Samira left school at the age of 18 in country H. She had a small amount of savings and an idea to create a flexible, removable and reusable whiteboard. Samira created a prototype and received small orders from local retailers. A local manufacturer batch produces stock when required. There is a two-week lead time for a minimum order of 500 units. Samira started to sell her whiteboards on her website and at trade shows. She has been trading for seven months. She has good cashflow but little working capital as production costs are high. Samira has heard that OS, a large business that sells office equipment, is planning to sell their own version of Samira's whiteboard. She is keen to increase production quickly to take advantage of being first to market. However, Samira's manufacturer cannot supply enough product to meet the growth in potential demand for whiteboards. Fig. 1.1 shows an inventory control chart for the first seven months of trade. [Figure 1.1] Lara, a venture capitalist with experience of manufacturing, has approached Samira about making an investment. She would invest $100000 to build a local mass production facility for SW. The facility would have a maximum output of 50000 units per month. Lara wants to own 40% of the business.

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [1] Planning/setting objectives
2. [1] Organising - coordinating activities
3. [1] Directing - supervising and motivating employees, commanding, leading the business/team
4. [1] Controlling - measuring performance against targets
5. Do not reward tautological answers e.g. manage employees/resources
6. Do not reward vague answers, e.g. making decisions
7. Accept all valid responses.
8. [1] (AO1) Finance used in day-to-day / trading operations / to enable the business to produce its goods or services / to operate
9. [1] (AO1) Current assets - current liabilities
10. [1] (AO2) To pay for the running costs – bills/expenses such as staff wages
11. [1] (AO2) Reference to short-term (less than 12 months)
12. [1] (AO2) Sufficient working capital is needed to ensure that the business has enough liquid assets/avoid liquidity problems
13. [1] (AO2) Examples of current assets, e.g. stock, inventory, debtors; or examples of current liabilities, e.g. bank overdraft, short-term loans, creditors (applied to SW)
14. [1] (AO2) Examples of expenses/costs, e.g. staff wages (applied to SW)
15. Knowledge & understanding (Knowledge of working capital) [1 mark]
16. Explanation (Explanation of working capital) [1 mark]
17. Context (Applied to a business context/business environment) [1 mark]
18. [1] Formula for the total number of units sold (words or figures): Total number sold = maximum stock level – minimum stock level per month
19. [1] Calculating the maximum stock level (e.g., 800 + 600 + 700 + 500 = 2600 units)
20. [1] Calculating the minimum stock level (e.g., 100 + 200 + 0 + 400 = 700 units)
21. [1] Calculating the total number of whiteboards sold (OFR): Answer = 1900 units
22. Correct answer: 1900 (units) allow 1900 [3 marks]
23. To award two marks, must be Both of the following: Correct calculation of the maximum stock level AND Correct calculation of the minimum stock level OR Identifying the number of whiteboards sold in each time period OR An incorrect answer with one mistake allowing OFR for final stage.
24. To award one mark, must be: One of the following: Correct formula for number of units sold (figures or words) OR Correct calculation of the maximum stock level OR Correct calculation of the minimum stock level
25. [1] (AO1) Knowledge of an appropriate cost of holding a high level of inventory: opportunity cost, storage costs, risk of wastage and obsolescence
26. [1] (AO1) Costs involved with storing the inventory before it is sold
27. [1] (AO2) A specific cost of holding a high level of inventory, e.g. increased insurance costs to insure the inventory, security, insuring the inventory, rent of warehouse, salaries/wages of warehouse employees (applied to SW)
28. [1] (AO2) Other uses for the space used to store the inventory, e.g. additional production, retail space (applied to SW)
29. [1] (AO2) Having 500 units in stock means less working capital to spend on marketing at trade shows (applied to SW)
30. [1] (AO2) Potential to have 800 units of stock if sales are poor means potential additional cost of storage space (applied to SW)
31. [1] (AO2) Technology changes so the whiteboards are obsolete before they are sold (applied to SW)
32. [1] (AO2) Quoting data from Fig. 1.1 (SW inventory control chart 2023) (applied to SW)
33. [1] (AO2) Developing mass production facility that will increase output (applied to SW)
34. Knowledge & understanding (Knowledge of a cost of holding inventory) [1 mark]
35. Explanation (Explanation of a cost of holding inventory) [1 mark]
36. Context (Applied to a business context/business environment) [1 mark]
37. A01 Knowledge and understanding: Knowledge of barriers to entrepreneurship (max 2 marks) including:
38. [1] Lack of business opportunity/lack of differentiation
39. [1] Knowledge of the market
40. [1] Ability to obtain sufficient capital/finance
41. [1] Cost of good locations
42. [1] Lack of connections/network/guidance and advice
43. [1] Competition
44. [1] Lack of a customer base/marketing
45. [1] Entrepreneur's skills and qualities/inexperience of running a business
46. AO2 Application: Context applied to a barrier to entrepreneurship (max 2 marks), including:
47. [1] Samira had a small amount of savings
48. [1] First to market
49. [1] Link to own website, trade shows and small independent retailers
50. [1] Link to specific competition, such as other office stationary suppliers
51. [1] Link to a lack of working capital due to high production costs
52. [1] Lack of a customer base / poor marketing as only 400 sales in May.
53. AO3 Analysis: Impacts may include:
54. [1] Poor marketing/knowledge of marketing; low working capital and/or low turnover – may limit the marketing opportunities which in turn may affect the ability to attract new custom and increase purchasing opportunities of scale
55. [1] Lack of technical knowledge in developing the website may make the buying process difficult which may in turn reduce the number of purchasers
56. [1] The cost of premium stands at trade shows may reduce working capital as high initial investment costs may mean she has a poor location which may reduce footfall and sales
57. [1] A small customer base of 400 sales in May could lead to small profits which could in turn mean that banks are reluctant to invest if she asks for a bank loan.
58. [1] A 2-week lead time means SW could run out of inventory, especially if she has many trade shows scheduled which could decrease the amount of sales and therefore profit.
59. Limited analysis: candidate shows one link in the chain of analysis.
60. Developed analysis: candidate shows two or more links in the chain of analysis or a two-sided analysis.
61. Accept all valid responses.
62. A01 Knowledge and understanding: Knowledge of the features of accepting the venture capital offer (max 2 marks), including:
63. [1] Venture capitalist will invest equity finance in the business/own a share of the business
64. [1] Long-term source of finance
65. [1] Venture capitalist can offer guidance/advice
66. [1] The impact of venture capital on a business ability to grow
67. [1] The relationship between sources of finance and business decisions/growth
68. [1] The need to choose the correct source of finance for the short and long term business aims/growth potential
69. [1] The impact of funding decisions on stakeholders and their reactions
70. AO2 Application: Context applied to features of accepting the venture capital offer (max 2 marks), including:
71. [1] Little working capital
72. [1] Two-week lead time for a minimum order of 500 units.
73. [1] Own website, trade shows and independent retailers
74. [1] She has been trading for seven months.
75. [1] She has good cashflow but little working capital as production costs are high.
76. [1] $100 000 VC investment into a mass production facility
77. [1] A 40% share of the business
78. AO3 Analysis: Advantages of venture capital to SW may include:
79. [1] SW will have an experienced partner to find solutions to potential problems which may be cheaper than hiring external business consultants, lowering variable costs and increasing efficiency
80. [1] SW will have a fixed asset that will be able to accommodate the OS order if the product is successful, which may lower the unit cost and increase future profits
81. AO3 Analysis: Disadvantages of venture capital to SW may include:
82. [1] Reduce net profits in the short term and reduces ownership stake, lead to a reduction in dividend/financial returns
83. [1] The mass production facility will need to be built, which will take time; May lose first mover advantage
84. [1] Contribution of the venture capitalists to decision making
85. AO4 Evaluation: A judgement about whether Samira should accept Lara's offer to invest
86. [1] What the judgement might depend upon; the timeframe that SW must satisfy their order, Samira's appetite for financial risk, the likelihood of the product being successful in the long term,
87. [1] Weighing up the arguments for organic growth vs. investment
88. L1: (limited supporting evidence) Samira should accept Lara's offer
89. L2: (developed supporting evidence) Samira should accept Lara's offer because it means she will have more capital
90. L3: (developed supporting evidence with context) Samira should accept Lara's offer because it means she will have more capital to build the local mass production facility
91. L1: No investing venture capital is a bad idea
92. L2: No investing venture capital is a bad idea because Samira will no longer have sole responsibility for decisions
93. L3: No investing venture capital is a bad idea because Samira will no longer have sole responsibility for decisions such as whether to continue to sell the whiteboards on her website
94. L1: In the short-term accepting the venture capital will be unwise.
95. L2: In the short-term accepting the venture capital will be unwise as Samira will give up part of the ownership of the business.
96. L3: In the short-term accepting the venture capital will be unwise as Samira will give up 40% of the ownership of the business.