Practice Paper 2 (Cambridge International IGCSE Business)

[case-study] CLP is a social enterprise that provides educational technology solutions to underserved communities worldwide. The company operates with a strong ethical foundation, ensuring all its products are accessible and affordable. CLP sources materials from certified fair-trade suppliers and maintains transparent pricing structures. The company recently decided to donate 10% of its annual profits to educational charities, despite facing increased competition from larger technology firms offering cheaper alternatives. The Managing Director commented: 'Ethics isn't just about doing the right thing – it creates genuine value for our business and the communities we serve.'

Outline two advantages to CLP of behaving ethically.

Extract:

Furniture Outdoors (FO)

FO has been a private limited company for 20 years. It is owned and run by the Chan family and is located in country Z. In country Z the secondary sector has become relatively more important as the country has developed. FO is a manufacturer of wooden furniture that is suitable for outdoor use. Its products include tables, chairs and other outdoor furniture.

Customers order online from the FO website. The furniture is then delivered to customers in country Z using FO’s own delivery vehicles. However, FO is considering changing to selling its furniture through either wholesalers or large retailers in country Z.

The Chan family have the business objective of contributing to sustainable development. FO only uses sustainably sourced wood when making furniture. This is from local forests in country Z and the wood is more expensive than imported alternatives.

For many years FO shareholders have reinvested profits to provide the finance for growth. FO recently took over 2 other furniture businesses in country Z and plans further takeovers. The Chan family plan to continue to control and manage FO after this expansion. The leadership style of these two companies is very different to that of FO and their factories are located several miles away from FO in different regions of country Z.

FO need to manage all its resources effectively. It tries to use the same components such as nails, brackets and paint for all its furniture designs. It is important to not run out of raw materials and so orders to suppliers must be carefully planned to avoid late deliveries. FO want to keep wastage of materials to a minimum. FO also need to consider how many employees are required to complete each order.

Appendix 1 - FO website advertisement

FO - the only business to go to when you need new outdoor furniture for your garden.

FO produce a range of high quality furniture to meet all your needs for fashionable, well designed outdoor furniture. Be reassured our furniture is only made from the highest quality wood from sustainable forests.

Our furniture is only available online so order today and have your furniture delivered in the next few weeks. Email any questions to us and we will reply quickly.

Appendix 2

Extract of cost, selling price and sales data for one of FO’s products

Appendix 3

Newspaper article from the Daily News April 2021

Sustainable production needed to save the planet

A report from the International Committee for the Planet states that manufacturers must find more sustainable ways to produce their products as global warming is becoming more of an issue.

The report suggests three main ways manufacturers can change:

• Only use raw materials from sources that replace what they have used. This is estimated to raise variable costs by 20%
• Only use packaging that can be recycled. Costs are estimated to increase but the selling price may not rise by more than 10%
• Only use electric vehicles to deliver products. The cost of buying electric vehicles is more than petrol or diesel vehicles. Using electric vehicles could enable variable costs to be reduced by 5%.

Refer to Appendix 2 and Appendix 3 and other information. Consider the following three ways FO could use to contribute to sustainable development:

• only use raw materials from sources that replace what they have used
• only use packaging that can be recycled
• only use electric vehicles to deliver products.

Which way should FO choose to maximise profit? Justify your answer.

Refer to the following insert when answering the question

Extract:

Protective Hats (PH)

PH is a large public limited company based in country Z. It has been operating successfully for 50 years. PH produces a range of protective hats for employees working on construction sites, in factories or mines. It has a reputation for producing high-quality products and sells its hats around the world.

PH is currently the market leader in country Z. To remain competitive PH regularly carries out market research to find out if new products are needed. PH needs to ensure its market research data is accurate, so that it can develop the best new protective hats.

PH’s only factory is in country Z. It has 100 production employees. They work on a flow production line and carry out the same tasks every day. PH pays these employees the minimum wage and there have been complaints about working conditions. Some of the employees are considering becoming members of a trade union.

PH’s directors plan to expand the company by opening factories in other countries to produce protective hats. They think there are many benefits for PH of becoming a multinational company. They are aware that there is growing demand for protective hats in many developing countries where construction and manufacturing industries are expected to continue to have strong growth in the next 10 years.

Appendix 1

Advertisement for PH’s products

PH’s protective hats will protect your employees when at work. We supply many of the leading construction, manufacturing and mining companies across the world.

High quality is guaranteed.

PH’s hats can be ordered online from our website.

Appendix 2

Email to PH’s Managing Director from PH’s Human Resources Director

To: Managing Director

From: Human Resources Director

Date: 1 October 2023

Re: Training

After reviewing our current training, I think we need to increase the training we provide to new employees. Existing employees would also benefit from additional training as there have been issues with motivation.

I know there are plans to introduce new equipment into the flow production line. When is this likely to happen?

Can we please meet to discuss these issues?

Appendix 3

PH’s financial data for 2021 and 2022

Consider three possible benefits for PH of becoming a multinational company. Which benefit is likely to be the most important? Justify your answer.

Refer to the following insert when answering the question

Extract:

Vegetable Palace (VP)

VP was started 10 years ago in country Z. It is a public limited company. VP has a chain of 500 fast-food restaurants that operate across country Z. The VP brand is famous for its vegetarian food, this means none of its meals contain meat.

VP has a head office in Main City where all the directors and senior managers work. There are many barriers to communication. Each VP restaurant has a Manager, an Assistant Manager and 50 employees who cook and serve the meals. Restaurant Managers are often very busy and they are considering delegating some of their tasks to the Assistant Managers.

The ingredients for the restaurants are ordered in bulk by head office and then distributed from its warehouse to each of the restaurants. However, some senior managers think that Restaurant Managers should purchase their own ingredients from local suppliers. This would mean the ingredients would be fresher and would allow variations in the meals served.

VP wants to expand into another country. It will choose between the two countries shown in Appendix 2. VP will also need to decide how to enter a new market in another country. It has the option of forming a joint venture with another business or franchising the VP brand. The choice of finance will need to be considered for the expansion and the amount of finance will depend on the option chosen.

Appendix 1

Advertisement for VP's restaurants

Choose VP for the finest vegetarian meals. Our service is the fastest possible!

You will receive your meal in less than 5 minutes – guaranteed!

Delicious and varied meals for even the biggest of appetites and all at competitive prices.

New meals are being introduced all the time.

There is a VP restaurant near you – we look forward to serving you soon.

Appendix 2

Summary of the two possible countries that VP could choose to locate its new restaurants.

Appendix 3

Email from VP’s Managing Director to VP’s Marketing Director

To: VP’s Marketing Director

From: VP’s Managing Director

Date: 31 March 2023

Re: Economic changes in country Z

Did you see the news this morning that interest rates will be raised from 3% to 5% later today? This will have several effects on our business in country Z.

The news also said that the exchange rate in country Z has depreciated. We will have to consider how this will affect our business, especially as we import 30% of our ingredients into country Z.

There are also new legal controls being introduced that mean we have to list all the ingredients used in each of our meals on the menu. We do reprint menus every time we change the meals, but it is something to consider.

Speak later today.

Using Appendix 3 and other information, consider how the following three changes in country Z may affect VP.

• Increase in interest rates.
• Depreciation of country Z’s exchange rate.
• New legal controls which require all restaurants to list the ingredients in their meals.

Which change is likely to have the greatest effect on VP's profits? Justify your answer.

Refer to the following insert when answering the question

Extract:

Cherished Chocolates (CC)

CC is a public limited company. It employs 4000 workers in country X and many are members of a trade union. CC has manufactured chocolate bars in country X for 50 years. It imports most of its raw materials, such as cocoa beans. Over the last 10 years CC has expanded and now sells in other countries. Many of these countries have no trade restrictions. The Directors of CC know that globalisation has opportunities and threats for CC.

CC produces a number of brands of chocolate bars, such as Tiabar, in country X. Its most popular chocolate bar, Choco, has the highest market share. The total market for chocolate bars is no longer growing in country X. CC plans to reduce the number of brands it sells in country X. It has to decide which of the two brands shown in Appendix 1 to stop selling.

NM operates in country Z and sells its own brands of chocolate bars, including Nuttybar. NM employs 500 workers. In country Z chocolate bars are distributed through small retail outlets. The wage rates in country Z are lower than in country X. However, incomes in country Z are starting to rise.

The Directors of CC are planning to take over NM to expand into this market rather than setting up a factory. The takeover will cost $35 million, some of which will be financed by a bank loan. The shareholders of NM are being offered CC shares in exchange for NM shares.

The Directors of CC know there might be diseconomies of scale after the takeover. They also have to decide who will be the Operations Manager for NM’s factory in country Z. They could keep NM’s existing Operations Manager or move CC’s Operations Manager from country X. Information about the two managers is shown in Appendix 2.

Appendix 1

The product life cycles of two of CC’s brands of chocolate bars in country X

Option 1 – stop producing Tiabar

A brand aimed at young children which is a new target market for CC. The market research at the development stage showed positive results from test marketing and sales have been growing steadily. There are many multinational chocolate bar companies targeting this age group.

Option 2 – stop producing Choco

The market leader in country X. It is a well established brand targeting adults. Sales are high but have not been increasing for several years. No new competitors have entered this market in the last two years.

Appendix 2

Information about the two Operations Managers for NM’s factory in country Z

Appendix 3

Selected information from the financial statements for CC and NM for 2021

Using Appendix 3 and other information, consider how the financial statements might be useful to the following three stakeholder groups.

• NM’s shareholders
• CC’s managers
• CC’s bank manager

Which stakeholder group will find the financial information most useful? Justify your answer.

Refer to the following insert when answering the question

[case-study] Paolo wants to start up a business making cakes. He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital.

Extract from Paolo’s financial and sales data
Average price per cake	$6
Average cost per cake	$4
Forecast average number of cake sales per day	50

Explain one advantage and one disadvantage to Paolo’s business of using crowdfunding as a source of finance.

Define‘opening balance’

[case-study] Izaak owns a small fish restaurant. He employs two chefs (cooks) and three workers who serve in the restaurant.

Izaak has been trying to increase added value to improve profits. Izaak has been looking at the financial performance of his business. An extract is shown in the table below. Izaak has received a number of complaints about food and service. He knows he must improve quality but cannot decide on the best way to do this.

Extract from income statements ($000)

	Last year	Current year
Revenue	X	300
Cost of sales	180	150
Gross profit	120	150
Expenses	90	Y
Profit	30	15

Calculate the values of X and Y.

Show your workings.

Extract:

Sports Safety Equipment (SSE)

SSE manufactures sports safety equipment in country Z. It is a public limited company which has been successful for over 30 years. The main product SSE manufactures is safety helmets for different sports, such as bicycle riding, cricket and skateboarding. SSE has one large factory making the safety helmets. The factory uses flow production. The production workers each specialise in one task on the production line. SSE’s raw materials are imported.

SSE sells its helmets in several other countries and is planning to expand into many more. It will need to carry out market research before entering new markets in other countries. Each country has different sports that are popular and the style of helmets varies from country to country.

SSE plans to build its own factories in its most important markets in other countries and will need to choose a suitable source of finance. The Human Resources Director has decided to use internal recruitment for the managers of the new factories. There will need to be effective communication between the managers of the new factories and SSE’s head office in country Z.

Most of SSE’s sales in country Z are through sports equipment shops. Customers like to try on the helmets to check they fit correctly. SSE currently sells its helmets in other countries through its website.

SSE is also increasing its product range. The latest new product being developed is a children’s cricket helmet. A break-even chart for this new product is shown in Appendix 3.

Appendix 1

Extract from SSE’s website

If you want the best protection when playing sport then buy an SSE safety helmet!

We supply a wide range of safety helmets for you when playing sport.

Whatever the sport - SSE produces a helmet for you.

You can order directly from this website by entering your head measurements below.

Get the perfect fit for you!

Appendix 2

Email from SSE’s Managing Director to SSE’s Finance Director

To: Finance Director

From: Managing Director

Date: 1 September 2023

Re: Demand for SSE’s products

Demand for SSE’s products in country Z is forecast to increase. Our government has imposed import tariffs on safety helmets. We may be able to increase our prices.

The exchange rate in country Z is expected to fall. However, other countries have introduced import quotas on safety helmets.

We will have to consider all the likely effects of these changes.

Appendix 3

Projected weekly break-even chart for SSE’s new children’s cricket helmet

The maximum output and sales for this product is 1000 units per week

Consider the advantages and disadvantages of the following two ways to ensure products comply with legal controls on marketing when SSE expands into new international markets.

• Compliance checks
• Staff training programmes

Which way should SSE prioritise to ensure compliance with legal controls on marketing? Justify your answer.

Do you think it is always better for a start-up business to use primary market research, rather than secondary market research, when making decisions? Justify your answer.