Mark Scheme

Section A — Structured Questions

1. (a) (up to 2) Any two: to be their own boss/independence; to pursue a passion/interest (bikes); potential to earn more money/keep the profit; flexibility; to fill a gap in the market. 1 each. [2] (b) (2) Profit = revenue − costs = $180,000 − $150,000 = $30,000. 1 for method, 1 for the answer. [2] (c) (up to 6) Two aims: survival (especially when new); making a profit; growth/expansion; providing a good service/customer satisfaction; personal satisfaction/independence. 3 each (aim + explanation of why it matters to Leah/PedalWorks — e.g. survival to establish the business, profit to repay a loan and reward her effort, growth to reach more customers). [6]

2. (a) (up to 2) The marketing mix is the combination of factors a business uses to market its product — Product, Price, Place and Promotion (the 4 Ps). [2] (b) (up to 4) Two promotion methods: social media/online advertising (cheap, reaches local cyclists); local advertising/leaflets/word of mouth; special offers/discounts; a presence at local cycling events. 1 + 1 development each (method + why it would attract customers). [4] (c) (up to 6) Market research explained and applied: primary research (surveys/questionnaires of local customers) to find out demand for a second workshop vs online buying; secondary research (looking at competitors, online market data) to judge national demand for Option B; the results reduce risk by showing which option customers actually want and whether there is enough demand to cover the loan. 6 = clear explanation of research types applied to the two options with the benefit of reducing risk; 3–4 = some application; 1–2 = general. [6]

3. (a) (up to 2) Advantage — provides the money needed now to expand, repaid in instalments; Disadvantage — must pay interest (extra cost) and repay even if sales are poor, increasing risk. 1 each. [2] (b) (up to 4) Fixed costs do not change with output (e.g. workshop rent); variable costs change with output/sales (e.g. spare parts for each bike repaired). Distinction (2) + a relevant example of each (2). [4] (c) (up to 6) Two ways developed: chase up/require faster payment from customers (improves cash in); negotiate longer credit terms with suppliers (delays cash out); reduce stock held; arrange an overdraft; cut/delay non-essential spending. 3 marks each (method + how it improves cash flow). [6]

4. (a) (up to 2) Any two: better skills/quality of work; greater productivity; improved motivation/staff retention; fewer mistakes/safer work. 1 each. [2] (b) (up to 4) Two factors: relevant skills/experience/qualifications (can they repair bikes to a high standard?); cost/wage the business can afford; attitude/reliability and customer manner; availability/fit with the small team. 1 + 1 development each. [4] (c) (up to 4) Good customer service leads to satisfied customers who return (repeat business) and recommend the business (word of mouth/reviews), building a good reputation, more sales and an edge over competitors. Two developed benefits, or one benefit developed fully. [4]

Section B — Extended Response

5. (16 marks) Levels-marked, must recommend and justify using both options and the case study.

• Option A (second workshop): benefits — serves a new local area, more repair capacity/revenue, builds on proven model; risks — high fixed costs (rent, another team), needs a large loan, management stretched across two sites, demand in the new town unproven.
• Option B (own website, national sales): benefits — reach customers across the country, lower fixed cost than premises, scalable, open 24/7; risks — delivery/logistics of bikes, strong online competition, website and marketing costs, needs different skills.
• Judgement: a supported recommendation weighing risk against Leah's limited savings and need for a loan; e.g. Option B may be lower-cost and higher-reach but riskier operationally; Option A is a proven model but capital-heavy. Reward a clear, justified choice.
• Level 4 (13–16): balanced analysis of both options with a well-justified recommendation using the case study; Level 3 (9–12): both options with some analysis and a recommendation; Level 2 (5–8): limited/one-sided; Level 1 (1–4): basic.

Sample Answers with Examiner Commentary

Question 3(b) — Sample Answers

Grade A response. "Fixed costs are costs that do not change with the level of output — the business has to pay them no matter how many bikes it repairs or sells. A good example for PedalWorks is the rent on its workshop, which stays the same each month whether Leah repairs one bike or a hundred. Variable costs, on the other hand, change directly with the level of output: the more the business produces, the higher these costs become. An example for PedalWorks is the spare parts used to refurbish bikes — the more bikes Leah restores, the more parts she has to buy, so this cost rises with output."

Mark: 4/4. Examiner commentary: A full-mark answer. The candidate defines both types of cost precisely — fixed costs do not change with output, variable costs change with output — and, crucially, provides a genuinely relevant example for PedalWorks for each (workshop rent as fixed, spare parts as variable), explaining why each example fits the definition. Applying the examples to the actual business in the case study, rather than giving generic ones, is exactly what secures the marks.

Grade C response. "Fixed costs stay the same and variable costs change. A fixed cost is rent and a variable cost is materials."

Mark: 3/4. Examiner commentary: The candidate correctly distinguishes the two types of cost and gives a valid example of each, earning three marks. What holds it back from full marks is the lack of application and explanation: the examples are generic ('rent', 'materials') rather than clearly tied to PedalWorks, and there is no explanation of why variable costs change (that they rise as more bikes are repaired). Linking each example to the business and explaining the 'change with output' idea would gain the final mark.

Question 5 — Sample Answers

Grade A response (extract). "Both options could help PedalWorks grow, but they carry different risks. Option A, opening a second workshop, has the advantage of repeating a model that already works: Leah knows how to run a workshop and it made a $30,000 profit last year, so a second one could serve a new local area and increase revenue. However, it is expensive — she would face high fixed costs such as rent and wages for another team, would need a large bank loan, and demand in the new town is unproven, so if customers do not come she still has to repay the loan.

Option B, launching her own website, has the advantage of reaching customers across the whole country rather than one town, with lower fixed costs than a second premises and the ability to sell 24/7. The risks are that delivering bikes nationally is complicated and costly, there is strong online competition, and Leah would need new skills in running a website and digital marketing.

Overall, I would recommend Option B. Because Leah has only limited savings and would need a loan either way, the lower fixed costs and much larger potential market of a website make it a better use of borrowed money than committing to the heavy, fixed costs of a second workshop. However, this depends on her solving the delivery problem, so I would advise her to do market research into national demand and shipping costs first before committing."

Mark: 15/16. Examiner commentary: A Level 4 answer. It analyses the benefits and risks of both options, using specific evidence from the case study (the $30,000 profit, the need for a loan, Leah's limited savings), and reaches a clear, well-justified recommendation. The judgement is genuinely evaluative — it weighs the lower fixed costs and wider reach of Option B against its operational risk, and sensibly makes the recommendation conditional on further market research. This balanced, applied and justified reasoning is exactly what the top band requires.