Occasion Cards (OC) OC is a private limited company that sells greeting cards designed using mass customisation. Customers order their cards on the Internet and can add their own design and personal message to each card. OC allows customers to download a simple Computer Aided Design (CAD) system that customers use on their home computers. OC is owned by four sisters who are also the directors of the company. OC's employees benefit from the business being owned by a family. However, family ownership has limited the capital available for expansion. OC has increased its sales over the past few years using the Internet. Social media and viral marketing have been the basis for most of OC's promotion. This has worked well, but the directors are aware that future sales growth may require a different approach and an increase in capital. The current owners have decided to change the legal structure of OC to a public limited company. In preparation for this change, the directors have prepared some accounting information for OC (see Table 1). Table 1: Accounting information for OC | | 2015 (m) | 2016 (m) | | :-------------------- | :-------- | :-------- | | Revenue | 20 | 25 | | Profit margin | 10% | 15% | | Non-current assets | 10 | 10 | | Current assets | 4 | 3 | | Non-current liabilities | 2 | 4 | | Current liabilities | 4 | 4 |

Mark scheme

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

1. [2] A correct definition should cover both of the following: Some idea of 'computer aided', i.e. – A process done by IT/software/computer-programmes/electronically/virtually/technology (allow automated) – do not allow 'computer' on its own as this is a tautology.
2. [2] Some idea of the 'design' element, i.e. – To create, analyse, draw, modify, optimise, 2D/3D models, customise, plan etc. – do not allow 'design' on its own as this is a tautology.
3. [1] A partially correct definition (e.g. only one element).
4. [0] No creditable content.
5. [1] A Understanding of customisation, i.e. the use of techniques to create differentiated products, unique products, to customer orders etc.
6. [1] B Understanding of 'mass', i.e. understanding of the use of production lines/flow production/assembly line etc.
7. [1] C Example or some other way of showing good understanding, i.e. can involve the use of IT, low cost solution to making etc.
8. [Note: the C mark is dependent on gaining both A and B marks first because otherwise a wrong understanding of mass customisation (e.g. mass production) could gain the majority of the marks.]
9. [0] No creditable content.
10. [3] Correct calculation of the current ratio (ignore any use of $, % etc.) with or without correct working (0.75:1 or 0.75 or 3/4).
11. [2] Correct formula (can be implied by the use of figures) and correct identification of both figures (CA and CL).
12. [1] Correct formula (Current assets / Current liabilities) or correct identification of both figures (CA = $3m and CL = $4m).
13. [0] No creditable content.
14. [3] Explanation of the use of the accounting information in Table 1 to a potential investor (APP + APP).
15. [2] Identification of the use of the accounting information in Table 1 to a potential investor (APP).
16. [1] Identification of the use of accounting information – no context (K).
17. [0] No creditable content.
18. [Note: APP can be awarded (for 2 marks) without an explicit K first.]
19. [Possible answers include: Sales and profit margin have gone up - good investment. Liquidity has gone down – increased risk. Non-current liabilities have doubled – increased debt might suggest increased risk.]
20. [Level 2 (3-4 K+APP, 4 AN)] Good analysis of one advantage AND one disadvantage to OC of using the internet to promote the business in context.
21. [Level 2 (3-4 K+APP, 3 AN)] Good analysis of one advantage OR one disadvantage to OC of using the internet to promote the business in context.
22. [Level 1 (2 K+APP, 2 AN)] Limited analysis of one advantage AND one disadvantage of using the internet to promote a business.
23. [Level 1 (1 K+APP, 1 AN)] Limited analysis of one advantage OR one disadvantage of using the internet to promote a business.
24. [0] No creditable content.
25. [Advantage example 1: K] The internet can reach many people. [APP] Greater number of potential customers who may buy cards from OC for special occasions. [AN] This may lead to increased sales. [ANAN] Increased sales → more revenue → more profit.
26. [Advantage example 2: K] Cheaper to promote. [APP] OC is a family business with limited capital. [AN] Keeps costs down for OC. [ANAN] Lower costs → may increase capital for expansion.
27. [Disadvantage example 1: K] The internet may not be targeted. [APP] Many wasted views of the promotion by people who have no interest in buying greetings cards. [AN] This may lead to increased costs for promotion which is wasted. [ANAN] Increased costs → lower profit margin → less profit.
28. [Disadvantage example 2: K] No control of internet marketing. [APP] OC relies on social media and viral marketing. [AN] Can create a bad reputation. [ANAN] Decreased sales → lower profit/increased chance of loss.
29. [Level 4 (7 EVAL)] Justified evaluation based on argument(s) in context.
30. [Level 3 (6 EVAL)] Developed evaluation based on argument(s) in context.
31. [Level 2 (5 EVAL)] An evaluative statement based on argument(s) in context.
32. [Level 2 (3-4 AN)] Argument based on the impact(s) of changing the legal structure of OC to a public limited company.
33. [Level 1 (3-4 K+APP)] Shows understanding of changing from a private limited company to a public limited company.
34. [Level 1 (1-2 K+APP)] Shows knowledge of legal structures.
35. [Level 1 (2 AN)] Limited analysis of TWO (or more) impacts of changing legal structure.
36. [Level 1 (1 AN)] Limited analysis of ONE impact of changing legal structure.
37. [0] No creditable content.
38. [Benefit 1: K] PLCs can sell shares on the stock market. [APP] This opens up a new source of finance for OC. [AN] Which could be used to expand the business. [ANAN] Which may lead to more sales of greeting cards and profit for OC. [EVAL] Overall becoming a PLC may be the fastest way for OC to reach its objective of expansion.
39. [Benefit 2: K] OC could access more capital which may allow OC to expand further and use more traditional marketing methods.
40. [Benefit 3: K] OC has started to see increased non current liabilities – by increasing the equity this may be reversed.
41. [Benefit 4: K] Owners may become wealthy from selling their shares.
42. [Drawback 1: K] However anyone could buy the shares because they are now available on the stock market. [APP] Which may lead to a loss of control for the current owners. [AN] Who may limit the amount of shares they want to sell on the stock market and mean that OC does not have much extra capital to fund the expansion. [ANAN] However how many shares the owners make available will depend upon how much they are willing to risk losing control of the business. (EVAL - developed) If the expansion can be financed and the owners keep more than 50% of the shares then there is little risk and it is likely to have been a good decision.
43. [Drawback 2: K] OC might lose the family atmosphere, reducing the workers motivation.
44. [Drawback 3: K] OC will need to publish their financial information if they become a plc which may give competitors an advantage.
45. [Drawback 4: K] Owners may lose their control of OC.
46. [Drawback 5: K] Owners will need to share profits.