Cambridge International Examinations

Cambridge International Advanced Subsidiary and Advanced Level

BUSINESS 9609/22
Paper 2 Data Response February/March 2018
1 hour 30 minutes
No Additional Materials are required.
* 1 4 1 1 6 5 2 2 6 3 *

READ THESE INSTRUCTIONS FIRST

An answer booklet is provided inside this question paper. You should follow the instructions on the front cover
of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.

Answer all questions.

The businesses described in this paper are entirely fictitious.

The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 3 printed pages, 1 blank page and 1 Insert.

DC (RW) 144275/2
© UCLES 2018 [Turn over
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1 Paul’s Clothes (PC)

PC is a sole trader business that is owned and managed by Paul. Paul financed the business
using a mortgage on his home. PC has two retail clothes shops in neighbouring towns in
country A. Both shops sell a range of suits, shirts, ties and footwear for men. PC has been
trading for four years and Paul has been pleased with the profits made. Paul is now deciding
on a new business objective. 5

PC has a Unique Selling Point (USP) that focuses on quality. The range of clothes sells at
high prices. Unemployment has started rising in the country and average incomes are falling.
Paul has prepared an overall cash flow forecast for both shops, as shown below in Table 1.

Paul is considering buying a computerised inventory management system.

Table 1: Cash flow forecast for the next six months ($000s) 10

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

Cash in:
Revenue 12 10 9 5 4 X
Cash out:
New computerised 15
10 0 0 0 0 0
inventory system
Employee costs 3 3 3 3 3 2
Purchases 5 4 4 4 4 2
Marketing 2 2 2 2 2 1
Opening Balance 15 7 8 8 4 Y 20
Closing Balance 7 8 8 4 (1) 1
*Numbers in brackets indicate a negative figure.

The purchase of a new computerised inventory management system will be an important

innovation for PC. It will ensure that Paul can access sales information about products quickly
and place orders with suppliers before items are sold out. 25

(a) (i) Define the term ‘Unique Selling Point (USP)’ (line 6). [1]

(ii) Briefly explain the term ‘business objective’ (line 5). [3]

(b) (i) Refer to Table 1. Calculate the value of X and Y. [3]

(ii) Explain two methods that PC could use to improve its cash flow. [4]

(c) Analyse one advantage and one disadvantage to PC of purchasing the computerised
inventory management system. [8]

(d) Evaluate Paul’s decision to set up PC as a sole trader. [12]

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2 Luxury Carpets (LC)

LC is a large public limited company operating in country B. LC produces and sells a range
of luxury carpets and other floor coverings. The carpets are sold to households through the
many shops that LC has in country B. LC also sells directly to business markets including
hotels, offices and restaurants. Aziz, the Marketing Director, uses market segmentation.

Table 2: Percentage of LC’s revenue by market segment for the year ended 5
31 December 2017

Market segment Percentage of revenue

Households 20%
Hotels 40%
Offices 20% 10
Restaurants 20%

The Finance Director, Sam, has produced the following information:

• Total revenue from LC’s income statement (for year ended 31 December 2017) was
$50 000 000.
• Over the last four years, revenue has increased by 25% in total. 15
• There has been no change over the last four years in the percentage of revenue earned
from each market segment.

The production process to manufacture carpets in LC’s factory is capital intensive and
uses a flow production method. The Production Director, Sally, has recently installed a new
machine, which cost $300 000, to improve productivity. LC employs 500 production workers. 20
Many of the workers are unhappy about their working conditions and their pay. Workers feel
that the directors care more about productivity than they do about them. They complain that
communication between management and workers is poor.

(a) (i) Define the term ‘productivity’ (line 20). [1]

(ii) Briefly explain the term ‘public limited company’ (line 1). [3]

(b) (i) Refer to Table 2. Calculate the value of the growth in revenue earned by LC from the
hotel market segment over the last four years. [3]

[
(c) Analyse two benefits to LC of increasing worker participation.
[8]
(d) Discuss the importance of market segmentation to LC.
[12]

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Question Answer Marks

1(a)(i) Define the term ‘unique selling point’ (line 6). 2

Knowledge and Application Marks

A correct definition 2
A partially correct definition 1
No creditable content 0

A correct definition should cover the following aspects.

• Differentiates
• Features

• A unique selling point is something that makes a product stand out from
its competitors, such as a phone with a new feature that no other
phones have.
• It is a feature that none of the other businesses have and means the
product can be sold for a higher price.

1(a)(ii) Briefly explain the term ‘business objective’ (line 5). 3

Award one mark for each point of explanation:

Rationale Marks
Example or some other way of showing good
C 1
understanding
A feature of business objectives, e.g. specific,
measurable, achievable, realistic, time-based, based on
B market research, resourced, short-term, long-term, can 1
change over time/in response to factors, set by
management, SMART etc.
Something a business is trying to achieve, direction,
A 1
aim, target, goal etc.

Note: A, B and C marks are independent of each other

Exemplar:
This is a specific target that a business aims to achieve. Examples include
survival, profit and entering new markets.

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Question Answer Marks

1(b)(i) Refer to Table 1. Calculate the value of X. 2

Rationale Marks
Correct calculation of the value of X (no $ or 000s required)
2
with or without correct working
Correct formula or correct calculation of cash out (with
1
working)
No creditable content 0

Formula:
Opening Balance + cash in-cash out = closing balance

Cash out = $5000 (allow 5)

-1 + X – 5 = closing balance of 1
-1 + 7 – 5 = closing balance of 1
X=7

Answer = 7 ($7000)

Common answers
Answer Rationale Marks
7 (no working) Correct answer 2
2+2+1=5 Correct calculation of cash out 1
Without working there is no way to know
5 (no working) 0
where this figure came from

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Question Answer Marks

1(b)(ii) Explain two methods that PC could use to improve its cash flow. 4

Level Knowledge and Application Marks

Explanation of two methods of improving
2 (APP+APP) 4
cash flow in context
Explanation of one method of improving
2 (APP) 3
cash flow in context
Identification of two methods of improving
1b (K+K) 2
cash flow
Identification of one method of improving
1a (K) 1
cash flow
0 No creditable content 0

Cash flow could be improved by:

• Decreasing cash out (without decreasing cash in)
• Increasing cash in (without increasing cash out)

Context and content is likely to come from:

Method Context
• Declining in forecast
Revenue • Focus on market segment suitable for country
with rising unemployment
New computerised • $10 000 – could use a different source of
inventory system finance (i.e. not cash)
• Reduce number of workers in one/both stores
• Reduce wages (seems to be happening in
Employee costs month 6 anyway – can this be done earlier)
• Unemployment in country is rising, so may be
able to reduce wages.
• Revenue is forecast to fall significantly but
Purchases purchases do not fall by same proportion –
can these be reduced?
• Will reduction in the marketing budget mean
sales reduce further?
Marketing
• High spending on marketing budget (50% of
revenue in Month 6) – is this necessary?
Sources of finance • To cover short term issue in Month 5

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Question Answer Marks

1(c) Analyse one advantage and one disadvantage to PC of purchasing the 8

computerised inventory management system.

Knowledge
Level and Marks Analysis Marks
application
Good analysis of one
advantage and one
4 disadvantage of purchasing 4
Shows an inventory management
understanding system in context
2 of inventory
management in Good analysis of one
context advantage or one
3 disadvantage of purchasing 3
an inventory management
system in context
Limited analysis of one
advantage and one
2 disadvantage of purchasing 2
Shows an inventory management
knowledge of system
1
inventory Limited analysis of one
management advantage or one
1 disadvantage of purchasing 1
an inventory management
system
0 No creditable content

Inventory management is the control of stock – this could be raw materials,

work in progress of finished products.

Contextual analysis likely to come from:

Advantages:
• PC is in fashion business so being able to respond to customer need
important e.g., not running out of sizes or style of clothes
• Will allow PC to identify sales patterns quickly and respond to demand,
boost revenue and cash in, possibly improve cash flow

Disadvantages:
• Economy slowing down so making sure not over ordering is important
so not left with clothes/footwear that does not sell
• Initial outlay expensive and economy slowing down, is this the best time
to be investing in a stock control system?
• Training for Paul on using the new system – will he have time as a sole
trader running two shops? Can he afford it?

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Question Answer Marks

1(d) Evaluate Paul’s decision to set up PC as a sole trader. 11

Knowledge and Analysis and Evaluation

Marks Marks
Application (4 marks) (7 marks)
Justified evaluation based on
7
argument(s) in context
Developed evaluation based
6
on argument(s) in context
An evaluative statement
based on argument(s) in 5
context
Shows understanding Argument about Paul’s
of setting up as a sole 3–4 decision to set up PC as a 3–4
trader in context sole trader

Shows knowledge of Limited analysis of being a

1–2 1–2
being a sole trader sole trader
No creditable content 0

Note: A candidate may evaluate the decision in terms of setting up as a sole

trader or in terms of not setting up as another legal structure (or both).

• Paul gets to make his own decisions –he has been through survival and
now focusing on maximising profits/sales. Gets to decide what he wants
to do with the business e.g., opened up the second shop, investing in
the new stock control system
• Paul keeps the profits to himself and he has been pleased with the level
of profit made. Rewards for his investment/entrepreneurial skills.
• Unlimited liability = higher risk especially if economy slowing down and
considering Paul’s market, cash flow slowing down and so if the
business fails Paul is liable.
• Unlimited liability – heightened risk as Paul financed PC with mortgage
on his home
• Loss of income for Paul as revenue expected to slow for at least the
next 6 months. This will affect his livelihood and his standard of living.
• More susceptible to competition/changes in the economy.

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Question Answer Marks

2(a)(i) Define the term ‘productivity’ (line 20). 2

Knowledge and Application Marks

A correct definition 2
A partially correct definition 1
No creditable content 0

A correct definition should cover both of the following aspects of

productivity:
• A measure/ratio of the efficiency of inputs (e.g. labour, capital, time etc.)
• Of a business/machine/capital/labour/outputs.
• Could give formula for calculating labour or machine productivity. A
correct formula would cover both aspects.

2(a)(ii) Briefly explain the term ‘public limited company’ (line 1). 3

Rationale Marks
Example or some other way of showing good
understanding, such as:
• Limited liability
• Continuity
• Separate legal identity
C 1
• Corporation tax must be paid (not income tax
• Accounts need to be published
• Run by a Board of Directors
• Dividends may be paid
• Legal formalities (i.e. Articles, Memorandum etc.)
B Sold on the stock exchange/to general public 1
A Owned by shareholders/sells shares 1

Note: C mark cannot be awarded until both A and B marks have been
awarded

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Question Answer Marks

2(b)(i) Refer to Table 2. Calculate the value of the growth in revenue earned 4
by LC from the hotel market segment over the last four years.

Rationale Marks
Correct answer (no $ required) with or without correct working 4
Good attempt at calculation 3
Reasonable attempt at calculation 2
Some attempt at calculation 1
No creditable content 0

(A) Correctly calculate revenue from hotel sector ($20m) – 1 mark

(B) Attempt at calculating revenue four years ago – 1 mark
(C) OFR correct attempt at calculating 25% of revenue – 1 mark

Revenue is currently $50 000 000 hotel 40% so now segment is $20 000 000

It has increased by 25% in 4 years so 4 years ago total revenue was

$50 000 000 × 100/125 = $40 000 000, hotels 40% so $16 000 000

Was $16 000 000 now $20 000 000, answer is $4 000 000

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Question Answer Marks

2(b)(ii) Explain one way LC could use the information in its income statement. 2

Level Knowledge and Application Marks

2 (APP) Explanation of one way LC could use the 2
information in context
1 Identification of one way LC could use the 1
(K) information
0 No creditable content 0

Note: The income statement already includes calculations of gross profit,

operating profit, profit for the year etc.

Answers may include:

Use Possible context
To calculate • Of different market segments (households,
profitability (profit hotel, offices, restaurants)
margins) • Impact of increase in revenue over last 4
years (increase of 25%)
Analyse changes • Between segments
• After introduction of new machine
To see trends • In segments
• In costs of manufacturing the carpets
To compare • Over past four years whilst revenue has
increased
• Between segments
• With other carpet manufacturing firms
To measure • Revenue increase by 25%
performance • Shareholder value
• Of different segments
To see if objectives • PLC so could link to shareholder objectives
have been reached

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Question Answer Marks

2(c) Analyse two benefits to LC of increasing worker participation. 8

Knowledge and
Level Marks Analysis Marks
application
Good analysis of two
Shows benefits of increasing
4
understanding of worker participation in
2 worker 3–4 context
participation in Good analysis of one
context benefit of increasing worker 3
participation in context
Limited analysis of two
Shows benefits of increasing 2
knowledge of worker participation
1 1–2
worker Limited analysis of one
participation benefit of increasing worker 1
participation
0 No creditable content

Context:
• 500 workers – case says they are unhappy about their pay and working
conditions
• Poor communication and feel directors do not care about them

So, benefits:
• Improved communication between directors and workers
• Could help improve productivity alongside the capital productivity from
the machinery
• Could help avoid any labour turnover issues
• Could help avoid any quality concerns if employees are demotivated
and not feeling cared for
• May help alleviate concerns with pay if workers can see conditions
improving or directors are starting to listen to and respond to worker
concerns.

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Question Answer Marks

2(d) Discuss the importance of market segmentation to LC. 11

Knowledge and
Analysis and Evaluation
Application Marks Marks
(7 marks)
(4 marks)
A justified judgement of the
importance of market
7
segmentation to LC based on
the given arguments
A developed judgement of the
importance of market
6
segmentation to LC based on
the given arguments
An evaluative
statement/judgement of the
importance of market 5
segmentation to LC based on
the given arguments
Shows understanding
of market Argument based on the use of
3–4 3–4
segmentation in market segmentation in context
context
Shows knowledge of Limited analysis of market
1–2 1–2
market segmentation segmentation
No creditable content 0

Contextual analysis likely to come from:

Why market segmentation may be important:
• matching of customer needs especially given proportions of sales to
business markets, need to understand what hotels want that could be
different from restaurants/office for example.
• Enhanced profits/revenues for business, revenue has increased by
25% over the last four years, likely as LC knows it customers and their
needs well
• Better opportunities for growth/more customers, each segment will
be different so if more hotels opening and so on then LC can ‘tap into
this’ and therefore could be reason why revenue has increased.
• Target marketing communications so that LC can have the right
message for the right segments e.g. in marketing to restaurants or
offices.

Why market segmentation may not be important:

• Segmentation increases costs. LC makes carpets, this will increase
the costs such as research and product development for the carpets
and business customers will need different sales techniques
• Larger inventory has to be maintained by LC to cover the segments
• Promotion and distribution costs increase as LC will need different
marketing campaigns for the different segments, for example, TV
advertising for the showrooms and personal selling for the business
markets.

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