Skills Exercises

Application (AO2)

Cambridge IGCSETM / IGCSE (9−1)

Business Studies 0450 / 0986
Cambridge O Level
Business Studies 7115
For examination from 2023
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Contents
Introduction ..................................................................................................................................... 4
Application (AO2) ............................................................................................................................ 5
Exercise 1: Knowing the formulae ............................................................................................... 5
Exercise 2: Getting application marks........................................................................................ 14
Exercise 3: Getting to know the case study ............................................................................... 24
Skills Exercises

Introduction
Cambridge IGCSE / O Level Business Studies attracts a variety of learners from many different
backgrounds. For some learners Business is a new subject and an opportunity to explore an area of study
that interests them, while developing a set of transferable skills. Other learners have previously studied
Business and are looking to continue developing their knowledge of the subject. Either way, the study of
Business allows learners to experience the diverse and dynamic world within which businesses exist and
gain the knowledge needed to understand how businesses operate within real contexts, analyse alternative
courses of action and develop the ability to make justified recommendations.

Skills and why they are important?

Skills are the key to success. The performance of candidates in Cambridge IGCSE / O Level Business
Studies examinations have shown a range of areas where improvement would be helpful. These areas of
improvement tend to centre around the assessment objectives (AOs) of the course and we have addressed
these AOs in three Skills Exercise booklets.

• Skills Exercises – Knowledge and understanding (AO1)

• Skills Exercises – Application (AO2)

• Skills Exercises – Analysis (AO3) and Evaluation (AO4)

The skills exercises in these booklets make use of examination questions and data and include activities and
worksheets to help skills development and incorporate suggested teaching approaches, such as group work,
discussion, structured support and writing in sequence. They do not attempt to cover all possible aspects of
the examinations, only those problem areas which have presented consistently over time.

How will these skills be developed?

The Skills Exercises booklets aim to help learners develop skills in:
• using knowledge and numerical data to answer examination questions

• effectively using the case study in the examination to provide context to answers

• providing sufficient depth to analysis, including understanding how effective chains of analysis can
be achieved

• making a clear judgement as part of supported evaluation.

The skills exercises provide suggestions so you can have confidence that the materials you prepare and use
in the classroom are building skills and resilience in your learners. This document should be used alongside
the other teaching and learning resources provided on the School Support Hub

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 Skills Exercises

Application (AO2)
To access Application (AO2) marks learners need to:

• apply knowledge and understanding of facts, terms, concepts, conventions, theories and techniques.

Exercise 1: Knowing the formulae

The ability to use numbers is an essential part of the Cambridge IGCSE / O Level Business Studies syllabus.
Learners should be able to complete calculations by using the data provided in the STEM/case study.

Knowing the formulae will enable learners to complete these calculations.

Activity 1: Complete the formula

There are a range of formulae that learners need to know. Some of these formulae may look similar to others
or have very subtle differences.

Give learners a set of incomplete formulae.

Learners should complete the formulae by filling in the missing word.

Worksheet 1: Complete the formula can be used as an example of this activity.

Lead a class discussion, checking that learners have the correct answers and addressing any misconceptions.

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Skills Exercises

Worksheet 1: Complete the formula

Fill in the gaps to complete the formulae below.

1. Break-even = fixed costs

___________

2. Margin of safety = _______________ - breakeven output

3. Net cash flow = cash inflow - __________________

4. Gross profit = ___________ - cost of sales

5. Gross profit margin = gross profit x 100

___________

6. Acid test ratio = current assets - ________________

current liabilities

7. Revenue = ___________ x quantity

8. Closing balance = opening balance + _____________________

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 Skills Exercises

Worksheet 1 answers:

1. Break-even = fixed costs

contribution per unit

2. Margin of safety = current output - breakeven output

3. Net cash flow = cash inflow – cash outflow

4. Gross profit = revenue - cost of sales

5. Gross profit margin = gross profit x 100

revenue

6. Acid test ratio = current assets - inventories

current liabilities

7. Revenue = price x quantity

8. Closing balance = opening balance + net cash-flow

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Skills Exercises

Activity 2: Calculations

It is important for learners to be able to complete calculations using the data provided in the STEM/case study.

Give learners a sample of data and ask them to identify which calculations they should be able to complete
using the data provided.

Learners discuss their thoughts with a partner and add any that they have missed to their list.

Learners should then complete the calculations individually.

Worksheet 2: Calculations can be used as an example of this activity.

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 Skills Exercises

Worksheet 2: Calculations
1. Write a list of the calculations that you would be able to complete using the data in the table below.

Extract of data from XXX’s income statement

Revenue $50 000

Cost of sales $10 000

Overhead costs $15 000

Calculation list:

a)

b)

c)

d)

2. Discuss your list with a partner and add any extras that you may have missed.

3. Complete the calculations below:

a)

• Formula –

• Workings –

• Final answer –

b)

• Formula –

• Workings –

• Final answer –

c)

• Formula –

• Workings –

• Final answer –

d)

• Formula –

• Workings –

• Final answer –

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Skills Exercises

Worksheet 2 answers:

1. Write a list of the calculations that you would be able to complete using the data in the table below.

Extract of data from XXX’s income statement

Revenue $50 000

Cost of sales $10 000

Overhead costs $15 000

Calculation list:

a) Gross profit

b) Profit

c) Gross profit margin

d) Profit margin

2. Discuss your list with a partner and add any extras that you may have missed.

3. Complete the calculations below:

a)

Gross profit = revenue - cost of sales

= $50 000 - $10 000
= $40 000
b)

Profit = Gross profit - overhead costs

= $40 000 - 15 000
= $25000
c)

Gross profit margin = gross profit x 100

revenue
= $40 000 x 100
$50 000
= 80%
d)

Profit margin = profit x 100

revenue
= $40 000 x 100
$50 000
= 50%

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 Skills Exercises

Activity 3: Formulae

Give learners a list of the most common formulae for Cambridge IGCSE / O Level Business Studies which are
listed on Worksheet 3: Formulae or add to this from the syllabus to create a complete list for the course.

Learners identify the formulae for each calculation and then discuss with a partner what each formula shows.

Learners should then complete the final column with this information.

Lead a class discussion to check learners’ answers and addressing any misconceptions.

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Skills Exercises

Worksheet 3: Formulae
Identify the relevant formulae for each of calculations below and then discuss with a partner what each formula
shows. The first has been done as an example for you. Complete the final column of the table with details of
what each formula shows.

Formula Explanation

Gross profit shows how much

Gross profit Revenue - cost of sales profit is made after the cost of
sales have been paid.

Profit

Gross profit margin

Profit margin

Return on capital
employed

Current ratio

Acid test ratio

Net cash-flow

Closing balance

Break-even

Margin of safety

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 Skills Exercises

Worksheet 3 answers:

Formula Explanation

Gross profit shows how much

Gross profit Revenue - cost of sales profit is made after the cost of
sales have been paid.

Profit is how much profit has

Profit Gross profit - overheads been made after all costs have
been deducted from the revenue.

Gross profit x 100 This shows what percentage of

Gross profit margin revenue has been converted into
Revenue
gross profit.

Profit x 100 This shows what percentage of

Profit margin revenue has been converted into
Revenue
profit.

Profit x 100 This shows how much profit has

Return on capital
been made for each $1 invested
employed Capital employed
into the business.

Current assets This shows the ability of a

Current ratio business to pay its short-term
Current liabilities
debts from its current assets.

Current assets - inventories This shows the ability of a

business to pay its short-term
Acid test ratio Current liabilities
debts from its current assets –
inventories.

This is the difference between

Net cash-flow Cash inflows - cash outflows cash inflows and outflows in a
time period, e.g. a month.

Opening balance + net cash-flow This is the amount of cash a

Closing balance business has in the bank at the
end of a period, e.g. a month.

Fixed costs This is the point where total

Break-even revenue = total costs; neither a
Contribution per unit
profit or loss is made.

Current output - break-even This is the amount by which

Margin of safety sales exceed the break-even level
output
of output.

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Skills Exercises

Exercise 2: Application marks

To be awarded application marks, learners need to understand how to make points and then link them to the
business context that they have been provided with.

Activity 1: Find the application

Give learners a case study, questions and example responses.

Learners work with a partner to go through the responses and highlight/underline where they think that
application is provided within the answer.

Lead a class discussion with learners to go through their responses.

Worksheet 4: Find the application can be used as an example of this activity.

This activity can easily be adapted by using any other past paper examination questions or you could create
your own.

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 Skills Exercises

Worksheet 4: Find the application

Read the case study, questions and example responses. Highlight or underline where application is included
in the answer.

1. Outline two ways Izaak could increase added value.

Example response:

Way 1: Izaak could increase added value by increasing the price of the goods he sells so that he achieves a
greater profit margin per meal served.

Way 2: Izaak could also reduce costs of raw materials, for example he could buy cheaper fish for his business.

2. Explain two problems that low quality might cause Izaak.

Example response:

Problem 1: Izaak could lose existing customers.

Explanation: This could be due to the food not tasting right. This would lead to a fall in revenue.

Problem 2: Izaak may have to pay for the cost of replacement products.

Explanation: This would increase his cost of sales which is a problem as he is trying to increase his profits.

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Skills Exercises

Worksheet 4 answers:

1. Outline two ways Izaak could increase added value.

Example response:

Way 1: Izaak could increase added value by increasing the price of the goods he sells so that he achieves a
greater profit margin per meal served.

Way 2: Izaak could also reduce costs of raw materials, for example he could buy cheaper fish for his business.

2. Explain two problems that low quality might cause Izaak.

Example response:

Problem 1: Izaak could lose existing customers.

Explanation: This could be due to the food not tasting right. This would lead to a fall in revenue.

Problem 2: Izaak may have to pay for the cost of replacement products.

Explanation: This would increase his cost of sales which is a problem as he is trying to increase his profits.

16
 Skills Exercises

Activity 2: Marking application

Learners may find it easier to know how they can include application in their own responses if they understand
how many marks would be awarded for a given response.

Give learners a case study, question and example responses.

Learners should mark the responses.

Discuss the responses with learners and identify how many marks would be awarded for each.

Worksheet 2: Marking application is an example of this activity. This activity can easily be adapted by using
any other past paper examination questions or you could create your own.

Lead a class discussion to go through how learners have applied their marks and correcting any
misconceptions.

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Skills Exercises

Worksheet 5: Marking application

Read through the case study, questions and example responses below. Identify how many marks you would
award for each response, and explain why.

Note that all knowledge marks are awarded in these responses so each response will be awarded a minimum
of 2 out of 4 marks.

1. Outline one advantage and one disadvantage to KTF of taking over the other business.

Example response:
Advantage: KTF could benefit from economies of scale. This could reduce the unit cost of

producing bricks.

Disadvantage: There could be a clash of culture between the managers of KTF and the other

business.

Marks awarded (maximum 4):

Explanation of why:
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
……..……………………………………………………………

2. Outline two sources of finance YMG could use for the new technology.
Example response:
Source of finance 1: YMG could use a bank loan for the new technology as this would give them

the finance they need to increase output of their product.

Source of finance 2: It could also sell shares as it is a private limited company.

Marks awarded (maximum 4):
Explanation of why:
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
……..……………………………………………………………

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 Skills Exercises

Worksheet 5 answers:

1. Outline one advantage and one disadvantage to KTF of taking over the other business.
Example response:
Advantage: KTF could benefit from economies of scale. This could reduce the unit cost of

producing bricks.

Disadvantage: There could be a clash of culture between the managers of KTF and the other

business.

Marks awarded (maximum 4): 3 out of 4

Explanation of why: The advantage has relevant application as the candidate has referred to the

product KTF is selling (bricks). The disadvantage does not have any application – application is

not awarded for use of the businesses name. Application is also not awarded for repetition of

words used in the question – in this case no marks are awarded for the use of ‘the other

business.’

2. Outline two sources of finance YMG could use for the new technology.
Example response:
Source of finance 1: YMG could use a bank loan for the new technology as this would give them

the finance they need to increase output of their product.

Source of finance 2: It could also sell shares as it is a private limited company.

Marks awarded (maximum 4): 3 out of 4

Explanation of why: Application marks are not awarded in Source of finance 1. As in the previous

example, ‘the new technology’ cannot be awarded as this is stated in the question. Application

is not awarded for ‘their product’ as this is not specific to YMG – they would need to refer to

‘soft drinks’ to be awarded application here. The candidate has clearly recognised that YMG is

a private limited company in the Source of finance 2, therefore application is awarded here.

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Skills Exercises

Activity 3: Improve this

Give learners a case study, questions and example responses.

Learners should read the responses and then re-write them, improving them to include some/more application.

Learners then look at a partner’s work and highlight/underline where the application has been added to the
response.

Worksheet 6: Improve this is an example of this activity. This activity can easily be adapted by using any
other past paper examination questions or you could create your own.

Lead a class discussion to go through where learners have included application and why.

Discuss the marks awarded for both the example responses and the new responses and discuss with learners
what mark they now think should be awarded and why.

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 Skills Exercises

Worksheet 6: Improve this

Read the case study ‘The BB Health Spa (BB) and Appendix 3 below. Then read the questions and example
responses that follow.
Re-write the responses to include some/more application.

1. Explain four ways the new technology identified in Appendix 3 can help Bethany to improve her business.

Example response:
Way 1: It could help improve communications with customers of her business.

Way 2: It could help to provide a better service for the customers.

Way 3: It could improve the efficiency of her business due to the accounting software being faster at completing
tasks.

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Skills Exercises

Way 4: It could help to make advertising more effective.

This response would currently be awarded 5 out of 8 marks.

New response:
Way 1:
………………………………………………………………………………………………………………………………

Way 2:
………………………………………………………………………………………………………………………………

Way 3:
………………………………………………………………………………………………………………………………

Way 4:
………………………………………………………………………………………………………………………………

2. Explain two possible reasons why Bethany wants the business to remain small.

Example response:
Reason 1: To stay as her own boss.

Explanation: Bethany does not want anyone telling her what to do or disagreeing with her decisions. The
business idea is all her own and she does not want any conflict which might cause important decisions to be
delayed.

Reason 2: To provide better communication with customers.

Explanation: This might lead to an increase in customer loyalty for Bethany’s business and this will help to
maintain sales in the long-term.

This response would currently be awarded 6 out of 8 marks.

New response:
Reason 1:
………………………………………………………………………………………………………………………………

Explanation:
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
……..……………………………………………………………

Reason 2:
………………………………………………………………………………………………………………………………

Explanation:
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
……..……………………………………………………………

22
 Skills Exercises

Worksheet 6 answers:
1. Explain four ways the new technology identified in Appendix 3 can help Bethany to improve her business.
New response:
Way 1: It could help improve communications with customers of her business as SMS messages can be sent as
reminders of appointments.

Way 2: It could help to provide a better service for the customers due to the new equipment being used in the spa
improving the treatments offered.

Way 3: It could improve the efficiency of her business due to the accounting software being faster at completing
tasks.

Way 4: It could help to make advertising more effective as the use of the app will help the adverts reach more
people.

2. Explain two possible reasons why Bethany wants the business to remain small.
New response:
Reason 1: To stay as her own boss.
Explanation: Bethany has run the business for 10 years and does not want anyone telling her what to do or
disagreeing with her decisions. The business idea is all her own and she does not want any conflict which might cause
important decisions to be delayed.
Reason 2: To provide better communication with customers.
Explanation: This might lead to an increase in customer loyalty for Bethany’s business as Bethany is currently able
to provide customers with treatments and this will help to maintain sales in the long-term.

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Skills Exercises

Exercise 3: Getting to know the case study

The Cambridge IGCSE / O Level Business Studies examinations provide case studies which learners need to
read and be familiar with.

Learners need to understand the context that they are dealing as this will prove vital when accessing
application marks.

Activity 1: Considering the context

Case study businesses and information may be included in the examinations regarding the age, size,
objectives, nature etc. of the business.

All of this information is important as this context may influence the recommendations that learners should
make for the business – it may be that some recommendations are not relevant to this particular business
context.

Give learners a context and ask them to consider what would/would not be an appropriate recommendation
for this context.

The examples in Worksheet 7: Considering the context can be used for this activity.

Lead a discussion with learners as to why these recommendations are/are not relevant for this business
scenario.

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 Skills Exercises

Worksheet 7: Considering the context

Identify the most appropriate recommendations for each of the below scenarios, as well as those which would
be inappropriate.

1. Recommend a production method for a bakery.

Most appropriate recommendations Inappropriate recommendations

Explanation:

2. Recommend a method of motivation for a business with falling profits.

Most appropriate recommendations Inappropriate recommendations

Explanation:

3. Recommend a source of finance for a sole trader.

Most appropriate recommendations Inappropriate recommendations

Explanation:

25
Skills Exercises

Worksheet 7 answers:

1. Recommend a production method for a bakery.

Most appropriate recommendations Inappropriate recommendations

• Batch • Job

• Flow

Explanation: A wholesale bakery is likely to be producing relatively large quantities of

identical products which is most suited to batch production. Job production is not relevant
as this is suitable for one-off, unique products. Flow production is unlikely to be suitable as
multiple bakery products will be made at once and pass through each stage of production
together, rather than one at a time.

2. Recommend a method of motivation for a business with falling profits.

Most appropriate recommendations Inappropriate recommendations

• Team working • Bonus

• Job rotation • Profit sharing

Explanation: A business with falling profits is unlikely to want to increase expenditure

significantly when motivating its employees. Therefore, non-financial methods of motivation
such as team working, and job rotation are likely to be most appropriate. Financial
methods of motivation such as bonus and profit sharing are more likely to decrease business
profits further.

3. Recommend a source of finance for a sole trader.

Most appropriate recommendations Inappropriate recommendations

• Owner’s capital • Selling of shares

• Overdraft

• Bank loan

Explanation: A sole trader is not a limited company, therefore it does not have shareholders.
Therefore, selling shares would not be relevant for this type of ownership.

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 Skills Exercises

Activity 2: Understanding a case study

Learners should be able to read and identify the most important points from a case study.

Give learners a case study. The case study included with Worksheet 8: Understanding a case study can
be used or replaced with another case study.

Give learners 10–15 minutes to read and understand the case study.

Learners put the case study away and answer the quiz.

Lead a class discussion and go through the answers, ensuring all learners have a correct set of answers.

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Skills Exercises

Worksheet 8: Understanding a case study

1. Read the case study below.

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Skills Exercises

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Skills Exercises

2. Complete the quiz by highlighting/circling the correct answer.

Question A B C D

What type of ownership is Private limited

1 Franchise Partnership Sole Trader
BB? company

Which tax has reduced in

2 Corporation tax Income tax Property tax VAT
country X?

How many years has BB

3 1 6 10 16
operated for?

How many workers does

4 1 2 3 4
BB employ?

How do BB’s prices

5 Lower Higher No comparison The same
compare to competitors?

Bethany (the Bethany (the

Bethany (the Bethany (the
owner) does not owner) hires an
Which of the following is owner) fills out owner) fills out
6 currently hold any accountant to
true? the account the accounts on a
records of complete the
books by hand. computer.
accounts. accounts.

Which macroeconomic
7 objective is the government Balance of trade Economic growth Inflation Unemployment
of country X worried about?

Which is one of the To decrease To increase To increase

8 To stay small
objectives of BB? costs customer loyalty market share

How many extra steam

room customers are
9 20 120 200 220
predicted if the new
services are introduced?

How would the new

equipment inform
10 Via email Via letter Via phone call Via SMS
customers of their
appointment?

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 Skills Exercises

Worksheet 8 answers:

Question Answer

1 D

2 B

3 C

4 B

5 A

6 C

7 C

8 D

9 C

10 D

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Skills Exercises

Activity 3: Highlighting relevant information

One of the most useful ways to get to know a case study is to use a highlighting pen to pick out the most
important aspects. This can be particularly useful when a learner needs to refer back to the case study and
pick out data to answer a question.

For this activity each learner should have access to three different colours of highlighting pen (coloured pencils
can also be used).

Provide learners with a case study. Worksheet 9: Highlighting relevant information can be used or replaced
with another case study of your choice.

Learners skim read the entire case, so that they have a good idea of the basic context of the business.

Give learners three questions from the question paper. Each question should be assigned a different colour
highlighter.

Learners highlight each part of the case study that refers to the appropriate question. By doing this, learners
should be able to quickly refer to that section of the case study when answering that question.

By practising this technique, learners can quickly and effectively highlight a case study before attempting to
answer the questions.

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 Skills Exercises

Worksheet 9: Highlighting relevant information

1. Read the case study below.

2. Highlight the parts of the case study which may be relevant for the following questions:

a) Explain four characteristics that make Simon a successful entrepreneur.

Highlight the relevant parts of the case study red for this question.

b) Explain the three main methods of production FJ could use to produce its products in the factory. Which
method should FJ use? Justify your answer.

Highlight the relevant parts of the case study in blue for this question.

c) Consider the following three methods of market research Simon used. Which do you think is the best method
to use when deciding which product to produce? Justify your answer.

• Online questionnaire
• Accessing government population data
• Focus group

Highlight the relevant parts of the case study in green for this question.

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Skills Exercises

Worksheet 9 answers:

Freshfruit Juicebar (FJ)

Simon set up FJ in country Z. It makes fresh fruit drinks. Simon had a well paid job with a large food and drinks
company but he wanted to create his own business. He left his job 6 months ago to set up FJ. Simon wants to
provide people with a healthy alternative to the mass produced drinks that are available in most shops.

Simon is willing to work hard to make FJ a success. He has lots of ideas for new drinks. He has been making
the drinks at his house and selling them at a market stall. He does not have enough space to produce a higher
output on his own. The first drinks FJ produced were made from just two types of fruit to keep costs down. The
business has been profitable. Simon now wants to expand the business rapidly and he needs to raise $100
000 to open a factory. He will need to recruit production workers. He is considering using crowd-funding instead
of a bank loan to raise the necessary finance.

Simon wants to produce a new type of drink. He has carried out market research using three methods to help
him decide which fruit drink to produce and what price to charge. He has estimated demand, costs and prices
for two possible new drinks, as outlined in Appendix 3. He must decide which one FJ should produce.

Simon plans to open more fruit drink market stalls in busy areas of the city. He needs to recruit a manager to
operate all of FJ’s drink stalls. This person will need to be reliable and able to make their own decisions. Simon
may have to pay to train the new manager. If these market stalls are successful, Simon can start opening
market stalls in other cities.

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