2018 Business Past Paper, 2017 Business Past Paper, 2016 Business Past Paper, SAM 2015 Business Past Paper

YOTEL has announced its plans to expand in city centres and in airports. (d) Explain how YOTEL could use primary market research to support its decision to expand.

primary research is collecting data first hand. contextualised examples, e.g. • this could be done by collecting information through guest questionnaires • to gain feedback on room rates/quality of food/ cleanliness of rooms/ ease of automated check-in/ value for money at YOTEL. explaining why the above would be of value to YOTEL, e.g. • this would then enable YOTEL to plan to provide the services their guests require in their new projects.

What is meant by product differentiation

product differentiation is the act of distinguishing a product/service from competitors (1) to make it more attractive to a particular target market(s)

Give two examples of fixed costs that Fox's Biscuits might have.

rent • insurance • salaries.

What is meant by total revenue?

selling price x total quantity sold in a given time period.

Explain how Anthony has demonstrated one entrepreneurial characteristic.

stating one entrepreneurial characteristic risk-taking/initiative/self-confidence/creativity. contextualised examples, e.g. • Anthony took a risk in setting up a new business • selling salt pipes online as opposed to face-to-face catering business. Analysis: 1 mark for explaining the above, e.g. • this was a risk as it is a completely different product to what Anthony is used to/he may not have understood this type of distribution channel for this product.

Explain how Aston Martin uses differentiation in the premium car market.

understanding differentiation e.g. making a product distinctive from competitors products OR creating a USP Application: Suggesting how Aston Martin differentiates itself e.g. To appeal to a new market, e.g. design cars suited to females, younger people To produce cars that are distinctive from traditional sports cars e.g. more durable, spacious, higher seats Distinguishing from other car producers e.g. Jaguar, Bentley, Rolls Royce Analysis: 1 mark is available for explaining the purpose of product differentiation, e.g. This might enable Aston Martin to gain a competitive advantage over other brands in the market. This might enable Aston Martin to increase their sales/increase tier market share.

Explain how flexible workforce might benefit SSP

understanding flexible workforce, e.g. Employees have choice over how/when they work by agreement with the company. Application: up to 2 marks for suggesting how SSP might benefit from a flexible workforce e.g. Airports and train stations have peak periods during the day/week flexible working Airports have seasonal fluctuations that a flexible workforce would allow them to manage. Analysis: 1 mark for explaining the benefit to SSP e.g. Allows them to adapt to changes in demand/could enable staff to work at more than one outlet/brand.

What is meant by a franchise?

understanding franchise, e.g. A business is allowed to trade using the brand/logo/business model of an existing firm (1) in return for a fee/royalty (1).

What is meant by public limited company?

understanding public limited company, e.g. Shares are available to the public on the stock exchange (1). Are owned by shareholders/has limited liability (1).

Construct a supply and demand diagram to illustrate the likely impact of changing consumer tastes on Burger King.

up to 2 marks for Correctly constructing supply and demand curves. Correctly labelling axes, price and quantity. Application: 1 mark for Correctly interpreting the shift in demand curve (to the left). Analysis: 1 mark for Showing original and new equilibrium and consequences on the quantity and price axes.

The price elasticity of demand for Sims' Salt Pipes is -0.8. (c) Using the data in Extract B, calculate the percentage change in quantity demanded following a £3 increase in the price of salt pipes. You are advised to show your working.

% change in quantity demanded/%change in price = PED Reorder formula to calculate % change in price = (price new - price old)/price old x 100 =(23 - 20)/20 x 100 = 10% • Calculate % change in quantity demanded = -0.8 x 15% • -12%

Using the data in Extract C, calculate the current ratio for SuperGroup Plc in 2014. You are advised to show your working.

1 mark for identifying the current ratio formula. Current Assets/Current Liabilities Application: up to 3 marks Calculate current assets = £86.2m + £77.8m + £54.3m = £218.3m Calculate current ratio = £218.3m/£73.1m Current ratio = 2.98 (or 2.99 if rounded up)

The Office for National Statistics stated that incomes fell by 2.2% in 2014. (c) Using the data in Extract B, calculate the income elasticity of demand for Approved Food, following an increase in weekly orders to 3,500 in 2014. You are advised to show your working.

% change in quantity demanded/%change in income = YED Calculate % change in quantity demanded = (3500-2000)/2000 x 100 = 75% (1) Calculate YED = 75%/-2.2% (1) = -34.09 (1)

Explain how M&S could build its clothing brand.

1 mark for a way to build a brand or understanding of brand e.g. Quality/promotional method A distinguishing symbol/logo/name that companies use to differentiate their product from others in the market. Application: up to 2 marks for suggesting how M&S could build its brand e.g. Advertising its clothing offer. Use social media to promote to its new younger market. Differentiate it from others in the market such as Next. Analysis: 1 mark for explaining the benefit to M&S, e.g. This might enable M&S to increase awareness among its existing/new customers. M&S may be able to sell a wider range of products to existing customers.

Construct a market map to illustrate the impact of M&S's decision to aim its clothing range at a younger target market.

1 mark for correctly constructing a labelled market map Application: up to 2 marks for Correct labelling of both axis using price, quality or age Identifying a competitor e.g. NEXT Analysis: 1 mark for Correctly positioning of M&S based on its decision to aim its clothing range at a younger target market, e.g. high quality low price

Using the data in Extract B, calculate the total variance in profit for The Posh Pasty Company's steak and stout pasty for July 2015. You are advised to show your working.

1 mark for identifying either the profit variance formula or the profit formula. Actual profit - budgeted profit Sales revenue - total costs Application: up to 3 marks Calculate the variance in revenue for steak and stout pasties = £14 370 - £12 250 = £2 120 favourable Calculate the variance in total costs for steak and stout pasties = £5 890 - £4 210 = £1 680 adverse/unfavourable Calculate the variance in profit for steak and stout pasties = £2 120 - £1 680 = £440 favourable

Using the data in Extract B, calculate the percentage increase in the world sugar price from September 2015 to March 2016. You are advised to show your working.

1 mark for identifying the % change formula. (March 2016 figure - September 2015 figure)/September 2015 figure x 100 Application: up to 3 marks Calculate change in index number series = 117-90 = 27 Calculate % change = (27/90) x 100 Calculate answer = 30%

Using the data in Extract D, calculate, to 2 decimal places, the acid test ratio for Willie's Cacao Ltd in 2016. You are advised to show your working.

1 mark for identifying the acid test ratio formula. (Current Assets - Inventory/Stock)/Current Liabilities Application: up to 3 marks Calculate current assets - inventory = £1 177 472 - £666 386 = £511 086 Calculate acid-test ratio = £511 086/£445 718 Acid-test ratio = 1.15

The Posh Pasty Company's factory has a maximum output of 34,200 pasties per year. (c) Using the data in Extract A, calculate the total number of pasties produced by The Posh Pasty Company in 2015. You are advised to show your working.

1 mark for identifying the capacity utilisation formula. Current output/ maximum possible output x 100 Application: up to 3 marks Re-order formula to calculate current output = maximum possible output x capacity utilisation =34 200 x 0.92 =31 464 pasties

Using Figure 1, calculate the contribution per box of Kendal Mint Cake. You are advised to show your working

1 mark for identifying the contribution per unit formula. Selling price - variable cost per unit Application: up to 3 marks Calculate selling price using TR line e.g. at 5,000 boxes TR is £50 000 therefore £50 000/5,000 = £10 Calculate variable cost per unit using TC line e.g. at 5,000 boxes TC is £50 000 & FC is £40 000 so TVC is £10 000, therefore £10 000/5,000 = £2 Contribution per box of Kendal Mint Cake = £10 - £2 = £8

Using the data in Extract C, calculate Burberry plc's gross profit margin to 2 decimal places (2 d.p). You are advised to show your working.

1 mark for identifying the formula for gross profit margin or gross profit. Gross profit/sales revenue x 100 Gross profit = sales revenue - cost of sales Gross profit = operating profit + other operating expenses Application: up to 3 marks Calculate gross profit = £2 523.2m - £757.7m = £1 765.5m or Calculate gross profit = £440.3m + £1 325.2m = £1765.5m Calculate gross profit margin = £1765.5m/£2 523.2m x 100 = 69.97%

Using the data in Extract B, and assuming a sales volume of 20 schools in 2015, calculate Backpack Ltd's likely profit. You are advised to show your working.

1 mark for identifying the margin of safety formula. Forecasted/actual output/sales - break-even level of output/sales Application: up to 3 marks Calculate break-even level of output = £10 000/£1 800 = 5.55 schools. Therefore 6 schools. Calculate margin of safety = 20 schools - 6 schools Margin of safety = 14 schools

Using the data in Extract B, and assuming a sales volume of 20 schools in 2015, calculate Backpack Ltd's likely margin of safety. You are advised to show your working.

1 mark for identifying the profit formula. Total Revenue - Total Costs Application: up to 3 marks Calculate total revenue = £2 000 x 20 schools = £40 000 Calculate total costs = £10 000 + (£200 x 20 schools) = £14 000 Calculate profit £40 000 - £14 000 = £26 000

Willie's Cacao Ltd is a private limited company. (d) Explain how limited liability might affect Willie's Cacao Ltd.

1 mark for knowing what is meant by limited liability, e.g. The amount of a company's losses that a shareholder is liable for is limited to the amount they have invested in the company. Application: 2 marks for contextualised examples, e.g. Banks may be reluctant to lend the business money to purchase new chocolate production equipment. Willie's Cacao Ltd operates in a very niche, high-end part of the chocolate market where demand is likely to be low. Analysis: 1 mark for explaining why the above might affect Willie's Cacao Ltd, e.g. Therefore, if the business needs to borrow money, it may have to provide collateral to reduce the risks to potential lenders.

Explain how the use of waste minimisation in its new factory might affect Burberry plc.

1 mark for knowing what is meant by waste minimisation, e.g. Producing goods and services at a given quality using as few resources as possible/identification of an impact of waste minimisation. Application: up to 2 marks for contextualised examples, e.g. Could lead to greater levels of efficiency in the production of trench coats. Could lead to less fabric/textiles needing to be ordered. Could lead to less faulty trench coats. Analysis: 1 mark for explaining why the above would affect Burberry plc, e.g. This could lead to falling average costs leading to higher profit margins. This could provide a competitive advantage when the next season's clothing range is released.

Explain how poor management of its working capital might affect SuperGroup Plc

1 mark for knowing what is meant by working capital, e.g. The amount of money needed to pay for the day to day trading of a business or current assets - current liabilities. Application: up to 2 marks for contextualised examples, e.g. Could lead to them being unable to pay clothes suppliers/store rent to landlords. Could create opportunity costs (current ratio is high at 2.98) for a retailer. Analysis: 1 mark for explaining why the above would affect SuperGroup Plc, e.g. Therefore SuperGroup Plc may need to inject more capital through overdrafts or loans, in order to pay suppliers or make payments to landlords. This could lead to missed opportunities to expand more rapidly since cash is greater than current liabilities.

Explain how Mars could research the protein bar market.

1 mark for suggesting how the business can research the market/ definition of market research e.g. By conducting primary or secondary market research Gathering, presenting and analysing information about products/customers Application: up to 2 marks for contextualised examples e.g. Mars could conduct primary market research by asking sports people, such as those in the cycling industry, what type of snacks they like. Mars could carry out secondary market research, using the internet to find out how many/what type of protein bars are currently being sold. Analysis: 1 mark for explaining the above e.g. This could help Mars to produce protein bars that fit the needs and wants of their target market, which may result in more sales/increasing market share.

In 2015 the protein food and drink market was worth £310m. (c) Using the data in Extract B, calculate, to 2 decimal places, the market share of protein bars in the protein food and drink market for 2015. You are advised to show your workings.

1 mark for the formula Sales of X/Total sales of the market x 100 = Market Share Application: up to 3 marks Calculate the market sales for 2015 = £22m - £8.2m = £13.8m (1) Calculate the market share = (13.8m/310m) x 100 (1) = 4.45% (1)

Explain how PureGym has gained a competitive advantage in the fitness market

1 mark for understanding competitive advantage. Using differentiation/USP to have an edge over the competition Application: up to 2 marks for suggesting how PureGym has achieved this e.g. PureGym is open 24/7 Has over 250 gyms. Offers a low-cost membership option. No contract membership option. Analysis: 1 mark is available for explaining the consequences, e.g. This might better suit the needs of the customers so that they choose PureGym over other gyms.

Explain how the growth of the fitness market from 2015 to 2016 could have affected PureGym.

1 mark for understanding an effect. More people may be interested in joining a gym/more competition may enter the market Application: up to 2 marks for contextualised examples e.g. market growth of 3.2% 1 in 7 people in the UK is a gym member PureGym has added 60 gyms in the last 12 months Competition offer more luxury/benefits e.g. Virgin Active. Analysis: 1 mark for explaining the consequences e.g. PureGym may have more potential customers to target therefore increasing sales revenue PureGym may face more competition and may lose market share.

Assess the importance of a business plan, as a means to obtain finance, to a small start-up company, such as Backpack Ltd.

A business plan is a document which details how the business is going to develop over a period of time. It includes elements like a forecast of cash flow and profit. A business plan allows a bank to assess the scale of the risk they are facing. For a start-up such as Backpack this would be quite high. Therefore a comprehensive business plan is more likely to result in a lower interest rate on a loan. A business plan reduces risk because it forces the entrepreneur to consider all factors that could cause the business idea to succeed/fail such as the government cutting funding to schools. A comprehensive business plan is more likely to allow Alistair to demonstrate the viability of Backpack to a potential investor/venture capitalist. This would allow the company to obtain a cheaper source of long-term finance. Possible counterbalance The level of risk can be assessed using elements of the business plan e.g. cash flow forecast. Therefore a full business plan may not be necessary. Not all sources of finance require a business plan e.g. family and friends may provide a gift or an informal loan which will not require a full assessment of the performance of the business also crowd funding may not require a business plan since investors may be willing to accept free products instead/ personal ethics Possible judgement Alistair has already been rejected from the bank, therefore, highlighting the critical nature of an effective business plan in obtaining finance.

Assess two likely effects on a company, such as SuperGroup Plc, of operating in a highly competitive retail clothing market.

A competitive market is where there are lots of rival retailers selling similar products. Competition forces prices down resulting in falling profit margins for clothes. SuperGroup Plc may be forced to design new ranges of clothes to match what its rivals are doing. Otherwise SuperGroup Plc may lose market share in its targeted market segment. SuperGroup Plc may be forced to increase the amount of money it spends on advertising/branding to retain its competitive advantage against G-Star Raw or Box Fresh. Potential counterbalance SuperGroup Plc's clothes are in strong demand, so the increase in competition may not affect it. The part of the market SuperGroup Plc operates in is a premium, branded clothes market for 15-25 year olds. Therefore it may not be subject to the same level of price competition.

Asses the importance to YOTEL of having a flexible workforce

A flexible workforce may be multi-skilled, part time and temporary, work flexible hours/from home and outsourced where necessary. • YOTEL offers a range of services and therefore a multiskilled workforce can be deployed effectively. • It offers the facility for 'different guests using the same cabin over a 24-hour period', which means the rooms have to be serviced by staff possibly several times a day. • Customers wishing to stay in an airport before a flight may need a room for a few hours only and YOTEL need to have staff on flexible-hour contracts to cater for this varying and unpredictable level of demand. • As demand varies throughout the day/week/year, YOTEL may find it useful to have a pool of staff from which to draw. • Check-in is automated so would not require reception staff to be readily available. Potential counterbalance • Staff working fixed hours could prove inefficient and therefore more costly to YOTEL, which would no longer allow YOTEL to offer 'a 1st class hotel experience at an affordable price'. • Though flexibility in the workforce is important to YOTEL, and valuable in terms of cost saving, there is a danger that a flexible workforce is harder to motivate. • Teams will be fluid which may make motivation less likely than with a stable workforce, this may have an impact on the quality of service they provide. • A flexible workforce may not have received as much training, therefore may not be as effective in their role.

What is meant by niche market?

A small section of a market (1) with distinctive specialised requirements (1)

What is meant by quality assurance?

A system where the product is checked/tested (1) at each stage of the production process (1).

Assess whether there is likely to be a trade-off for M&S when it targets a younger market segment for its women's clothes.

A trade-off is a situation in which the benefits of one option are reduced in return for increased benefit of another option. May put off existing loyal customers/older age range. May lose customers due to confusion over what M&S is offering. May be more competition in the new market so M&S may not gain the anticipated sales. May not have the knowledge required to enter the younger market. Potential counter balance Already struggling. Not aiming at significantly younger market (top end of NEXT's demographic) Department store so could have sections to satisfy all segments like House of Fraser with its mix of brands. Potential Judgement There may not be a trade-off if M&S manages to satisfy the needs of both its existing customers and the new market segment by offering a wide range of products.

What is meant by brand?

A unique design/sign/symbol/words/logo (1) which makes it recognisable/distinguishes/differentiates it from its competitors (1)

What is meant by market growth

An increase in demand/sales (1) for a particular product/service (1)

What is meant by current liabilities?

Any money which is owed by a business (1) that must be repaid within one year. (1)

The market for salt pipes is expanding. (f) Assess the likely impact on Anthony of Sims' Salt Pipes becoming a private limited company

As a non-limited business, Anthony's personal assets can be at risk if the business fails, but this is not the case for a limited company. This may therefore mean that Anthony may be more likely to pursue business decisions that may involve more risk. • Being a limited company also makes it easier for Anthony to raise sums of capital through the sale of shares to his family and/or friends, which he may need given potential expansion plans. • There are tax advantages to Anthony of Sims being a limited company. • A limited company is often given more credibility. Operating as a limited company often gives suppliers and customers a sense of confidence in a business and quite often other companies prefer not to deal with non-limited businesses. Potential counterbalance • A limited company is far less flexible if expansion becomes possible as Anthony may not be alone in making decisions. • If Sims is a limited company, Anthony may find it harder to borrow from banks as he is not risking his personal assets. • Profits/control in decision making may have to be shared within a limited company.

Assess two reasons why Whitakers might benefit from using batch production in the manufacture of chocolate.

Batch production involves producing small volumes of different products using the same resources. • For example, one machine might produce a batch of dark chocolates followed by a batch of milk chocolates. • This allows equipment to be used to make different chocolate-flavour products in response to customer demand. • This allows more efficient or flexible use of chocolate making equipment. Potential counterbalance • There is a potential loss of output given the downtime/cleaning/preparation required when switching between batches. • Risk of contamination/waste which may damage reputation/increase costs.

Assess two likely benefits to The Posh Pasty Company of using batch production to manufacture its pasties.

Batch production involves the manufacture of a limited number of identical products. This allows for greater productivity/efficiency compared to job production which reduces the average costs of manufacturing a pasty. Less capital will be required to set up a batch production process compared to a flow production process therefore they will have to raise less capital from crowd funding. Production of pasties is flexible so different quantities/flavours etc. can be produced allowing them to meet different sized orders from cafes. Potential counterbalance: Could lead to Posh Pasties Ltd having to hold large stocks of raw materials such as flour and meat for the different variety of pasties. Less efficient than flow production so average costs will be higher than they could be which will reduce the profit per pasty. Could lead to worker demotivation compared to job production because they are only involved in one part of the pasty production process.

Assess two likely limitations to JE Wilson & Sons Ltd of using break-even analysis as a planning tool.

Break-even is the level of output where the total revenue is equal to the total cost. JE Wilson & Sons Ltd produce more than one product line, therefore there will be numerous permutations of break- even points, reducing the usefulness of break-even analysis. Break-even analysis is unrealistic and has limited use to JE Wilson & Sons Ltd because of the assumptions made e.g. standard selling price of a box of Kendal Mint Cake, a constant average variable cost of £2 and that the company can sell all of the output that it produces. Potential counterbalance: Break-even analysis will provide a target of how many Kendal Mint Cakes the company need to sell in a year. Break-even analysis provides the company with the ability to ask 'what if?' questions to discover what will happen to its profitability following the move to the new factory and the change in its fixed costs. Break-even analysis provides the company with a simple planning tool which enables it to have a target level of sales of Kendal Mint Cakes which it must reach in order to be profitable.

Assess the importance of adapting to market change for a business such as Mars.

Change is important to a business in a dynamic market such as the snack market, so it can keep up with the competition like Cadbury's. If Mars did not change by producing new products such as protein bars, they may lose market share as customers look for healthier snacks; 17% of the UK consumers buy protein snacks. Customers might get bored of the same chocolate bars. Mars and Snickers have been around for a long time and other snack companies such as Cadbury's are always bringing out new chocolate varieties, so Mars may lose sales. The protein market is worth £310m and is growing, if Mars did not adapt to this market change, they might miss out on sales they could otherwise gain from this niche market. When Mars use the strength of their brand name to bring out new products such as Mars drinks and Mars ice cream, they are able to gain a competitive advantage in new markets and so increase their overall sales/profits. Potential Counterbalance The market change may be short-term, so the cost involved in developing new products, such as protein bars may not be recovered from sales, especially in niche markets. Mars is a popular, established brand which customers will continue to buy because they like the traditional Mars bar. Consumers may not like the new version because it tastes different, e.g. Kraft changed the recipe for the Cadbury Creme Egg which customers complained about. There may be established competitors in the new market which may prevent Mars from being successful, which may mean they are unable to gain market share. Potential Judgement Mars need to keep up to date with changes in the snack market, such as healthy eating, so that they can create products that people want to make up for the loss of sales of their unhealthy products. Mars should focus on its cash cows such as Snickers, as these will generate significant cash flows/revenue and cover their costs. This could be better than risking large amounts of investment in R&D on problem child/question mark products.

Assess two ways social trends might affect the channels of distribution for a business such as Approved Food.

Channels of distribution are the methods used by businesses to get their products from manufacture to consumer. Can include intermediaries such as wholesalers and retailers. Growth of the social trend for online shopping for food and drink, therefore Approved Foods has moved from market trader to setting up a distribution warehouse. Increased number of shoppers looking for bargains, therefore Approved Foods has seen an increase in sales, given the 60-70% savings on each order, therefore Approved Foods may start to open shops. Increased demand for Approved Foods due to awareness of 'overly cautious labelling' and increased food wastage has led to Approved Foods needing a bigger warehouse as a way of distributing their 2000 orders a week. Potential Counterbalance Some shoppers still follow use-by dates, therefore they are going to be reluctant to buy products close to use by date. Some shoppers still prefer to visit a shop rather than order online because they enjoy the shopping experience/do not trust online shopping. Approved Foods does not sell chilled or frozen goods so may not be able to compete with other online food shops.

With the UK economy entering the recovery phase of its business cycle, Aldi could continue to either focus on competitive prices, or increase its use of promotional methods. 3 Evaluate these two options and recommend which option Aldi should adopt to increase its sales revenue.

Competitive Prices Economic growth should lead to rising incomes therefore demand for normal grocery products should rise. Aldi will then place large orders with food manufacturers/suppliers. This could lead to greater economies of scale which will reduce average total costs, giving Aldi the scope to make their prices even more competitive. This may then increase Aldi's sales revenue with price elastic demand. Tesco have lost market share and are likely to adopt a more competitive pricing strategy. This may force Aldi to respond with even more competitive prices if they want to increase their revenue due to price elastic demand. By maintaining their competitive pricing strategy Aldi may force rival supermarkets such as Morrison's to exit the market since profit margins may now be too small/losses may occur. Therefore, with less competition Aldi can increase its revenue since its market share will increase. Promotional Methods Economic growth implies that average incomes are rising in the UK therefore competitive prices are less important. Thus, Aldi may need to use a different range of promotional approaches to maintain and attract customers. As a result, its sales revenue may increase. By adopting different promotional methods, such as introducing a loyalty card, Aldi may be able to target promotional offers based on customers' buying habits. This may lead to higher sales revenue. Competitive pricing may lead to lower sales revenue from groceries if demand is price inelastic, since the fall in price will not be offset by a proportionally higher quantity of groceries sold. Using promotion can be expensive. This will increase Aldi's fixed costs. This will could raise unit costs, resulting in a diminishing profit margin. This could jeopardise Aldi's ability to keep prices of groceries competitive, which could result in lower sales revenue. Potential recommendation Aldi should continue to use competitive prices since the grocery market is very competitive. Therefore, demand for groceries is likely to be price elastic. Thus when prices are reduced sales revenue increases. Aldi should make use of different promotional methods since rising incomes may result in consumers switching to supermarkets which they regard as being better such as Sainsbury's and Tesco. Therefore, promotional methods such as loyalty cards can be used to prevent this from happening and may help reposition Aldi into a higher-income market segment. As a result, it could increase its customer base allowing it to increase its sales revenue.

What is meant by fixed costs?

Costs that do not change (1) when output/sales changes. (1)

Give two examples of current assets.

Inventory/stock (cocoa, chocolate bars) Cash Debtors/trade receivables.

Assess the importance to The Posh Pasty Company of using crowd funding as its main source of finance.

Crowd funding is where large numbers of individuals can provide direct funding for a business or project which is administered by a website such as www.crowdfunder.co.uk Posh Pasties Ltd can raise capital from potentially a very large pool of investors making it more likely that they can purchase baking equipment. The investors may require a lower level of reward than a bank or venture capitalist allowing James and Holly to maximise their returns. James and Holly can avoid using a bank as its main source of finance, which may have viewed their start-up business as too risky. Possible counterbalance: The amount of money raised may not be large enough to fund the project e.g. new baking ovens. Posh Pasties Ltd will need to satisfy the expectations of potentially lots of crowd funders who may still want a return. This could reduce the returns for James and Holly. Crowd funders may be wary to provide finance due to lack of regulation in the crowd funding industry which could result in Posh Pasties Ltd not being able to afford baking equipment/ delivery vans. Possible judgement: Since Posh Pasties Ltd is a start-up business and as James is a TV chef it is likely that crowd funding would generate enough interest in the business due to his high profile. This may then allow Posh Pasties Ltd to access more/cheaper capital compared to a bank loan. Since Posh Pasties Ltd is a private limited company and James has a high-profile crowd funding may not be important because other sources of finance will be available e.g. selling shares.

What is meant by capacity utilisation?

Current output as a proportion/percentage (1) of maximum possible output (1).

Assess two non-price factors that might affect the demand for premium priced cars in the UK.

Customer tastes and trends - faster/more economical engines Availability and/or price of substitutes - electric/hybrid cars, other forms of transport Increase in price of complementary goods - fuel, car tax, insurance Changes in income - a career promotion may mean that consumers have more disposable income Potential counterbalance The extent of other changes will depend on whether they are long term or short term e.g. further changes in technology may cause an increase in the demand from those consumers who prefer the most up to date models, rather than those consumers who do not The extent of the changes in income will determine customers ability/willingness to spend on luxury goods, e.g. people who receive large bonuses /increased salary may choose to save rather than spend the additional income

Explain how holding larger buffer stocks might affect Whitakers.

Definition: stocks held as protection in case of reduction in supply. Application: up to 2 marks for a contextualised example, e.g. • more space required to store more sugar (1) means increasing warehousing costs (1). Analysis: 1 mark for developing the contextualised examples, e.g. • a consequence of higher costs may lead to charging higher prices/loss of competitiveness/lower profit margins (1).

Maria Allen aims to reach sales of £500 000 by the end of the year. To achieve this, she could focus on ethical sourcing or cost minimisation. Evaluate these two options and recommend which option would help Maria Allen meet her sales target.

Ethical Sourcing Her USP is sustainable gifts and products made from ethically sourced materials. She has achieved success so far with exclusive partnerships with the British Museum, Tate Galleries and the Royal Academy of Arts which is likely to be because she handcrafts unique products from reclaimed wood. Costs may not be important as she can charge high prices in a niche market. The tailored love letters are made to order so will use job production which will increase costs, but add value making people more willing to buy them. She operates in a niche market, so quality of materials is likely to be more important, focusing on costs could reduce quality. The Made-in-Britain slogan is also important to the Maria Allen brand, focusing on costs may mean offshoring to less ethical production facilities. Cost Minimisation Ethically sourced materials may cost more which may impact on prices and reduce sales. Keeping costs down would enable Maria to keep prices competitive in the competitive market and gain more sales. Cost minimisation would enable Maria to invest in the development of new product ranges to increase sales. Maria will need to produce more to meet her turnover target of £500,000 - economies of scale could be gained with increased production. Potential Recommendation Using ethically sourced materials is her unique selling point and is important to her existing customers, without it she might not be able to compete in the market and lose sales. Maria Allen should focus on costs because she wants to expand and increase her turnover, by focusing on costs this may allow her to reduce prices and therefore boost sales.

Fox's Biscuits are considering selling their Caffé Thins at £1.74 per packet. Fixed monthly costs are £160 000 with variable costs at 53 pence a packet. (b) Using this data, calculate the monthly break-even level of output for Caffè Thins. You are advised to show your working.

Fixed cost/contribution per unit = break-even Calculate contribution = Selling price - Variable cost £1.74 - £0.53 = £1.21 • Calculate break-even level of output = £160 000 / £1.21 = 132 231.4 • Break-even level of output = 132 232 packets

What is meant by total costs?

Fixed costs plus variable costs.

Using the data in Extract A, calculate Cadbury Plc's gross profit margin. You are advised to show your working.

Gross Profit/Total Revenue x 100 Calculate gross profit = 181 526 - 41 847 • Calculate gross profit margin = 139 679/181 526 x 100 • Gross profit margin = 76.95%

In November 2015, UK inflation increased to 0.1%. (f) Assess the likely impact of this rise in inflation on Burberry plc.

Inflation is the general increase in the level of prices in an economy in a year. Inflation could increase the costs of buying-in fabric and materials. Inflation could reduce the purchasing power of consumers, resulting in falling trench coat sales. Inflation could increase uncertainty and make Burberry plc reconsider its investment in its new factory in Leeds. Potential counterbalance: The increase in inflation is so small that it will have limited effects on the cost of fabric. Burberry plc could probably pass on any increase in costs to its consumers by increasing its prices since they sell luxury clothes. The increase in inflation is so small that it would not affect the decision to open a new factory. Potential judgement: Inflation is unlikely to affect Burberry plc since it targets wealthy consumers with its clothes. Therefore, even if prices are increased it is unlikely that sales will fall significantly. The rise in inflation is so small that the impact on Burberry plc's sales will be insignificant.

Assess whether a Just in Time (JIT) stock management system is likely to benefit a clothing retailer such as SuperGroup Plc.

Just in time (JIT) involves holding no buffer stocks with supplies arriving just before they are required by stores. JIT will reduce stock holding and SuperGroup Plc currently have £77.8 million tied up in stocks of clothes. It removes obsolete stock of unfashionable clothes which is important in a dynamic fashion industry otherwise they may need to be discounted in a sale. Costs of stockholding are reduced because SuperGroup Plc need less warehouse space in Burton on Trent. Therefore fixed costs are reduced allowing the profitability of SuperGroup Plc to increase. Potential counterbalance Loss of purchasing economies of scale for items such as jeans, therefore average costs will rise which may reduce profit margins. It may be difficult for SuperGroup Plc to deal with sharp increases in demand if one item of clothing such as beachwear quickly becomes fashionable in hot weather. Therefore their brand image may be tarnished resulting in less customer loyalty. Potential judgement The success of JIT ultimately depends on clothing suppliers being able to meet their commitments to SuperGroup Plc at their Burton on Trent warehouse.

Using the data from Extract A, construct a supply and demand diagram to illustrate the impact of YOTEL's decision on the Singapore hotel market.

Knowledge/understanding: • 1 mark for correctly constructing supply and demand curves. • 1 mark for correctly labelling axes, price and quantity. Application: • 1 mark for correctly interpreting the shift in the supply curve (to the right). Analysis: • 1 mark is available for showing original and new equilibrium and consequences on the quantity and price axes.

To maintain its competitive advantage in the premium sports car market, McLaren Ltd could increase its use of lean production methods or make the company more market orientated. 3 Evaluate these two options and recommend which option McLaren should use to maintain its competitive advantage.

Lean Production Methods: By using fewer resources to produce the cars, McClaren Ltd can maximise the profit on each car sold and generate more profit per car. This profit can be retained into the company to fund new engine design etc. which will allow it to gain a competitive advantage. Lean production will result in fewer defective sports cars, allowing the reliability and the performance of the cars to exceed consumer expectations. This could enhance McClaren Ltd's brand image at the expense of its rivals. Market orientation can be expensive to carry out and it will be difficult to find out enough information about sports car consumers to satisfy every potential consumer's needs and wants. Market Orientation: The business focuses on the needs and wants of the customers to become more competitive. Market orientation will enhance the brand name of McClaren Ltd since they are giving sports car consumers precisely what they want. This means demand for the cars may become price inelastic. Therefore McClaren Ltd can charge a premium for its cars allowing them to maximise their profit margin. Market orientation will allow McClaren Ltd to meet customer needs more effectively than other luxury car brands, such as Ferrari. This will allow them to grow its market share at the expense of their rivals, leading to higher revenues. Lean production may be difficult to achieve and using fewer resources to produce the sports cars could have a negative impact on quality. Wealthy consumers could end up switching to a different brand of luxury sports car e.g. Porsche. Potential recommendation: McClaren Ltd should focus on market orientation, since in the luxury car market the consumer will demand the highest level of quality and expect the car to meet their every need. Therefore, if market orientation is not maintained, competitive advantage could significantly decrease. McClaren Ltd should focus on lean production because minimising the average cost of producing its cars will allow the profit margin to be increased. Since the volume of sales of £1m cars is low (niche market) it is critical to McClaren Ltd's

Assess the extent to which lean production methods may allow Willie's Cacao Ltd to gain a competitive advantage.

Lean production involves using as few resources as possible in the production of a good or service. It can include concepts such as waste minimisation, Just in Time (JIT) and TQM. Lean production may reduce excessive stocks of cocoa and chocolate which may have a short shelf life. This may reduce waste which allows the profit margin on a 50g, £1.90 bar of chocolate to be maximised. This may allow the business to maximise the profitability which enables larger retained profits. This provides a source of finance which could be used by Willie to expand the company further. Potential counterbalance: Since the chocolate is targeted at high-end retailers, the need to minimise average costs is not critical to the competitive advantage of the company. Lean production could be counter-productive if it diminishes the quality of the chocolate, since this is Willie's Cacao Ltd's primary USP. Potential judgement: Price is not a critical factor in gaining a competitive advantage especially as Willie's Cacao Ltd chocolate is a premium product targeting high-end retailers whose customers tend to be more concerned with quality than price. Lean production is less important in allowing Willie's Cacao Ltd to gain a competitive advantage because if he wanted to minimise costs he would have purchased newer machinery, which should be more efficient. The importance of lean production is ultimately dependent on whether average costs can be reduced without impacting on the quality of the chocolate. If it can, lean production could enhance the profit margin, providing the company with a cheap source of finance which it may use to further enhance its competitive advantage.

What is meant by on-the-job training?

Learning/gaining/developing skills (1) whilst at work doing the job (1)

Assess the likely benefits to a company, such as SSP, of using non-financial techniques to motivate employees.

Non-financial techniques of motivation are ways of encouraging employees without the use of monetary rewards. SSP are likely to have part-time/flexible/seasonal staff working in their airport/train station outlets. Working at Burger King/Starbucks involves repetitive tasks, employees may become bored so job rotation could keep them motivated/improve performance. This kind of work involves working as part of a team so emphasis on teamwork rather than monetary reward is likely to improve performance. Customer Service is important in this business, if staff are happy they are more likely to provide better service so the nature of the job/working environment is more important than money. Potential Counterbalance If staff are part-time/temporary they may lack commitment and only be there for the money so using bonuses may be more beneficial to increase sales. Many of the jobs employees are required to do in fast food outlets are repetitive so job rotation may not be enough, piece rate or performance related pay may be a better way to increase productivity. Lots of competition for staff so SSP may have to offer monetary rewards to recruit and retain employees. Potential Judgement The most suitable method of motivation would depend on the type of employees SSP have and the role the employee has. Permanent staff may prefer enrichment and empowerment and the chance to work flexible hours whereas temporary/seasonal staff may prefer performance related pay.

Assess the extent to which training assistant managers for promotion to managers could benefit a business, such as PureGym.

Offering on-the-job training for assistant gym managers may increase motivation, as they have something to work towards. Training their own managers means PureGym can ensure they know all of the company's procedures. Assistant managers will already know the company and how it works, so less training may be needed than if external recruitment was used. The Shining Stars scheme could make recruiting staff for the 60 new gyms easier, because new employees see the chance for progression/promotion. Potential counterbalance Only selected assistant gym managers are given on-the-job training to become managers, which could demotivate others/cause resentment. If PureGym used external recruitment to find new gym managers they may get more qualified/experienced people/new ideas. Once the assistant gym managers are trained they may leave to work for a competitor, such as Fitness First, who may offer higher wages. Potential Judgement The benefits depend on the quality of the training and whether the assistant managers who are chosen for the Shining Stars scheme remain with PureGym. It depends on the capability of assistant managers to become a manager and the progression opportunities made available, through such things as the 1.9% increase in the number of fitness facilities.

Assess two benefits of online retailing to the success of a small business such as Sims' Salt Pipes.

Online retailing involves selling products on the internet. • Practical and easy to set up. • Cheap to start up because of lower fixed costs and lower overheads. • Flexible/can run a business from anywhere. • Opportunities for fast growth. Potential counterbalance • Anthony may not possess the IT skills necessary to set up an online business. • Easy for competitors to learn/keep up with/stay aware of Anthony's business model/products/prices. • Technical problems such as dealing with fraud, spam and viruses.

What is meant by productivity?

Output per person/machine (1) per hour/time period (1).

Assess two likely benefits for PureGym of its managers using a paternalistic leadership style.

Paternalistic leaders are in control, but take the welfare of employees into account when making decisions. Employees may love working for the company where they feel the managers care about them. Staff turnover and absenteeism of gym instructors could be lower therefore reducing the costs of the business. Employees may feel more confident with a leader that makes the best decision for them. If employees feel looked after, they may in turn provide a better service to gym users, which could lead to repeat custom and a good reputation. Potential Counterbalance Some employees, such as assistant gym managers, may want to make more decisions for themselves and therefore may be demotivated by paternalistic leadership/prefer a democratic leader. Some gym staff, such as personal trainers, may work by themselves most of the time, so may not feel so influenced by the manager.

As a basis for further expansion, Bunches could increase distribution either through the Post Office or through online sales. Evaluate these two options and recommend which option would be the most profitable for Bunches.

Post Office This new channel of distribution via the Post Office opened new markets, increasing demand and sales, which may boost profits. The Post Office have a core of loyal, traditional customers who are less likely to use online, therefore they are more comfortable to buy flowers through the Post Office, thus increasing sales and profits. Flowers by post shared the burden of costs and marketing with the Post Office, therefore reducing average costs for Bunches and potentially increasing their profits. Online Selling online has allowed Bunches to deliver 5.5m bouquets throughout the UK, resulting in a large increase in sales and possibly profit. By moving to purpose built premises, Bunches have increased their capacity which should increase the amount of sales they could fill through online sales. Great online presence this method of distribution could reduce costs as well as tapping into the online shopping trend, boosting sales and profit. Potential recommendation Bunches should use The Post Office as a means to expand, as there may now be more competition for online flower shops, which may reduce Bunches sales, so they may have to spend more on marketing in order to stand out, which may increase costs and therefore lowers profit. Bunches should use Online as a means to expand, because it can reach a wider target market and there is a growing social trend towards online shopping, as a result of increasing use of mobile technology.

Assess two factors that could influence the price elasticity of demand for M&S's clothing range.

Price elasticity of demand measures the responsiveness of demand to a change in price. The number of competitors that M&S have. The strength of the M&S brand. The proportion of consumer's incomes needed to buy from M&S Whether M&S sell luxury or essential products. Their USP - British Brand. Level of differentiation from competitors such as NEXT. Availability of substitutes. Potential Counterbalance The extent of the influence of PED will depend on consumer's sensitivity to changes in price and the importance of non-price factors to the target market. The extent of the influence of PED will depend on M&S's existing customer's loyalty to the brand.

What is meant by sales revenue?

Price multiplied by quantity sold.

Assess the importance of profit maximisation to a business such as Approved Food.

Profit maximisation is achieved when the difference between sales revenue and cost is at its greatest Approved Foods are a local company based in Sheffield which could show they are keeping fixed costs low by having a 60,000 sq ft warehouse and selling online. Profits may have been used as a source of finance to expand from market trader to 'the largest online retailer' They may need to expand further as orders grow and may need profit to achieve this, rather than rely on bank loans, which incur interest. Profit is a measure of success, therefore important for a new business to attract investors. Potential Counterbalance They are offering large discounts ' 60-70% on each shop', so gross profit margins are likely to be small; sales revenue maximisation/increased market share may be more important. Loyal customer base may be more important than profit maximisation, given that they have grown from a market stall to '60,000 sq ft warehouse'/increased competition. Stock turnover needs to be fast due to 'short dated' food stock so speed of sales may be more important than profit. Potential Judgement There are high levels of competition in the food and drinks market, there has been an expansion in the number of shops selling discounted foods, therefore survival might be more important than profit maximisation.

Assess two methods Mars could use to promote its new protein bars.

Promotion is the way a business creates demand/awareness for their product/service. Mars could create a new TV advert using a sports celebrity e.g. Mo Farah, to encourage people to buy the protein bars. Mars could provide point of sale material, such as counter displays to sports shops, so people buy the protein bars when paying for sports equipment/clothing. Mars could carry out a sales promotion with an introductory offer, such as BOGOF, to encourage people to try their new protein bars. Potential Counterbalance A TV advert would be very expensive and may not be seen by people who have an active lifestyle as they may be out riding their bike. Sports shops may not be a good place to promote the new bars because 17% of UK customers eat protein snacks between meals so supermarkets might be a better place to promote them. Mars may need to discount the product as it is a thing called recognised trusted brand name and people will be willing to try their new products at full price.

Give two examples of non-current assets that a business may have on its Statement of Financial Position.

Property Land Vehicles Machinery

Assess the importance of a quality assurance system to a chocolate manufacturer such as Whitakers.

Quality assurance systems ensure that work in progress and finished products are fit for purpose. • Quality assurance systems can allow a manufacturer to trace defective products/ingredients more readily. • Suppliers such as Whitakers produce high-quality chocolates which is in a niche market. • Each chocolate product is consistent in quality, taste and size and appearance. • This should reduce wastage of materials such as sugar, milk powder, or cocoa. • Therefore this should help to reduce the risk of sales reject/product recall. • In order to protect the reputation of the company or brand, to ensure customer loyalty and repeat business, or a motivated workforce. Potential counterbalance • There is a potential increase in costs given that quality assurance systems involve more resources/time. • The costs of a quality assurance system may be a small proportion of total costs and therefore have little impact. • Although costs may go up, it may not matter as Whitakers operates in a niche market where high prices can be charged. • Higher prices may therefore mean greater profit margins to pay for the quality assurance systems. • Higher prices may deter some consumers, reducing sales volumes and therefore profits.

Assess the extent to which rising costs of raw materials may have led to the failure of JE Wilson & Sons Ltd.

Raw materials are a variable cost. Rising raw material costs will increase the total costs of the company. The high sugar content of a Kendal Mint Cake means that the 30% increase in the world sugar price could cause a significant increase in total costs, resulting in a fall in profits. The significant increase in unit variable costs could lead to greater cash outflows to sugar suppliers which could damage JE Wilson & Sons Ltd liquidity. The fall in contribution per unit would have resulted in a much higher break-even level of output at a time when demand for high sugar content cakes was falling. This could lead to a lower/negative margin of safety. Possible counterbalance: The costs associated with moving to the new factory could be more significant than the rising costs of sugar, especially since it is stated that this caused serious cash flow problems. The decline in the popularity of high sugar content cakes could have caused a fall in revenues, leading to a fall in cash inflows. This may have been more significant than the rise in raw material costs. Possible judgement: The rise in the sugar price may not have been the critical factor that caused the failure of JE Wilson & Sons Ltd, since the company may have been able to pass on the increase in unit variable costs through a higher selling price for boxes of Kendal Mint Cake. The rise in the sugar price may have been the critical factor that caused the failure of JE Wilson & Sons Ltd because Kendal Mint Cakes are high sugar content confectionery items. Therefore, a 30% increase in the sugar price would reduce the contribution per box and make the new break- even point unobtainable given the fall in demand.

In order to increase its profits, AO.com could either sell a wider range of products through the internet or improve its branding. Evaluate these two options and recommend which option AO.com should use to increase its profits.

Sell a wider range of products through the internet: The internet means that AO.com do not need to have 'bricks and mortar' high street stores. Therefore, they may have a lower cost base than competitors such as Currys Digital, allowing the company to improve its profits. With a wider range of products such as computers and vacuum cleaners, there is a wider market to sell to, allowing AO.com to maximise the capacity utilisation of its warehouse and logistics. This may reduce unit costs allowing profit per computer/vacuum cleaner to be maximised. A wider product range may increase the number of markets AO.com sell to, therefore maximising its potential to generate revenue since there may be a larger number of potential customers for Blu-ray players/soundbars. This should cause profits to increase. Improve branding: Branding may increase the recognition of AO.com compared to rival companies such as Currys Digital, allowing AO.com to make more sales leading to higher profits. Branding may reduce the PED, allowing AO.com in the long- term to increase its prices and make a larger profit margin on each domestic appliance sold. Branding may prevent other internet start-ups focusing on the same washing machine and fridge-freezer market as AO.com, preventing future falls in profit. Branding may increase fixed costs and may take time to build recognition with its 'AO - let's go' slogan in the market. Thus, in the short-term profits may fall. Potential recommendation: The domestic appliance market is very competitive and any change in strategy, which potentially could raise costs, may put them at a pricing disadvantage in a market where demand is price elastic. Thus, profits could fall. AO.com should sell a wider range of products since it is already an established internet retailer. Therefore, its existing customers may now have the opportunity to purchase other products such as computers and televisions stealing market share from Currys Digital, which may improve the profits of AO.com. AO.com should use branding since over time it may attract consumers who are less price conscious and could potentially add value. This would allow the company to increase the profit on each domestic appliance sold. The domestic appliance market is very competitive and any change in strategy, which could, potentially, raise costs, may put them at a pricing disadvantage in a market where demand is price elastic. Thus, profits may fall.

Assess two likely impacts on Burberry plc from holding limited amounts of stock in its new factory.

Stock can take the form of raw materials, work in progress and finished products. Reduction in storage costs for fabric and trench coats which will reduce total fixed costs. Reduction in opportunity costs since capital tied up in clothes can be reduced. The clothing industry is dynamic so there is less chance of being left with last season's clothes which can quickly go out of fashion. Potential counterbalance: If Burberry plc releases a range of clothes which are popular they may not be able to keep up with demand which may damage its brand image. If there is a problem in the supply chain and deliveries of fabric are delayed, Burberry plc will not be able to manufacture trench coats. More orders of fabric will have to be placed which will reduce the benefits of bulk buying.

The Chief Executive has reorganised management by taking out a level of the hierarchy in Aston Martin's organisational structure. (f) Assess the likely impact of this change on the motivation of the workforce.

Taking out a level of hierarchy would lead to a shortening of the chain of command, therefore improving communications/speed up decision-making between management and employees on car production line Financial efficiency may improve due to the savings in management salaries, therefore reducing costs/may allow Aston Martin to provide other financial incentives to the production workers e.g. pensions. Motivation may improve due to workers feeling more involved in car design and therefore empowered If there are less managers, management style may change, perhaps moving from autocratic management to democratic or laissez faire and therefore improve motivation Potential Counterbalance Communication between departments may not improve as roles and responsibilities may not be clear, therefore staff may become frustrated and therefore demotivated Span of control for remaining managers is likely to increase which could demotivate both them and their subordinates due to increased workload. Employees may feel there are now less chances of promotion, therefore feel demotivated and may look for a job with a competitor such as Bentley Junior managers at the car manufacturer may gain more responsibility and a greater workload which may not be reflected in their salary and therefore cause demotivation Potential Judgement The impact of this decision on workforce motivation may be positive or negative, depending on which level of management has been removed/how this change has been implemented

What is meant by efficiency?

The ability to minimise waste (1) therefore reducing the cost of production (1).

What is meant by market orientation?

The business finds out the needs and wants of the customers (1) and responds to them/meets customer requirements (1)

What is meant by product portfolio?

The collection/range/ list of items/products (1) produced/sold/ offered by a business (1).

Assess two benefits to SSP of operating franchises.

The franchisor provides training for the franchisee which lowers SSP's costs. Burger King/Starbucks/Nandos pay for marketing, SSP's franchises will benefit from greater customer awareness/reduced costs. Buying into established brands that are recognised. Starbucks is recognised worldwide and SSP operates worldwide which could increase sales. Potential Counterbalance Initial franchise fees can be high, particularly for well- known brands like Nandos/Burger King/Starbucks. SSP will have to pay Royalties to the franchisor which increases costs/reduces its profit. SSP will not have as much control over how they run the franchised businesses because they must follow the franchise rules/model. NB if candidates have approached their answer as if SSP are the franchisor for Miilie's Cookies, Upper Crust and Caffé Ritazza, award accurate responses.

In August 2016, the Bank of England cut the UK base rate of interest from 0.5% to 0.25%. (e) Assess two likely benefits of this fall in UK interest rates on Willie's Cacao Ltd.

The interest rate is the price of borrowing money/return from saving money. Lower interest rates may make it cheaper for Willie to borrow money to invest in the latest chocolate production machinery. Lower interest rates may increase disposable incomes allowing consumers to trade up from Cadbury's chocolate to Willie's premium chocolates. This could cause Willie's Cacao Ltd to enjoy lower unit costs/higher demand for high quality chocolate, which may lead to increased profitability through lower total costs/higher revenues. Potential counterbalance: The interest rate has only fallen by 0.25% (although this is a 50% decrease compared to 0.5%), so the size of any impact will be limited. Spending on chocolate is a small proportion of a consumers' disposable income (the price of a bar of Willie's chocolate is £1.90). Therefore the impact of lower interest rates is unlikely to increase demand significantly.

What is meant by a marketing strategy?

The methods used/plan/way chosen (1) to achieve marketing objectives (1).

What is meant by limited liability?

The most a shareholder/investor can lose (1) of the original amount they invested in the business. (1)

What is meant by capital intensive?

This is where output of the firm is made primarily using machinery/capital goods (1) relative to the use of labour (1)

Assess two advantages to a small start-up company, such as Backpack Ltd, of using venture capital.

Venture capital involves issuing shares to a small number of investor(s) in return for a capital injection into the company. The venture capitalist could be a valuable source of advice to a new start-up company given Alistair's lack of experience. This will provide the £20 000 of capital for a small, risky start-up when other sources of finance are not available e.g. loan capital because Alistair is very young and lacks experience. Venture capital involves no payment of interest, because it is not a loan. Therefore the fixed costs of the business will be lower which would enable a small start-up business to survive. Potential counterbalance Alistair may have to give up a significant percentage (65%) of the ownership of his business due to his inexperience and the risk faced by the venture capitalist. The venture capitalist may get involved in the day to day running of the company/place restrictions on how the company is run in return for the capital injection. This could lead to a clash with Alistair over how the company should operate.

Explain how a business, such as Approved Food, might use income elasticity of demand data.

To estimate how demand will change given changes in income Application: up to 2 marks for contextualised examples e.g. Falling incomes mean that shoppers buy cheaper/inferior products. People unwilling to waste food 'about £25 per household' when money is tight Analysis: 1 mark for explaining the above e.g. Therefore Approved Foods would choose to stock/sell cheaper/inferior products.

Explain how Aston Martin could use the design mix to appeal to the new target market.

Understanding Design Mix, e.g. The combination of factors needed in designing a product OR Aesthetics, Function, Economic Manufacture (1) Application: contextualised examples, e.g. Aesthetics - Designing a car that is beautiful /'pink it and shrink it'/a place to hold your handbag Function - Having a higher driver's seat /high performance or speed Economic manufacture/cost - more affordable to a younger generation/competitive pricing NB - Candidates could suggest other design elements that fit the younger buyer and/or female customer-latest technology/safety features/self-parking. Analysis: 1 mark is available for explaining how the Design mix could be used to appeal to younger buyer and/or female market This would enable Aston Martin to meet the needs of younger buyers/women customers and therefore boost sales/revenue/profit. This would enable more younger buyers and/or women customers to afford to buy the car because they have less disposable income.

To continue developing the most innovative technology in the travel market, MT could either use more venture capital or a bank loan. 3 Evaluate these two options and recommend which option would be most suitable for a company that operates in a dynamic market, such as MT

Venture Capital MT have already been successful by using venture capital from Piers Linney, he may therefore be willing to invest additional venture capital. A venture capitalist like Piers Linney may be willing to invest as well as giving advice. MT chose him for his technology credentials and that helped them to provide the most innovative technology in the travel industry. MT has only been established for 4 years, yet has achieved a turnover of £4.5m, making it an attractive investment opportunity. A bank may not approve MT a loan because it thinks it is too risky as MT is a small business in a dynamic market, compared to other travel technology businesses such as Booking.com. Bank Loan MT could use a bank loan because they have a turnover of £4.5m, therefore they represent a lower risk and the bank may offer a lower interest rate. MT have already developed new technology such as Hotel2020, so may already have the appropriate staff and equipment required to develop more innovative technology, therefore the amount of finance required could be small and easily gained from a bank. If MT use a bank loan, they may not have to sacrifice a further share of the company, preventing a further dilution of ownership/control. Piers Linney may not want to invest any more money into the business as he may have other interests he wants to pursue as the Dragons' invest in several other companies, therefore would need to apply for a bank loan. Potential Recommendation Venture capital would be the best option because Piers Linney is likely to have already seen a good return on his 15% investment, because of MT's successful innovative approach in a dynamic market. So Piers or other venture capitalists are likely to provide further investment to gain a higher return. A bank loan would be the best option since the company is now established having made use of Piers expertise. Now the owners of MT can use the knowledge and understanding of technology needed in this dynamic travel application market, without having to sacrifice profits and/or control.

What is meant by competitive pricing?

When a business sets a price similar to competitors (1) selling similar/rival products (1)

What is meant by brand?

a characteristic/name/symbol (1) that differentiates/ distinguishes a product from other suppliers (1).

What is meant by a niche market?

a niche market is a specialist area of the market/is a subset of the market on which a specific product focuses (1). It addresses a need for a product/service that is not being addressed by other providers (1).

What is meant by entrepreneur?

a person who sets up a business/takes risks (1) in the hope of profit/reward (1).

What is meant by a sales forecast?

a sales forecast estimates the volume/value of future sales (1) using market research/past sales data (1).

What is meant by business objective?

a target/ goal set by the business (1) in the short to medium term (1)

What is meant by market segmentation?

an identifiable group of individuals/a part of the market (1) where consumers share one or more characteristic or need (1).

What is meant by cost of sales?

cost of raw materials or stock (1) purchased to produce/ supply a product/service (1).

Assess two factors that might cause a decrease in the demand for YOTEL's cabins.

• Price of related goods - fall in price of a substitute, e.g. competitors' rooms. • Increase in price of complementary goods, e.g. flights/holidays. • Market size/demographics - fall in size/composition of customer base. • Employment/income - if the unemployment rate drops and more people have a greater disposable income, the general population may be more likely to spend on discretionary items such as holidays and vice versa. • Consumer tastes and trends - YOTEL is used by many business travellers and so if more companies use videoconferencing than face-to-face meetings, bookings will fall. Potential counterbalance • The extent of the decrease in demand will depend on sensitivity to changes in price and non-price factors of different customer segments, e.g. corporate travellers may not respond to price changes whereas leisure travellers might.

Evaluate the likely impact on the finances of a business of using a pricing strategy such as that used by Ryanair.

• Ryanair's pricing strategy has to be conscious of prices charged by rivals/competitors and ensure that the price is competitive. • The demand in the budget aviation market is price elastic, therefore a competitive price is necessary for Ryanair to increase revenue. • If this pricing strategy increases passenger numbers it might increase revenue per flight. • Might lead to a higher gross profit overall but a lower margin on each ticket. • Could increase operating profitability owing to higher capacity utilisation (fewer empty seats) on each aircraft. This would reduce average fixed costs. • Might encourage customers to book a long time in advance of flying which could help cash flow • Might force Ryanair to make frequent adjustments to prices to match competitors and this will have an impact on the accuracy of sales forecasting and the reliability of the budgeting process. • By giving passengers a range of potential 'add-ons' which they may or may not choose to pay for, there may large variations in revenue per passenger which makes budgeting difficult. • Ryanair's brand image is to be a 'no-frills'/budget airline operating in a very competitive and challenging business environment. This pricing strategy will therefore not damage brand image or threaten future revenues. Potential counterbalance • It is very difficult for other aviation companies not to respond with price changes of their own to any price cuts/deals made by Ryanair. This can become a price war/a race to the bottom. • This pricing strategy may just defend market share rather than increase it and so higher sales revenue may not be the result. • The increase in the number of passengers per plane may require extra fuel as well as more check-in/flight/baggage handling staff which would increase costs. If staff numbers are not increased and passenger numbers rise then customer service might be compromised. Pearson Edexcel Level 3 Advanced Subsidiary GCE in Business Sample Assessment Materials - Issue 1 - September 2014 © Pearson Education Limited 2014 32 • The increase in revenue may not be proportionally as great as the increase in cost of sales (the extra revenue from each extra seat filled might be lower than the cost of the extra fuel used to carry that extra passenger and their luggage). • May depend on how much spare capacity there is on any particular route/plane. If close to full capacity anyway it may leave some potential customers disappointed. If competitive pricing is used to fill empty seats at the last minute, the impact on cash flow may not be as great as getting advance bookings. Cash flow might also be affected if Ryanair has to react to competitors dropping prices. • Forecasts can take this into account by producing upper and lower forecasts to take this into account. • Ryanair will continually be collecting data of passenger behaviour and budgets can be adjusted, taking into account a 'smoothing' approach to fluctuating averages. • May stop Ryanair developing into a premium player.