EC is a public limited company producing electric cars. Market research suggests that electric cars are in the early stage of the product life cycle. The demand for electric cars is likely to increase substantially in the next 10 years. EC is based in country X, where it is one of three electric car manufacturers. However, other manufacturers could start to produce electric cars if the forecast market growth is correct. EC's promotion has only been aimed at high income groups. The government of country X recently announced that it will support the use of electric cars. This will help EC to achieve its objective to increase sales volume by 50% over the next two years. One year ago, EC invested $10m in new production facilities. The investment was funded by a long-term bank loan. Interest payments on the bank loan have reduced EC's profit margin from 9% to 4%. EC will need to cut unit costs through increased efficiency. EC initially launched its cars using a price skimming strategy but sales growth has been slow. If EC can achieve a 50% growth in sales over the next two years, it will be in a strong financial position. This means it will be able to spend more on the development of a larger product portfolio of electric cars. Jancie, the Finance Director, has produced forecasts for EC's financial data over the next two years, as shown in Table 2.1. Table 2.1: Extract from EC's forecast financial data | | 2020 ($m) | 2021 ($m) | |---| | Inventories | 30 | 50 | | Cash | 10 | 20 | | Trade receivables | 10 | 20 | | Trade payables | 25 | 30 | | Current ratio | 2 | X |

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). 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 peak level of performance that uses the least amount of inputs to achieve the highest amount of output/measure of productivity.
5. Efficiency requires reducing the number of unnecessary resources used to produce a given output including personal time and energy / produce goods at the lowest average cost.
6. A correct definition should include the following elements (allow one mark for each element): • Measures inputs relative to outputs • Average/lowest cost of production / over a period of time / highest ratio of production
7. Exemplar: Efficiency is the amount of output produced, in a given period of time, per number of employees working. [2] Has inputs relative to outputs over a period of time – so both elements
8. Exemplar: Efficiency can be measured how much is completed, per worker, in a time period [2] Both elements
9. Exemplar: The term efficiency refers to the level of output in comparison with hours of labour [1] Only 1 element
10. Exemplar: Efficiency refers to how much a firm can produce [0] Too vague
11. Award one mark for each point of explanation: • C Example or some other way of showing good understanding [1] • B Understanding of another stage of the PLC [1] • A Understanding that a product goes through stages from launch to decline [1]
12. The stages a product passes through from launch, growth and maturity to decline.
13. Exemplar: The product life cycle has four steps which are introduction, growth, maturity and finally decline (A+B). It shows where a product is and the process when launching the product, over a period of time in the market (C) [3] All 3 categories covered.
14. Exemplar: The product life cycle is the process the product goes through after it is released on the market. It then goes through growth, maturity and decline (A+B) [2] Evidence of understanding the stages but no further development.
15. Exemplar: The product life cycle refers to the point at which a product enters the market to the point it dies (A) [1] Only launch and decline referred to in this answer.
16. Exemplar: Product life cycle includes every element of development a product goes through when it is being sold to the public. [0] Too vague, no understanding shown.
17. [3] Correct answer with or without correct working (can be accepted as a ratio or not)
18. [2] Correct formula and correct calculation of current assets
19. [1] Correct formula or correct calculation of current assets
20. [0] No creditable content
21. Formula: Current ratio = current assets/current liabilities (1)
22. Current assets = 50 + 20 + 20 = 90 (must show working) (1)
23. 90/30 = 3
24. Answer = 3 or 3:1 (3)
25. Common incorrect answers: 3:1 [3] Correct answer in ratio format
26. Common incorrect answers: 30/90 = 0.33 [2] Inverted formula, but correct calculation of current assets
27. Common incorrect answers: 0.33 (no working) [0] Incorrect answers with no working cannot be rewarded
28. Common incorrect answers: 50+20+20 = 90 [1] Correct calculation of current assets
29. Common incorrect answers: 90 [0] Incorrect answers with no working cannot be rewarded
30. Common incorrect answers: CA/CL, CA = 50+20 = 70, CL = 30, 70/30 = 2.33 [2] Formula is correct, CA miscalculated – however based on own figure (OFR) the end result is correct. Applied the formula but with one mistake calculating CA
31. Common incorrect answers: CA/CL, CA = 50+20 = 70, CL = 20+30 = 50, 70/50 = 1.4 [1] Formula is correct, but CA and CL miscalculated – two mistakes
32. Common incorrect answers: 70/50 = 1.4 [0] No identification of where the figures came from, so no credit can be given (working does not back up the incorrect answer).
33. [3] APP Explanation of a reason why liquidity could change in context
34. [2] K+K Explanation of a reason why liquidity could change
35. [1] K Identification of a reason why liquidity could change
36. [0] No creditable content
37. If the answer to Q2bi is used, then OFR so an incorrect answer given in Q2bi can be used correctly here and given full credit.
38. Context and content is likely to come from: • 50% increase in ratio (OFR) • All current assets forecast to increase substantially e.g. cash forecast to double • Current liabilities only forecast to increase by 20% • Forecasts so may be inaccurate • Uncertainty about growth in sales
39. Identification of a reason (K - 1 mark): Demand increases; Explanation (K+K - 2 marks): which increases sales and trade receivables; Possible context (APP - 3 marks): demand for electric cars is forecast to substantially increase over the next 10 years
40. Identification of a reason (K - 1 mark): Current assets increase; Explanation (K+K - 2 marks): which increases inflows; Possible context (APP - 3 marks): all current assets forecast to increase at a greater rate than current liabilities
41. Identification of a reason (K - 1 mark): Current assets increase; Explanation (K+K - 2 marks): more than current liabilities; Possible context (APP - 3 marks): this can be seen by the increase in the current ratio to 3
42. Identification of a reason (K - 1 mark): Current liabilities change
43. [8] Level 2 Shows understanding of two reasons for clear business objectives in context (4 marks K+App) Developed analysis of two reasons why business objectives are important in context (4 marks Analysis)
44. [4] Level 1 Shows knowledge of two reasons for business objectives (2 marks K+App) Limited analysis of two reasons why business objectives are important (2 marks Analysis)
45. [0] Level 0 No creditable content
46. Context/content may come from: • Help achieve growth / expansion / maximising profit • Directing employees • To inform and develop business planning e.g. long-term objective is to increase sales by 50% over the next two years and pay a dividend in three years' time • Can identify where changes need to be made e.g. medium-term EC will need to cut unit costs through increased efficiency • Can determine business priorities e.g. Immediate term objective is to survive
47. Examples of a reason for clear business objectives (K): It is important to have clear business objectives to take advantage of an increase in demand; Examples of application/context (APP): Therefore, it is important to EC to have objectives such as an increase in sales volume of 50% over the next two years to take advantage of this increase in demand; Examples of possible analysis (AN + DEV): With this clear objective it is a guide for the whole company to work towards (AN) If EC meets this objective it should have an increased market share and a more secure future (DEV)
48. Examples of a reason for clear business objectives (K): Objectives should influence a business to maximise profits; Examples of application/context (APP): This is important for EC because 1 year ago it invested $10m in new production facilities; Examples of possible analysis (AN + DEV): Therefore a clear objective to cut unit costs through increased efficiency (AN) should mean that EC's production employees are motivated, by clear direction, to improve productivity and reduce average costs (DEV)
49. [11] Justified recommendation based on arguments in context
50. [6] Developed recommendation based on arguments in context
51. [5] A recommendation based on arguments in context
52. [4] Shows understanding of two changes to the marketing mix in context
53. [4] Arguments based on two changes EC could make to its marketing mix to achieve its growth objective in context
54. [3] Shows understanding of one change to the marking mix in context
55. [3] Arguments based on one change EC could make to its marketing mix to achieve its growth objective in context
56. [2] Shows knowledge of two changes to the marketing mix
57. [2] Limited analysis of two changes to a marketing mix
58. [1] Shows knowledge of one change to the marketing mix
59. [1] Limited analysis of change to a marketing mix
60. [0] No creditable content
61. The marketing mix can be either: • The 4 P's - product, price, promotion, place (distribution channels) • The 4 C's - Customer solution, Cost to customer, Communication with customer, Convenience to customer
62. Context/content: Changes in: • Promotion • Applies marketing methods to the growth stage of the product life cycle • Increased marketing budget to advertise widely; build a customer base; most likely above-the-line promotion; • Move from niche marketing to mass marketing – Demand forecast to increase over the next 10 years • Currently target high income groups could change to target other groups e.g. EC wants to enlarge product portfolio (product/customer cost/price discrimination)
63. Context/content: Changes in: • Price • Currently use price skimming, could change e.g. Price penetration; • EC objective to increase sales by 50% (could link to price/promotion/place)
64. Context/content: Changes in: • Product • Use most advanced technology in cars to ensure quality and reliable car e.g. improve battery life/range (customer solution), increase number of charging stations (customer convenience)
65. Context/content: Changes in: • Place • Distribution channel likely through dealers • Direct selling e.g. internet website, showrooms
66. Examples of how an answer could develop and how it should be annotated. K: One change EC could make is to use price penetration APP: This is because EC first launched its cars using price skimming AN: but sales growth was slow DEV: With sales growth forecast to grow over the next 10 years, price penetration could help EC take advantage of this increase in demand and achieve its objective of a 50% increase in sales volumes EVAL: To some extent price penetration is an important change to make as it could make the cars more affordable for its customers (EVAL) but the change I would recommend the most is promotion to a wider market (EVAL). Price penetration is important but it is crucial that it is supported by an effective communication strategy through promotion changes (EVAL)
67. Examples of how an answer could develop and how it should be annotated. K: Promote electric cars to all income groups APP: Currently EC promotes to high income groups AN: If EC effectively promotes to other groups it will widen its market DEV: and establish the company as a brand leader in this market, so the company can achieve financial security and reinvest profits in developing a larger product portfolio of electric cars