Total marks: 90 · Duration: 1 hour 45 minutes
Instructions to candidates
- Answer all questions.
- Section A contains multiple-choice and short-answer questions (20 marks).
- Section B (34 marks) and Section C (36 marks) are based on case studies printed in the paper.
- You may use a calculator. Show your working for calculations.
- This paper assesses Business in the real world, Influences on business, Marketing and Finance.
- The businesses in this paper are fictional.
- The marks for each question are shown in brackets.
Paper
Section A — Multiple choice and short answer (20 marks)
Questions 01–08: choose one answer for each question.
01 Dividing a market into groups of customers with similar characteristics, such as age or income, is called: (1 mark) A) market mapping B) market share C) market segmentation D) market research
02 Which of these is an example of primary market research? (1 mark) A) Carrying out a survey of customers in a shopping centre B) Reading government statistics on household spending C) Studying competitors' websites and price lists D) Reading a newspaper report about the industry
03 At which stage of the product life cycle are sales usually at their highest, with growth slowing down? (1 mark) A) Introduction B) Growth C) Decline D) Maturity
04 A business launches a new product at a low price to gain market share quickly. Which pricing strategy is it using? (1 mark) A) Price skimming B) Penetration pricing C) Competitive pricing D) Cost-plus pricing
05 Which of these is a source of long-term finance? (1 mark) A) Share capital B) Trade credit C) An overdraft D) A business credit card
06 Revenue minus cost of sales is known as: (1 mark) A) net profit B) operating profit C) gross profit D) total revenue
07 Which statement about cash and profit is correct? (1 mark) A) Profit and cash are always the same amount B) A business that makes a profit can never run out of cash C) Cash includes all the money that customers owe the business D) A profitable business can still run out of cash
08 A business gives away free samples of a new drink in supermarkets. Which element of the marketing mix is this? (1 mark) A) Price B) Promotion C) Place D) Product
09 Define the term brand. (2 marks)
10 A business has revenue of £80 000 and cost of sales of £32 000. Calculate its gross profit margin. Show your working. (2 marks)
11 A new machine costs £50 000 and is expected to produce an average annual profit of £6000. Calculate the average rate of return (ARR). Show your working. (2 marks)
12 State two methods of promotion a small business could use. (2 marks)
13 Explain one benefit to a business of selling its products online (e-commerce). (2 marks)
14 A business has fixed costs of £12 000 a month. Its product sells for £20 and has variable costs of £8 per unit. Calculate the break-even output per month. Show your working. (2 marks)
Section B — Case study: Peak Trails Ltd (34 marks)
Peak Trails Ltd designs and sells outdoor clothing for walkers and climbers. It was founded in the Lake District twelve years ago and now sells through its own website, its two shops, and around 60 independent outdoor retailers. Its products are known for high quality, and its brand is popular with experienced hill-walkers aged 30 to 60.
Last year, Peak Trails' sales were £3.6 million. The total UK market for specialist outdoor clothing was worth £48 million.
Table 1 shows information about three of its products.
Product Launched Sales last year Change in sales on previous year Price "Ridge" waterproof jacket 2015 £1 400 000 −6% £220 "Scree" walking trousers 2019 £900 000 +2% £85 "Summit" fleece 2023 £600 000 +40% £70 Peak Trails is planning to launch a range of children's outdoor clothing. Market research with 500 parents found that:
- 64% said price was the most important factor when buying children's outdoor clothing;
- 58% would buy online;
- 71% recognised the Peak Trails brand.
The marketing director wants to sell the children's range mainly online, where Peak Trails keeps the full price. The sales director thinks it would sell better through the independent retailers and large sports chains, although these take 35% of the selling price.
Peak Trails is also developing a new waterproof jacket made from recycled materials. It will be more expensive to produce than the "Ridge" and has no direct competitors yet.
15.1 Using the case study, calculate Peak Trails' market share last year. Show your working. (2 marks)
15.2 Explain one way Peak Trails could use an extension strategy for the "Ridge" jacket. (2 marks)
15.3 Analyse how the market research results could help Peak Trails plan the launch of its children's range. (6 marks)
15.4 Evaluate whether Peak Trails should sell the children's range mainly online or mainly through retailers. (9 marks)
16.1 Identify one way in which Peak Trails currently segments its market, using the case study. (2 marks)
16.2 Explain two factors Peak Trails should consider when setting the price of the children's range. (4 marks)
16.3 Evaluate whether Peak Trails should use price skimming or competitive pricing for its new recycled waterproof jacket. (9 marks)
Section C — Case study: Sunrise Bakery (36 marks)
Sunrise Bakery is a partnership owned by Femi and Clara. It runs one shop in a busy town centre and also supplies bread and cakes to six local cafés, which pay 30 days after delivery.
Table 2: Extract from Sunrise Bakery's income statement for last year
£ Revenue 420 000 Cost of sales 168 000 Gross profit ? Expenses 189 000 Net profit ? The partners plan to buy a new oven costing £8000 in March. Table 3 shows part of their cash-flow forecast.
Table 3: Cash-flow forecast (£)
January February March April Opening balance 5 000 X 3 000 −4 000 Total inflows 32 000 30 000 36 000 40 000 Total outflows 31 000 33 000 43 000 38 000 Net cash flow 1 000 −3 000 −7 000 2 000 Closing balance 6 000 3 000 Y −2 000 Femi and Clara are also considering opening a second shop in a nearby town. They estimate it would need £60 000 to fit out. They could take out a bank loan at 7% interest a year, or turn the business into a private limited company and sell shares to a family friend, who would then own 30% of the business.
17.1 Using Table 2, calculate Sunrise Bakery's gross profit. (2 marks)
17.2 Using Table 2, calculate Sunrise Bakery's net profit margin. Show your working. (2 marks)
17.3 Using Table 3, calculate the values of X and Y. (4 marks)
17.4 Explain two ways Sunrise Bakery could improve its cash flow in March and April. (4 marks)
17.5 Analyse why Sunrise Bakery can be profitable but still have a negative cash balance. (6 marks)
18.1 Explain one disadvantage to Femi and Clara of being a partnership with unlimited liability. (2 marks)
18.2 The second shop is expected to make a total profit of £45 000 over five years, before taking off the £60 000 cost. Calculate the average rate of return on the investment. Show your working. (3 marks)
18.3 Evaluate whether Femi and Clara should finance the second shop with a bank loan or by selling shares. (9 marks)
18.4 Analyse how break-even analysis could help Femi and Clara decide whether to open the second shop. (4 marks)