Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Exam-style case study 1a answers

The answers have been written by the authors and aim to provide a summary of appropriate content for answering each question.
However, the suggestions provided are not intended to be a definitive guide to all acceptable answers; each response should be
assessed on its own merits. Marking guidance for case study questions has been provided for this case study below, however,
this same guidance can be followed when marking any case study questions from the coursebook or the Cambridge Elevate
enhanced edition. Please note, the way marks are awarded may differ in examination to the guidance provided in this resource.

Case study 1a: DIY Home Supplies

Question 1a Identify one advantage and one disadvantage to Joshua of changing the legal structure of his
business to a private limited company.

Possible answers Advantages

could include: • raise capital by selling shares
• limited liability
• continuity
• easier to get bank loan
• separate legal identity

Disadvantages
• shareholders expect dividends
• accounts not totally private
• more complex legal process than unlimited business

Sample explanation

Limited liability for his building suppliers business means that, if the business owes suppliers money
for the purchase of building materials, and the business goes bankrupt, then Joshua and his father (as
shareholders) cannot have their personal possessions taken away to pay the debt. They would only lose
the money they invested into the business.

Marking guidance • Total available marks: [8]

• One mark should be given for a relevant advantage: [max 1 mark]
• One mark for a relevant disadvantage: [max 1 mark]
• Up to three further marks can be given for each explanation, provided that one is applied to the
specific business scenario in this question: [max 6 marks]

Question 1b The small business development adviser encouraged Joshua to set clear objectives for his business.
Consider each objective in Appendix 2. Which do you think is most important for the success of DIY
Home Supplies? Justify your answer.

Possible answers Objective 1: Offer quality • create brand loyalty – could lead to increased sales as customers keep
could include: products and services to returning
customers at competitive • remain competitive – less risk of losing market share to rivals
prices at all times

Objective 2: Reinvest • able to finance growth without the need to borrow money externally –
a percentage of profits keeps costs of finance lower
each year to improve • no risk of losing control of business
and expand the business • able to control rate of growth

© Cambridge University Press 2018 Exam-style case study answers – 1a

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Objective 3: Only sell • better reputation – lower costs of promotion

products that meet • increased sales if able to find customers who have same principles
expected social, ethical • less risk of legal / pressure group action which could have negative
and environmental impact on costs/image
standards • able to charge higher price – may increase profit margin

Conclusion • objective 1: helps remain competitive – without this may not be able
to achieve other objectives or expand his business – so possibly most
important
• objective 2: important source of finance – so able to buy more houses
to renovate – but may slow down expansion as little retained profit as
only formed seven years ago – may need to borrow to expand as quickly
as planned
• objective 3: customers may not share same views – may not be prepared
to pay extra – lower sales as customers go to cheaper competitors – may
not be able to find suitable suppliers or materials to pursue which could
lower sales – so could be seen as longer term aim – depends on personal
values as to how important the issue is

Marking guidance Level Criteria Marks

High • Detailed discussion of two or more objectives is evident in the response [9–12]
• Recommendations and / or conclusions have been well-justified clearly
explaining the reasons behind decisions made and why the alternative
points are not as important
• Clear and appropriate use of case study material to support points made
is evident throughout the response to demonstrate a good understanding
of appropriate business concepts.

Middle • At least one objective has been discussed in detail. [5–8]

• Some justification and reasoning has been provided for the choices made.
• Some use of case study material to support points made is evident in the
answer to show understanding of appropriate business concepts.

Low • Some points have been made, but there is little or no explanation offered. [1–4]
• Judgement may have been attempted but there is limited or no
explanation of the choices made
• An appropriate reference to material in the case study may have been
made

Non-creditable • No response provided or, response given is not creditable. [0]

answer

© Cambridge University Press 2018 Exam-style case study answers – 1a

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Question 2a Explain two reasons why the government provides grants to start-up businesses.

Possible answers could Reasons

include: • to increase employment
• to increase economic growth
• small businesses may grow into large businesses

Sample explanation

To raise employment levels as small businesses will employ many workers in their shops and
factories and so reduce unemployment. Without government help, businesses such as Joshua’s
building supplies shop may not open and, therefore, these workers would not have a job. This
may reduce benefit payments or increase income tax for the government.

Marking guidance • Total available marks: [8]

• One mark should be given for each valid reason: [max 2 marks]
• One mark for a relevant disadvantage: [max 1 mark]
• Up to three further marks can be given for each explanation, provided that one is applied to
the specific business scenario within this question: [max 6 marks]

Question 2b Explain why the following three characteristics are important to Joshua when being a successful
entrepreneur. Which characteristic do you think is most important? Justify your answer.

Possible answers Taking risks • set up the business in 2010 – with $5000 in savings – and borrowed money – could
could include: have lost it all
• looking to expand rather than second shop – entered a new market – no experience
– so could make loss and damage reputation of other business
• no direct experience of either business – as electrician – so shows he is willing to
take advantage of new opportunities
Creative • needs new ideas to make his supplies business different to others such as
equipment stocked or how to operate
• saw opportunity to renovate house for students – did something different – he will
have to think about how he decorates the house
Hard working • business established in 2010 – made many mistakes but learned quickly – to own
an efficient and profitable business – had to work hard to manage the business
effectively so that it is successful
• planning shown for new business – work long hours to ensure business is given
finance needed
Conclusion • creative – limited evidence of this – so less likely to be important
• hard working – has a successful business – father provided some of the finance but
he worked hard in first two years to ensure success – without this risk would not
have paid off
• taking risks – taken chances with both ideas – without this, would not have had
opportunity to be successful – but taking risk is only part of the process – need to
work hard to ensure decisions taken are worth the risk

© Cambridge University Press 2018 Exam-style case study answers – 1a

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Marking guidance Level Criteria Marks

High • Detailed discussion of two or more characteristics is evident in the [9–12]
response
• Recommendations and / or conclusions have been well-justified clearly
explaining the reasons behind decisions made and why the alternative
points are not as important
• Clear and appropriate use of case study material to support points made is
evident throughout the response to demonstrate a good understanding of
appropriate business concepts.

Middle • At least one characteristic has been discussed in detail. [5–8]

• Some justification and reasoning has been provided for the choices made.
• Some use of case study material to support points made is evident in the
answer to show understanding of appropriate business concepts.

Low • Some points have been identified but there is little or no explanation [1–4]
offered.
• Judgement may have been attempted but there is limited or no explanation
of the choices made
• An appropriate reference to material in the case study may have been made

Non-creditable • No response provided or, response given is not creditable. [0]

answer

Question 3a Explain two possible problems linked to Joshua’s proposed growth of his business.

Possible answers Possible problems

could include: • financial
• competition
• government / legal controls
• more difficult to control

Sample explanation

More difficult to control as Joshua already has the DIY supplies business to run as well as starting this
new venture, especially as the two businesses are very different and he made a number of mistakes in
his first two years of business. This could lead to poor decisions being taken which threaten his potential
success.

Marking guidance • Total available marks: [8]

• One mark should be given for each valid problem: [max 2 marks]
• Up to three further marks can be given for each explanation, provided that one is applied to the
specific business scenario within this question: [max 6 marks]

© Cambridge University Press 2018 Exam-style case study answers – 1a

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Question 3b Consider how the following three stakeholders will be affected if Joshua goes ahead with his new
business idea. Which stakeholder do you think will be most affected by this decision? Justify your answer.

Possible answers Bank • providing finance – gain interest payments on $25 000 – which increases revenue
could include: • high risk as no experience in this sector – could affect bank’s profits – can use house
as security to limit amount of risk

Customers • additional accommodation – more choice or better quality (as newly renovated) –
more choice could mean lower prices so more affordable – important as on low
income
• Joshua has no experience in sector so house may not be suitable or there may be
problems contacting him

Shareholders • lower profits possible – as added costs of finance and investment in new venture –
no experience so less certain of success
• has limited liability – limits risk faced to amount invested

Conclusion • bank – probably most affect as faces risk of non-payment – property might not be
easy to sell
• customers – increases competition – more choice – but lack knowledge of market so
choice may not match needs – but always other landlords available
• shareholder – risks limited as benefit from limited liability as private limited
company – so losses limited and will benefit if makes profit

Marking guidance Level Criteria Marks

High • Detailed discussion of two or more stakeholders is evident in the response [9–12]
• Recommendations and / or conclusions have been well-justified clearly
explaining the reasons behind decisions made and why the alternative
points are not as important
• Clear and appropriate use of case study material to support points made is
evident throughout the response to demonstrate a good understanding of
appropriate business concepts.

Middle • At least one stakeholder has been discussed in detail. [5–8]

• Some justification and reasoning has been provided for the choices made.
• Some use of case study material to support points made is evident in the
answer to show some understanding of appropriate business concepts.

Low • Some stakeholders have been identified but there is little or no explanation [1–4]
offered.
• Judgement may have been attempted but there is limited or no
explanation of the choices made
• An appropriate reference to material in the case study may have been
made

Non-creditable • No response provided or, response given is not creditable. [0]

answer

© Cambridge University Press 2018 Exam-style case study answers – 1a

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Question 4a DIY Supplies is in the private sector. Explain two differences between Joshua’s business and
its competitors in the public sector.

Possible answers could Differences

include: • profit motive
• Joshua’s business not owned by government
• separate legal identity
• limited liability

Sample explanation

Joshua’s business has profit as an objective, whereas public sector businesses have different
objectives, such as providing a service. This means that the price Joshua charges for renting a
room will be based on how much profit he wants to make to achieve this objective rather than
setting prices based on what students can afford to pay.

Marking guidance • Total available marks: [8]

• One mark should be given for each valid difference: [max 2 marks]
• Up to three further marks can be given for each explanation, provided that one is applied to
the specific business scenario within this question: [max 6 marks]

Question 4b Consider the advantages and disadvantages to Joshua of choosing to start a new business
rather than expand his existing business. Do you think Joshua made the correct decision? Justify
your answer.

Possible answers could Existing • has experience – operated since 2010 – knows mistakes so able to
include: business avoid them
• demand – is there scope for a second shop? – he bought the shop, why was
it sold?
• finance – cheaper than other option by $20 000
• spread business reputation
New business • competition – there are other landlords who students rent from – students
may be loyal so how will he attract customers?
• potential market – there is a large population of students – so could be first of
many houses – help increase profit further
• finance – will need to borrow $20 000–50 000 more than new shop – can he
afford it?
• taking risks – seems to like a challenge as was electrician before
• has prepared a business plan
• has practical skills – as electrician – so may not be too difficult to renovate
house or know people who can help him – which would lower costs
Conclusion • existing business – has experience – and reputation to build on – cheaper so
may be seen as safer option – but may want a new challenge
• new business – may like taking risks, already lived the dream with current
business – may want a new challenge – higher risk as no experience – large
potential market – has competition so may represent greater risk – so could
depend on how much risk he is prepared to take

© Cambridge University Press 2018 Exam-style case study answers – 1a

 Cambridge IGCSE and O Level Business Studies Section 1 Understanding business activity

Marking guidance Level Criteria Marks

High • Detailed discussion of both options is evident in the response [9–12]
• Recommendations and / or conclusions have been well-justified
clearly explaining the reasons behind decisions made and why the
alternative points are not as important
• Clear and appropriate use of case study material to support points
made is evident throughout the response to demonstrate a good
understanding of appropriate business concepts.

Middle • One option has been discussed in detail [5–8]

• Some justification and reasoning has been provided for the choices
made.
• Some use of case study material to support points made is evident
in the answer to show some understanding of appropriate business
concepts.

Low • A number of issues have been identified but there is little or no [1–4]
explanation offered.
• Judgement may have been attempted but there is limited or no
explanation of the choices made
• An appropriate reference to material in the case study may have
been made

Non-creditable • No response provided or, response given is not creditable. [0]

answer

© Cambridge University Press 2018 Exam-style case study answers – 1a