Cambridge International Examinations

Cambridge International Advanced Subsidiary and Advanced Level

BUSINESS 9609/21
Paper 2 Data Response May/June 2017
MARK SCHEME
Maximum Mark: 60

Published

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

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

Cambridge will not enter into discussions about these mark schemes.

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

® IGCSE is a registered trademark.

This document consists of 17 printed pages.

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Question Answer Marks

1(a)(i) Define the term ‘economies of scale (lines 1–2). 2

Knowledge Marks
A correct definition 2
A partial, vague or unfocused definition 1
No creditable content 0

A correct definition will contain:

• decreasing unit/average costs
• as output rises

Exemplar Marks Rationale

As a firm produces more the average A correct definition
2
cost falls
Unit costs decrease due to an Partial
1
increase in size
More output leads to a fall in costs No link to decreasing
1
average/unit costs
The savings a firm gets as it grows Partial idea of increase
1
bigger in output
Lower costs because the firm is No creditable content
0
established

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Question Answer Marks

1(a)(ii) Briefly explain the term ‘buffer inventory’ (line 6). 3

Example or some other way of showing good

understanding, i.e. risky to hold too much/too little,
C 1 Mark
link to liquidity, types of inventory (raw materials, in
progress and finished) etc.
An explanation of buffer, i.e. surplus, lowest amount
B 1 mark
etc.
An explanation of inventory, i.e. stock, supplies to
A 1 mark
produce, etc.

This is when a business keeps surplus inventory in event of a problem with

supply or an increase in demand for its products. This helps prevent the
business from running out of supplies which could slow down or prevent
production. Ties up working capital. Can be risky if buffer levels too high. No
need to link to liquidity or risk of high levels of inventory.

Exemplar Marks Rationale

Raw materials that are kept in event of Understanding of
a problem with supply or an increase buffer and inventory
in demand for its products. For and an example.
3
example MM might have a buffer
stock of mirrors in case they have an
increase in customers.
Stock that can be used in case there Understanding of
is a sudden increase in customers. buffer and inventory
The business will not want too much 3 and good
buffer inventory because it ties up understanding shown.
money.
Surplus stock to make sure the An understanding of
business does not run out 2 both inventory and
buffer.
The inventory a form will keep to make Tautology with
sure it does not run out. 1 ‘inventory’ but an idea
of buffer.

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Question Answer Marks

1(b)(i) Refer to Table 1, Calculate MM’s acid-test ratio. 3

Marks Rationale
Correct calculation of MM’s acid-test ratio (with or without
3
working)
2 Correct formula and correct calculation of CL
1 Correct formula or correct calculation of CL
0 No creditable content

CA - Inventory
CL

15–10
=
5+5

5
=
10

= 0.5:1 (accept 0.5, 50% and any ratio that is equivalent, i.e. 1:2)

Common incorrect answers

Answer Marks Rationale
15 Correct calculation of ratio based on an
=1.5 2 incorrect formula (OFR) – only one
10
mistake
15 Incorrect formula and incorrect calculation
=3 1 of CL, but figures used correctly (OFR) –
5
two mistakes
1.5 0 An incorrect answer with no working
3 0 An incorrect answer with no working

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Question Answer Marks

1(b)(ii) Explain one way in which MM could improve its liquidity. 3

Level Knowledge and Application Marks

2b (APP) Explanation of a way to improve liquidity in context 3
1b (KK) Identification of a way to improve liquidity 2
1a (K) Knowledge of liquidity 1
0 No creditable content 0
Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own
figure rule – OFR)
No credit for knowledge of acid test or formula – already awarded in previous
question

Use of acid test ratio (0.5) and/or current ratio (1.5) may provide context if used
correctly within a way to improve liquidity.

Context and content is likely to come from:

Way to improve liquidity (K) Possible context (APP)
Increase cash (e.g. by holding MM holds $10 m of inventory – high
less inventory, fixed assets buffer inventories
etc.) MM is a manufacturer so probably has
machines etc. to manufacture mirrors
Has an overdraft so will need more than
$5 m to have positive cash
Increase current assets (e.g. Trade receivables (debtors) is $5 m
increase trade MM is a manufacturer (secondary) so
receivables/debtors) may gain other benefits from increasing
debtor turnover/period
Decrease current liabilities Trade payables is $5 m, same as trade
(e.g. decrease trade payables, receivables – could be better to have
overdraft, short term loans etc.) lower payables than receivables
Long lead time may make reducing
payables difficult
Could reduce overdraft through same
ways as increasing cash.
Convert $5 m overdraft into longer term
debt.

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Question Answer Marks

1(c) Analyse one advantage and one disadvantage to Ben and Mary of 8
changing MM from a partnership to a private limited company.

Knowledge and
Level Marks Analysis (4 marks) Marks
Application (4 marks)
Shows good Good analysis of one
understanding of (or more) advantage(s)
moving from a AND one (or more)
partnership to a private 4 disadvantage(s) of 4
limited company changing from a
partnership to a private
limited company
2
Shows isolated Good analysis of one
understanding of (or more) advantage(s)
moving from a OR one (or more)
partnership to a private 3 disadvantage(s) of 3
limited company changing from a
partnership to a private
limited company
Shows knowledge of Limited analysis of one
partnerships AND (or more) advantage(s)
private limited AND one (or more)
2 2
companies disadvantage(s) of a
private limited
company
1
Shows knowledge of Limited analysis of one
partnerships OR (or more) advantage(s)
private limited OR one (or more)
1 1
companies disadvantage(s) of a
private limited
company

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Question Answer Marks

Contextual:
Possible advantages Possible context
Gain limited liability Ben and Mary were in a partnership before
and so had higher risk should MM fail that
they would lose not only their investment but
would be personally liable for the debts of
MM
Ben and Mary doubled their investment
Gain continuity In case Ben or Mary die
Gain separate legal identity In case the business gets sued
Possible disadvantages
Loss of control Ben and Mary have owned and run the
business for such a long time (however they
are the only shareholders so unlikely to be
an issue)
Cost of conversion Unlikely to be high but MM has poor liquidity
– was this the cause?
Preparation and availability Cost – link to liquidity
of accounts Competitors will be able to access the
accounts

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Question Answer Marks

1(d) Discuss how MM could solve its human resource problems. 11

Knowledge and Analysis and Evaluation

Marks Marks
Application (4 marks) (7 marks)
Justified evaluation based
7
on argument(s) in context
Developed evaluation
based on argument(s) in 6
context
An evaluative statement
based on arguments in 5
context
Argument about one or
3–4 more solutions to human 3–4
resource problems at MM
Limited analysis of human
1–2 1–2
resource management
No creditable content (0 marks)

Context/content:
• Training and development, survey shows this was rated poor by 25% of all
employees. This is high. Therefore MM should ensure that employees
have appropriate training to develop their skills and improve their morale.
This may also help with opportunities for promotion.
• Team working – morale is lower for employees involved in the production
process and this may link to the flow production methods. Therefore team
work may improve this as employees can work together and improve their
sense of involvement
• Fringe benefits and perks – although MM pay well, they could look at their
perks and fringe benefits such as holiday periods as this may be a reason
• Empowerment and participation – doing some focus groups with
employees and/or creating worker representatives may enable MM to
better understand the issues and therefore resolve them.

Evaluation is likely to come from a candidate:

Judging which methods could work best for MM and justifying this in the
context for example, training and development given the survey outcomes

Weighting their response, for example, why one method would be better than
another is likely to lead an evaluative response.

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Question Answer Marks

Problem Possible solutions Example of analysis

Increase wages – link to Already high. Increased costs
retention
Use non-monetary motivation Could increase costs – may be an
Increasing labour
(e.g. holidays, perks, fringe alternative to higher wages.
turnover
benefits etc.)
Increase training/skills Increased costs – could be wasted if
development staff leave
Better/more advertising Increased costs – what is the cause of
the fall? Demographics, word of mouth
etc.
Decreasing
Increase wages Already high. Increased costs
applications
Increase training/skills Could improve word of mouth – may
development attract younger applicants, but
increased costs
Reduce wages Decrease motivation and increase
labour turnover further
Change payment system (i.e. May not increase costs (could fall) and
High management piece rate, retention bonus may increase retention, but may
and labour costs etc.) demotivate some workers
Increase capital/reduce labour Needs investment - already using flow
production – could reduce quality, may
further reduce motivation

Low motivation – Improve hygiene factors Are conditions poor? If so can it be

lower in production (poorer in production) improved without increasing costs?
workers Teamwork/cell production May conflict with flow production
Increase training/skill Increased costs but could improve
development quality and retention
Poor skills
development Increase capital/reduce labour Needs investment – already using flow
production – could reduce quality, may
further reduce motivation
Increase training/skill Increased costs but could improve
development quality and retention
Poorly trained/skilled
workers Increase capital/reduce labour Needs investment – already using flow
production – could reduce quality, may
further reduce motivation

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Question Answer Marks

2(a)(i) Define the term ‘revenue’ (line 14). 2

Knowledge Marks
A correct definition 2
A partial, vague or unfocused definition 1
No creditable content 0

Revenue is the money that flows into a business from selling its
goods/services to consumer. Revenue is calculated by selling price * quantity.

Exemplar Marks Rationale

A reasonable definition of
Price × Quantity 2
revenue

Money from sales 2 A correct definition

Income from business activities 2 A correct definition

Revenue is sales 1 A partial definition

The number of products a A partial definition

1
business sells

Revenue is found at the top of Not a definition

0
the Income Statement

Sales – total costs 0 Confusion with profit

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Question Answer Marks

2(a)(ii) Briefly explain the term ‘consumer markets’ (line 4) 3

Award one mark for each point of explanation:

Example or some other way of showing good
C understanding, i.e. rather than buying for business or 1 mark
capital use, not business to business/industrial markets
B An explanation of market(s) – sales, trade etc. 1 mark
An explanation of consumers – end user, purchase for
A 1 mark
use (allow consumption), not to change or resale

The consumer market pertains to buyers who purchase goods and services
for consumption rather than resale. Examples include shops, supermarkets
and retail stores. It does not involve one business selling to another business.

Exemplar Marks Rationale

Where the business sells to
Sells, end user and an
the end user for example a 3
example
supermarket
SA sells directly families who
3 All three elements
use the alarms not shops
The consumer is the person
who actually uses the product, A and C – no understanding of
2
for example a child is the end market
user of a toy
A place where business go to
sell and people go to buy 1 B only
products and services
The person who uses the
1 A only
product or service
Sold directly to the consumers 1 B only
Misunderstanding with a
Someone who buys a product,
0 customer – example is
such as an alarm
irrelevant

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Question Answer Marks

2(b)(i) Refer to Table 2. Calculate the forecast margin of safety for the new 3
service.

Marks Rationale
Correct calculation of the forecast margin of safety (with or
3
without working, units or %)
2 Correct formula and correct calculation of expected sales
1 Correct formula or correct calculation expected sales
0 No creditable content

MOS = Expected Sales - break-even sales

ES are (2.5 mn/500) = 5000

MOS = 5000-3000

MOS = 2000 subscriptions (accept 2000)

Can also be expressed as a percentage of expected sales

2000
× 100 = 40%
5000

Correct answer – 2000 subscriptions or 40%

Common incorrect answers

Answer Marks Rationale
Calculated the revenue MoS – all the
candidate needed to do was divide
3000 × $500 = $1.5 m 2
answer by price correct answer, so
one step missed
$1 m 0 An incorrect answer with no working
$2.5 m Correct calculation of expected sales
1
500 = 5000
5000 0 An incorrect answer with no working

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Question Answer Marks

2(a)(ii) Explain one limitation to SA of using break-even analysis. 3

Level Knowledge and Application Marks

Explanation of a limitation of using break-even
2b (APP) 3
analysis in context
Identification of a limitation of using break-even
1b (KK) 2
analysis
1a (K) Knowledge of break-even analysis 1
0 No creditable content 0
Correct use of an incorrect answer to 1(b)(i) should be fully rewarded (own
figure rule – OFR)

Context and content is likely to come from:

Limitation (KK) Possible context (APP)

Based on SA have not started selling this service yet and
forecasts/estimates have no experience in this industrial market
Assumes a constant Likely to need to discount the price to penetrate
price the industrial alarm market
Assumes fixed costs
As more alarms are fitted SA may need to
remain constant as
increase the office size etc.
output rises
As more alarms are fitted less efficient staff to
Assumes a constant
man the telephones may need to be employed
variable cost per unit
– diminishing returns
Assumes all output is SA may produce a stock of alarms which may
sold not all be sold in the first year
Assumes the fixed costs SA will have some fixed costs (such as
from one product can be management) which are difficult to allocate
allocated accurately between the consumer and industrial markets

ARA

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Question Answer Marks

2(c) Analyse two possible reasons why SA’s objectives have changed over 8
time.

Knowledge and
Level Marks Analysis (4 marks) Marks
Application (4 marks)
Shows understanding of Good analysis of
TWO (or more) possible TWO (or more)
reasons why SA’s possible reasons
4 4
objectives have changed why SA’s objectives
over time have changed over
2 time
Shows understanding of Good analysis of
ONE possible reason ONE possible reason
why SA’s objectives 3 why SA’s objectives 3
have changed over time have changed over
time
Shows knowledge of Limited analysis of
why a business objective TWO (or more)
might change possible reason why
2
a business’s
objectives may
1 1–2 change over time
Limited analysis of
ONE possible reason
why a business’s 1
objectives may
change over time
One reason analysed in context, max 3+3

Contextual analysis likely to come from:

• Unrealistic original objective; one shop to become market leader?

• Not specific enough original objective; market leader where?
• Legal structure has changed to plc, so shareholders may now be part of
the objective
• Core business has changed – now in secondary and tertiary sector
• Now producing and selling home alarms, not car alarms
• Tastes may have changed
• New focus on the industrial market.
• The priority of objectives may have changed

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Question Answer Marks

Exemplars:
Reason (APP) Possible (AN)
Legal structure has As a partnership the owners were less likely to sell
changed their stake in the business if their return was not high
in the short term. However as a PLC, shareholders are
disconnected from the business and may well sell their
shares if they do not get reasonable dividends and/or
increases in share price (AN). This could lead to a
further fall in share price and a loss in confidence of
other shareholders (ANAN).
Move to industrial It may be unrealistic to become market leader in the
market industrial market and pursuing this objective may
make penetrating the market more difficult (AN). This
could lead to a poor launch and SA not breaking even
with 23 000 customers in the first year (ANAN).

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Question Answer Marks

2(d) Discuss suitable market research methods that SA could use before 11
deciding whether to launch the new service.

Knowledge and Analysis and Evaluation

Marks Marks
Application (4 marks) (7 marks)
Justified evaluation based
on the suitability of TWO
(or more) market 7
research methods in
context
Evaluation based on the
suitability of TWO (or
6
more) market research
methods in context
Evaluation based on the
suitability of ONE market
5
research method in
context
Shows understanding of Argument based on TWO
TWO (or more) market (or more) market
4 4
research methods in research methods in
context context
Shows understanding of Argument based on ONE
ONE market research 3 market research method 3
method in context in context
Shows knowledge of Limited analysis of TWO
TWO (or more) market 2 (or more) market 2
research methods research methods
Shows knowledge of Limited analysis of ONE
ONE market research 1 market research method 1
method
No creditable content (0 marks)
Primary and secondary can be treated as methods

Context/content:

Primary
• Focus groups linked to their current home or business customers,
advantages of focus groups (can cover profile of customers, have a
dialogue, ask/respond to questions)
• Surveys/questionnaires to business or home customers (advantages:
more quantitative data can be analysed, large sample used;
disadvantages: cost, customers may not complete, would need a large
sample to be accurate of the results)
• Interviews to business/home customers (advantages: 1–1 contact, can
have a very detailed conversation, qualitative data can come through;
disadvantages: cost, expertise to ask the correct questions, compiling the
results can take time)

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Question Answer Marks

• Surveys of the competition – do they provide this service? What is the

cost? usefulness: being in line with market trends.

Secondary
• Reports on the market from marketing specialists
• Analysis of crime statistics/reports on the area
• Any newspaper articles about crime/local area
• Economic/demographic information: unemployment, households, incomes
• Advantages of secondary: can be easily available, most available on-line,
cheaper
• Disadvantages: not as accurate, may be out of date, lack of qualitative
data

Evaluation is likely to come from a candidate:

Judging which market research methods could work best for SA and justifying
this in the context for example, surveys to current customers

Weighting their response, for example, why one method would be better than
another is likely to lead an evaluative response.

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