Budding Gardens (BG) BG is a partnership owned and managed by Barry and Michael. BG is in the tertiary sector. BG is a landscape gardening business. Its revenue comes from two main services that it provides to customers: 1 Landscaping – BG redesigns customers' gardens, for example by adding new features such as water fountains or seating areas 2 Basic gardening services such as digging and grass cutting. Barry and Michael work well together. Barry deals with marketing and agrees contracts and prices with customers. He also manages the finances. Michael focuses on the technical side of the business such as garden design. He also has responsibility for the four full-time employees. Michael has come to Barry with a problem. One of the large lawnmowers used to cut grass has broken down and needs replacing. The cost of the new lawnmower machine will be $10000. Michael has asked Barry if there is finance available for capital expenditure. Barry needs to determine the best source of finance to use for the new lawnmower. BG has a low level of working capital. Barry has been looking at the latest financial accounts (see Table 3). Table 3: Extract from the income statement for the year ended 31 May 2017 $000s Revenue: 120 Cost of sales: 90 Expenses: 20 Profit for the year: 10 One of BG's competitors, LawnsRus, has recently been in trouble. A customer made a serious complaint about damage that an employee caused whilst mowing (cutting) her lawn. The business had to pay a large amount in compensation to the customer. Barry believes that this may increase demand for BG's services in the local market.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [2] A correct definition
2. [1] A partial, vague or unfocused definition
3. [0] No creditable content
4. A sound definition is ‘Demand is the quantity/amount that consumers are willing/able (not needs and wants) to buy at a given price (or in a particular time period)'.
5. Demand is the ability and willingness of a consumer to pay for a given good or service at a given price. Demand falls as price rises/vice versa.
6. Example(s) or reference to demand falling or rising is not needed for maximum marks.
7. A diagram without further explanation should be awarded one mark.
8. Answer: The amount of a good consumers are willing to buy. Mark: 1. Reason: Only 2 elements of the definition – for full marks would need 3 elements.
9. Answer: What consumers are willing to buy. Mark: 1. Reason: Only 1 element of the definition.
10. Answer: The amount of a good consumers are willing to buy at a price. Mark: 2. Reason: 3 elements.
11. [1 mark] Example or some other way of showing good understanding, e.g. Examples could include distribution, hairdressing, dentist. Expertise/time
12. [1 mark] Relationship to other sectors (i.e. secondary, primary quaternary)
13. [1 mark] Offer/sell/produce/provide etc. services/intangible goods
14. The tertiary sector is made of businesses that sell goods or services to producer or consumer markets. Business here take goods from the secondary sector and sell them. Services include law firms, accountancy firms, shops.
15. Answer: Provide services and sell intangible products. Mark: 1. Reason: A elements only.
16. Answer: Sells services such as banking. Mark: 2. Reason: A and C elements.
17. Answer: Sells services to support the products from the primary and secondary sectors such as farmers' markets selling vegetables. Mark: 3. Reason: Elements from all – A B and C.
18. [3 marks] Correct calculation of gross profit margin (with or without working or %)
19. [2 marks] Correct formula and correct calculation of gross profit
20. [1 mark] Correct formula or correct calculation of gross profit
21. [0 marks] No creditable content
22. Formula can be implied through the correct use of figures.
23. GP revenue * 100
24. GP = 120 – 90 = 30
25. GPM = 30/120 *100 = 25%
26. Common incorrect answers: Answer: 120 – 90 = 30. Mark: 1. Rationale: Correct calculation of gross profit.
27. Common incorrect answers: Answer: [90 – (20+10)/120] × 100 = 60/120 × 100 = 50%. Mark: 1. Rationale: Gross profit incorrectly calculated but formula correct.
28. Common incorrect answers: Answer: (Gross profit/revenue) × 100. Gross profit = 30. Mark: 2. Rationale: Correct formula and correct calculation of gross profit.
29. Common incorrect answers: Answer: GP = 10 000 – 20 000 – 90 000 = – 100 x 100 000/120 000 = 83.33%. Mark: 1. Rationale: Gross profit incorrectly calculated but formula correct.
30. Common incorrect answers: Answer: 120 000 – 90 000/120 000 = 0.25. Mark: 2. Rationale: Gross profit and method correct but ×100 missing from formula.
31. Common incorrect answers: Answer: (30 000/120 000) × 100 = $25 000. Mark: 2. Rationale: Correct formula and correct calculation of gross profit.
32. [3] Explanation of a way to improve the profit margin
33. [2] Identification of a way to improve the profit margin
34. [1] Identification of a way to improve profit
35. [0] No creditable content
36. Context (profit margin) and content is likely to come from: Increase price but maintain costs/expenses
37. Context (profit margin) and content is likely to come from: Decrease costs and maintain price
38. Identification: Decrease costs and increase price (APP). Explanation: Both costs and price referred to. Possible context: This is clearly linked to the context of a profit MARGIN so 3 marks.
39. Identification: Increase price (KK). Explanation: Only price, nothing about costs. Possible context: Related to profit margin but only identifies price so 2 marks.
40. Identification: Increase revenue (K). Explanation: This relates to profit only. Possible context: 1 mark as not related to profit margin.
41. Shows understanding of two (or more) sources of finance in context. Marks: 4
42. Good analysis of two (or more) sources of finance that BG could use for the new lawnmower. Marks: 4
43. Shows understanding of one source of finance in context. Marks: 3
44. Good analysis of one source of finance that BG could use for the new lawnmower. Marks: 3
45. Shows knowledge of two (or more) sources of finance. Marks: 2
46. Limited analysis of two (or more) sources of finance. Marks: 2
47. Shows knowledge of one source of finance. Marks: 1
48. Limited analysis of one source of finance. Marks: 1
49. No creditable content. Marks: 0
50. Any source of finance could be relevant – analysis will depend on context used:
51. Contextual analysis likely to come from: Cash flow, Barry is worried about working capital so how would BG be able to make the repayments?
52. Contextual analysis likely to come from: Time span, how long would BG borrow for, interest rates tend to be higher over longer period of time. BG is a partnership, this could be risk if paid over longer term. Does Barry prefer short or medium or longer term?
53. Contextual analysis likely to come from: Amount being borrowed. Would BG need to borrow all of the $10 000. Could Barry or Michael invest additional funds themselves to limit the borrowing?
54. Contextual analysis likely to come from: Interest rates, BG is a partnership so could be seen as risky to lend to. But healthy profits and margins so could persuade a lender that the risk is smaller.
55. Contextual analysis likely to come from: Future demand - Expected to increase as BG gain customers from competitors (LawnsRus) but what if the economy slows down – demand could fall in coming years especially from the revenue generated from basic services?
56. Justified evaluation based on arguments in context. Marks: 7
57. Developed evaluation based on arguments in context. Marks: 6
58. An evaluative statement based on arguments in context. Marks: 5
59. Shows understanding of two or more features of a partnership in context. Marks: 4
60. Argument of advantage(s) and disadvantage(s) of partnerships in context. Marks: 4
61. Shows understanding of one feature of a partnership in context. Marks: 3
62. Argument of an advantage(s) or disadvantage(s) of partnerships in context. Marks: 3
63. Identifies two or more features of a partnership. Marks: 2
64. Limited analysis of an advantage(s) and disadvantage(s) of partnerships. Marks: 2
65. Identifies one feature of a partnership. Marks: 1
66. Limited analysis of an advantage(s) or disadvantage(s) of partnerships. Marks: 1
67. No creditable content. Marks: 0
68. Please annotate analysis of advantages in the left hand margin and disadvantages in the right hand margin. Evaluation can only be awarded if there is at least one double AN in the left and one double AN right hand margins.
69. Context/content: Advantages: Partners can specialise, this has worked for BG with division of tasks (Barry – finance and marketing, Michael – technical and employees). This will help BG be successful e.g., strong profits and margins
70. Context/content: Advantages: Partners run the business for themselves, not accountable to shareholders and so Michael and Barry gain the rewards from the business/retain control
71. Context/content: Advantages: BG will be a smaller business and so Michael and Barry are likely to offer personal service and good communication to customers, Michael in marketing and Barry in agreeing prices and contracts. This will help BG gain a reputation and be more successful.
72. Disadvantages: Unlimited liability so a risk to Michael and Barry. They could lose their possessions as well as their investment should the business fail.
73. Disadvantages: Long hours of work/responsibility
74. Disadvantages: Conflict - Michael and Barry may fall out over decisions and this could lead to conflict and dissolution of the partnership e.g., over the finance needed for the lawnmower
75. Disadvantages: Partnership ceases if one partner dies.
76. Evaluation is likely to come from a candidate: 1. Judging whether the advantages outweigh the disadvantages
77. Evaluation is likely to come from a candidate: 2. Weighting their response, for example, ‘this is the main advantage because' is likely to lead an evaluative response.
78. Candidates must cover both advantages and disadvantages to gain higher than 3+3 marks