074*

1 hour 30 minutes
INSTRUCTIONS
INFORMATION
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2
1 (a) Explain four reasons why governments support business start-ups.
Reason 1: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 2:..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 3: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Reason 4:..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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3
(b) Explain the benefits and limitations to EC of using on-the-job training and off-the-job training.
Which method of training should EC use when changing production methods? Justify your
answer.
On-the-job training:............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Off-the-job training:............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation:.............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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2 (a) Explain one advantage and one disadvantage for EC’s senior managers when they delegate
tasks.
Advantage:........................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Disadvantage: ...................................................................................................................
...........................................................................................................................................
Explanation:.......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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5
(b) Consider how the following two changes in the market are likely to affect EC:
• Change in customer spending patterns away from diesel cars to electric cars
• Markets for petrol and diesel cars are becoming more competitive
Which change is likely to have the most effect on EC’s profit? Justify your answer.
Change in customer spending patterns away from diesel cars to electric cars: ...............
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Markets for petrol and diesel cars are becoming more competitive:.................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Conclusion: .......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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6
3 (a) Explain four sources of finance that EC could use for the investment in the new product.
Source 1: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Source 2: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Source 3: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Source 4: ..........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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7
(b) Consider the information for the two car models outlined in Appendix 2. Which car model
should EC start producing? Justify your answer using break-even calculations.
Model 1: ............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Model 2: ............................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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8
4 (a) Explain two ways import tariffs might affect EC.
Way 1: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Way 2: ...............................................................................................................................
...........................................................................................................................................
Explanation: ......................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [8]
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9
(b) Using Appendix 3, consider the advantages and disadvantages of locating EC’s new factory
in country A and country B. Which country should EC choose? Justify your answer.
Country A: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Country B: .........................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
Recommendation: ............................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
........................................................................................................................................... [12]
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Cambridge IGCSE™

MARK SCHEME
Maximum Mark: 80
Published
2020 series.
components.

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1(a) Explain four reasons why governments support business start-ups. 8
Award 1 mark for each relevant reason (maximum of four).

• to reduce unemployment – as new businesses will create jobs
• to increase competition – as new businesses will increase the number
of competitors providing more choice of goods and services
• to increase output – as new businesses will provide more goods and
services for consumers to buy
• to benefit society – as entrepreneurs may create social enterprises for
example providing jobs and profit for local disadvantaged groups
• may grow in the future – as large businesses started small at the
beginning and the new start-up may become a large important business
in the future
Award a maximum of 1 additional mark for each explanation of why

governments support businesses start-ups.
For example:
To reduce unemployment (1) as the country might have high unemployment
and new businesses will create jobs (1).

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1(b) Explain the benefits and limitations to EC of using on-the-job training 12

and off-the-job training. Which method of training should EC use when
changing production methods? Justify your answer.

terminology.
Detailed discussion of both methods of training.

3 9–12
Candidates discussing both methods of training in

detail, in context and with well-justified conclusion
including why the alternative method was rejected

terminology.
Detailed discussion of at least one method of training.

2 5–8
choice made.
Candidates discussing both methods of training in detail


Limited ability to discuss methods of training with

little/no explanation.
1 1–4
Candidates outlining both methods of training in context


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1(b) Relevant discussion might include:
• Individual tuition is given

• Trained in the workplace so does not need to be
sent away – possibly lowering costs
• Some production of cars from the worker whilst
training
• Usually costs less than off-the-job training
On-the-job • Training is for the specific needs of the business
as they develop new electric cars
• The trainer will not be as productive when they
are showing the trainee what to do
• The trainer may pass on bad habits to the
trainee
• No qualifications may be gained by the trainee
• A broad range of skills can be taught

• The training may take place in the evening and
outside of work time so will not interfere with
normal work of the trainee
• Output of cars will be lost while training – only
payment for the course is required
• A wider variety of skills may be taught by
experts in the new technology
Off-the-job • Up-to-date knowledge and skills may be taught
• May not have anyone in the business who can
teach the new skills as the technology is new
to EC production employees
• Costs are higher than on-the-job training
• Wages are paid but no output of cars from the
trainee
• Additional qualifications may make it easier for
trainee to leave for another job

• The production methods for the new electric
car model may require very different technology
so off-the-job training may be needed as there
may not be anyone employed at EC who knows
how to use the new technology.
Recommendation
• On-the-job training might be best to use as it is
cheaper than sending an employee on a course
and output of cars will not be lost whilst they are
being trained by an existing worker. This is
assuming that there are employees who have
the skills to operate the new technology.

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2(a) Explain one advantage and one disadvantage for EC’s senior 8
managers when they delegate tasks.
Award 1 mark for each relevant advantage/disadvantage (maximum of two):
Relevant advantages might include:

• able to concentrate their time on other important management functions
– as they complain that they have too many tasks to do – delegating
tasks will allow them to concentrate on the most important tasks –
leading to better decisions being made
• less likely to make mistakes if some of the tasks are carried out by
others – have time to focus on specific tasks – not rushed or too many
other tasks to complete taking up time
• can measure tasks performed by juniors more easily – easier to
measure the success of their staff – more motivating
Relevant disadvantages might include:

• may be afraid subordinates perform the tasks better than them – makes
them insecure
• subordinates may make mistakes – as they may not be trained to
perform all the tasks they have been asked to do – for example order
the wrong components for the cars
• tasks are still the senior managers responsibility if things go wrong – if
junior managers carrying out the tasks make mistakes – it is the senior
managers who will have to sort out the problems
Award a maximum of 3 additional marks for each explanation of the

advantage/disadvantage of delegation for senior managers– one of which
must be applied to this context.
For example:
The senior managers will be able to concentrate their time on other
important management functions (1) as they often complain they have too
many tasks to do (app). If the senior managers are carrying out too many
basic tasks it will allow less time to focus on more important decisions such
as developing a new car (1) making it more likely for mistakes to be made or
opportunities missed (1).

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2(b) Consider how the following two changes in the market are likely to 12
affect EC:
• Change in customer spending patterns away from diesel cars to

electric cars
• Markets for petrol and diesel cars are becoming more competitive
Which change is likely to have the most effect on EC’s profit? Justify
your answer.

terminology.
Detailed discussion of both changes.

3 9–12
Candidates discussing both changes in detail, in

the alternative change was rejected should be

terminology.
Detailed discussion of at least one change.

2 5–8
choice made.
Candidates discussing both changes in detail and

marks in the band.

Limited ability to discuss the changes with little/no

explanation.
1 1–4
Candidates outlining both changes in context should be


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• More investment needed in electric cars – and

the government is providing grants to do this
• Fewer diesel cars produced
• Production will need changing and more
Change in
investment ($200m) required
customer
• May need to change suppliers of car
spending patterns
components
away from diesel
cars to electric • Possibly higher costs of production
cars • Low profit initially – unhappy shareholders
• If don’t change production to electric cars, then
will lose market share as consumers want to
buy products that do not harm the
environment
Markets for petrol • Need to keep costs down to remain

and diesel cars competitive
are becoming • Could focus on cheaper quality – use cheaper
more competitive imported components – but may be lower
quality
• May lose reputation
• Tariffs on imported cars may make it easier to
compete for EC
Conclusion Justification might include:

• Depends on the demand for electric cars and
the price consumers are willing to pay. If willing
to pay a higher price for electric cars that do not
harm the environment, then revenue and profit
may be higher.
• Reduce production of diesel cars as demand is
falling but could concentrate on petrol cars to
retain market share even though this will be
difficult as several new car companies entered
the market. Price of petrol cars may have to be
reduced to keep market share and this may lead
to profit falling.

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3(a) Explain four sources of finance that EC could use for the investment in 8
the new product.
Award 1 mark for each relevant source (maximum 4 marks).
Relevant sources might include:

• retained profit – is a large company selling to both home and export
markets so likely to have reserves of retained profit
• bank loan – investment needed in new technology to produce more
environmentally friendly cars
• sell shares – as already a public limited company so can issue new
shares
• government grant – as these are being provided for the development of
electric cars
Award a maximum of 1 mark for each explanation of the source, applied to

this context.
For example:
Bank loan [1] as EC needs to invest in new technology [app].

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3(b) Consider the information for the two car models outlined in Appendix 12
2. Which car model should EC start producing? Justify your answer
using break-even calculations.

terminology.
Detailed discussion of both car models including break-

even calculations.
3 9–12
Candidates discussing both break-even outputs in

detail, in context and with well-justified recommendation
including why the alternative car model was rejected

terminology.
Detailed discussion of at least one car model’s break-

even calculation.
2 5–8
choice made.
Candidates discussing both break-even outputs in

detail and applying it to the case should be rewarded

Limited ability to discuss break-even output with little/no

explanation.
1 1–4
Candidates outlining the cost or price differences of

both car models in context should be rewarded with the

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• B/E = 800 cars

• Lower price than car B
• FC per car is lower but fixed cost per month is
the same at $4m
Model 1 • Variable costs per car are $5000 lower at
$15 000
• Output twice the output of car B at 1000 per
month instead of 500 per month
• Profit = $1m per month
• B/E = 200 cars

• Higher price at $20 000 per car instead of
$40 000
• Variable costs per car are higher at $20 000-
Model 2
better components
• FC per car is higher – higher quality
• Output is half of car A at 500 cars per month
• Profit = $6m per month

• Model 1 because the price is lower at $20 000,
and sales will be higher at 1000 cars even
though the B/E output is higher – profit should
Recommendation
still be made.
• Model 2 – B/E output lower and is therefore
easier to achieve – price is higher at $40 000
per car, and higher profit by $5m per month.

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4(a) Explain two ways import tariffs might affect EC. 8
Award 1 mark for each way (maximum 2 marks).

• Likely to cause a higher price for imported goods – as tariffs are a tax
on imported goods – may have increased sales in country Z as EC cars
have more competitive process – increased revenue and possibly profit
• Raise costs for EC – as car components will cost more – may have to
increase prices- may make EC products less competitive – lose sales in
export markets
Award a maximum of 3 additional marks for each explanation of the ways

import tariffs might affect EC – one of which must be applied to this
context.
For example:
Tariffs are a tax on imported goods (1) this will increase the price of
imported cars (app) EC cars will become more competitive in the domestic
market (1) making it easier for EC to increase sales, revenue and possibly
profit. (1)

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4(b) Using Appendix 3, consider the advantages and disadvantages of 12

locating EC’s new factory in country A and country B. Which country
should EC choose? Justify your answer.

terminology.
Detailed discussion of both locations.

3 9–12
Candidates discussing both locations in detail, in

including why the alternative location was rejected

terminology.
Detailed discussion of at least one location.

2 5–8
choice made.
Candidates discussing both locations in detail and

marks in the band.

Limited ability to discuss locations with little/no

explanation.
1 1–4
Candidates outlining both locations in context should be


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• Increased wage costs – as wage rates are high

in country A
• No need for training so lower training costs as
workers are highly skilled and well trained
• Large car market easily accessible – as has a
very good road network
Country A
• Limited growth potential for sales as saturated
market
• Car component supplies readily available
making JIT possible
• Road congestion may cause delays for JIT
deliveries
• Low wage costs as wage rates low

• Training required raising costs – as workers are
low skilled
• Potential growth in car market sales as
emerging market
• Car components suppliers not nearby – may
Country B
make supply chain less reliable and more
expensive
• Investment in road network so future may be
better road network
• No competitors located there – so may make
it easier to get established and sell in this market

• Country A as it is an established market with
suppliers nearby so production can be
established quickly
• Country B has much lower labour costs and
Recommendation possibly high sales from rising incomes in this
country as it grows. There is long-term potential
for market growth, and this would be the first
company there so it will be established to take
advantage of the growth in the market for
cars.

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BUSINESS STUDIES 0450/12

Paper 1 Short Answer and Data Response February/March 2020

You must answer on the question paper.

No additional materials are needed.

This document has 12 pages. Blank pages are indicated.

(a) Define ‘dismissal’.

(b) State two distribution channels a business might use.

Distribution channel 1: ......................................................................................................

Distribution channel 2: ......................................................................................................

(c) Outline two possible problems to HSN of many employees leaving.

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Medium of communication: ...............................................................................................

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April May June

Cash in 3 000 2 800 2 600

Cash out 2 600 3 000 Y

Net cash flow X (200) 200

Opening balance 200 600 400

Closing balance 600 400 600

(a) Define ‘economies of scale’.

(b) Calculate X and Y.

© UCLES 2020 03_0450_12_2020_1.24

STUDENTS RESOURCE Airport Road

© UCLES 2020 03_0450_12_2020_1.24 [Turn over

© UCLES 2020 03_0450_12_2020_1.24

STUDENTS RESOURCE Airport Road

(a) Define ‘globalisation’.

(b) State two advantages to a business of using quality assurance.

© UCLES 2020 03_0450_12_2020_1.24 [Turn over

© UCLES 2020 03_0450_12_2020_1.24

STUDENTS RESOURCE Airport Road

(a) Define ‘market research’.

© UCLES 2020 03_0450_12_2020_1.24 [Turn over

© UCLES 2020 03_0450_12_2020_1.24

STUDENTS RESOURCE Airport Road

BUSINESS STUDIES 0450/12

This document consists of 23 printed pages.

© UCLES 2020 [Turn over

STUDENTS RESOURCE Airport Road

1(a) Define ‘dismissal’.

OR When the employment is ended against the will of

OR When employee told or made to leave their job

Partial definition e.g. When employee told/made to leave

OR Termination of employment against the wishes of the

OR Employer ends employment [1]

STUDENTS RESOURCE Airport Road

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Other appropriate responses should also be credited.

© UCLES 2020 Page 4 of 23

1(c) Outline two possible problems to HSN of many employees leaving.

STUDENTS RESOURCE Airport Road

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STUDENTS RESOURCE Airport Road

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Other appropriate responses should also be credited.

© UCLES 2020 Page 6 of 23

STUDENTS RESOURCE Airport Road