Obi is a sole trader who operates a van service. He used to be employed by a similar business but realised that he likes to be in control. Obi used all of his savings to start his business so that he did not have to go into debt. He owns three vans which can carry furniture, packages and other large items. He has eight full-time employees who drive the vans and move items. Customers can hire a van with two employees to move these items from one place to another. The cost per day of providing a van with two employees is $170. The prices of the service are shown in Table 1.1. Table 1.1: Price of hiring one van (including two employees) Price for the first day's hire: $250 Price for each additional day: 10% discount on the price for the first day's hire Demand for Obi's service is growing fast. To supply this demand he needs a new van and he is investigating sources of finance. He has a choice of two vans. The details of the vans are in Table 1.2. Table 1.2: Van details | | Van A | Van B | |---|---|---| | Capital cost | $30000 | $40000 | | Estimated maintenance costs per year | $600 | $450 | | Insurance cost per year | $500 | $550 | | Expected life | 7 years | 9 years | | Van owner reviews | • Easy to drive but not very fast • Boring but fuel efficient • Engine is very noisy, but reliable | • Fast and great fun to drive • Looks great and the range of colours is fantastic • It broke down a few times, but the manufacturer repaired it quickly |

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [2] A correct definition
2. [1] A partial, vague or unfocused definition
3. [2] A business in which one person provides the finance and in return has full control of the business and keeps all the profits.
4. [2] An only trader has all the risk / unlimited liability.
5. [2] An only trader pays income tax.
6. [2] A person who invests all the capital and has unlimited liability.
7. [2] The only owner of the business who invests all the capital.
8. [1] The only owner of the business/owns a business by themselves.
9. [1] A person who owns the business.
10. [1] The owner of a business.
11. [1] An owner operator.
12. [1] Understanding of the difference between a price and a cost.
13. [1] Understanding of a cost.
14. [1] Understanding of a price.
15. [1] A price is an amount paid by a customer / the amount a business sells/charges for its product/service.
16. [1] A cost is an amount paid by a business / to a supplier.
17. [1] A cost is the amount of money used to produce the goods/service.
18. [1] Businesses receive the value of a price (from the customer) but pay the value of a cost (to a supplier).
19. [1] The difference between price and cost is profit.
20. [3] Price is more than its cost.
21. [3] The mark-up/the profit margin/profit.
22. [3] A price is the amount paid by a customer, a cost is the amount paid for raw materials used in the manufacture and the difference is the profit made.
23. [3] A cost is the amount the raw materials cost, whereas the price is the amount a business charges its customers for the finished product.
24. [3] Cost is the expenses incurred in making a product, whereas price includes the profit set by the seller.
25. [2] Cost is the expenses incurred in making a product. Price is the amount a business charges its customers for the finished product.
26. [3] Correct answer with or without correct working or $.
27. [2] Correct calculation of TR and TC.
28. [1] Formula or correct calculation of TR or correct calculation of TC.
29. [1] Total revenue = ($250 + $225 + $225) × 2 = $1400.
30. [1] Total cost = ($170 + $170 + $170) × 2 = $1020.
31. [1] Profit = $1400-$1020 = $380.
32. [3] $380.
33. [3] (If candidates continue to discount 10% beyond the second day, then award as a correct answer) $330.
34. [2] (Only calculated one van – incorrect final answer but correct formulae implied by use of figures) $190.
35. [2] (Only calculated one van – incorrect final answer but correct formulae implied by use of figures) $165.
36. [1] Identification of one factor affecting demand (e.g., (perceived) waiting/lead time, (perceived) price, population, income level, consumer tastes and preferences, level of competition, advertising).
37. [2] Identification of one factor in context.
38. [3] Explanation of one factor in context.
39. [1] (K) Competition.
40. [2] (APP) From the other business he was employed by.
41. [3] (APP+APP) Who may reduce prices to attract Obi's customers.
42. [1] (K) Income level.
43. [2] (APP) Is $250 per day.
44. [3] (APP+APP) Too expensive.
45. [1] Shows knowledge of one factor affecting decision making (e.g., cost(s), timescale, revenue, utility).
46. [2] Shows knowledge of two or more factors affecting decision making.
47. [3] Shows understanding of factor(s) affecting Van A OR Van B in context.
48. [4] Shows understanding of factor(s) affecting Van A AND Van B in context.
49. [1] Limited analysis of one factor affecting Van A OR Van B.
50. [2] Limited analysis of Van A AND Van B.
51. [3] Argument based on Van A OR Van B in context.
52. [4] Argument based on Van A AND Van B in context.
53. [5] An evaluative statement/recommendation based on argument(s) in context.
54. [6] Developed recommendation based on argument(s) in context.
55. [7] Justified recommendation based on argument(s) in context.
56. [AO2] Application may include: sole trader, main business is based on the use of vans, already owns three vans, eight full-time employees, demand is growing fast, use of Table 1.2.
57. [AO3] Analysis of Van A may include: lower purchase cost (30000), higher maintenance costs (600/year), shorter lifespan (7 years), lower (slightly) insurance costs ($500/year), high level of reliability, boring but fuel efficient (lower direct costs of petrol).
58. [AO3] Analysis of Van B may include: higher purchase cost (40000), lower maintenance costs (450/year), longer lifespan (9 years), higher (slightly) insurance costs ($550/year), possibly less reliable based on customer review ('broke down a few times'), use of colours may provide an advertising benefit ('looks great and range of colours is fantastic'), speed of manufacturer response to break down is good ('repaired it quickly'), faster and great fun to drive (may allow a speedier service but could also have legal issues).
59. [AO4] Evaluation includes: A recommendation about whether Obi should choose Van A or Van B. A judgement over the relative suitability of the vans. Elements that the recommendation/judgement could depend upon, including availability of finance/amount of finance, how long Obi keeps his vans for on average, length of warranty, past reviews, whether he trusts his employees not to speed, fuel economy as a factor. Weighing up of the relative impacts on Obi of the vans.
60. [K] Cost: VAN A - boring but fuel efficient.
61. [APP] Reduces direct costs of petrol.
62. [AN] Increases profit margins.
63. [DEV] Should buy Van A.
64. [EVAL] Because lower direct costs more important than long-term budgeting, even though the image may be impacted.
65. [K] Lifespan1: VAN B – lasts 9 years.
66. [APP] Capital cost spread over a longer time.
67. [AN] Helps long-term budgeting.
68. [1] Shows knowledge of one factor which may influence the source of finance.
69. [2] Shows knowledge of two factors which may influence the source of finance.
70. [3] Shows understanding of one factor which may influence the source of finance in context.
71. [4] Shows understanding of two factors which may influence the source of finance in context.
72. [1] Limited analysis of one factor which may influence the source of finance.
73. [2] Limited analysis of two factors which may influence the source of finance.
74. [3] Good analysis of one factor which may influence the source of finance in context.
75. [4] Good analysis of two factors which may influence the source of finance in context.
76. [AO1] Knowledge factors affecting sources of finance, including: size/structure of business, cost of finance, costs of the business, flexibility, need to retain control, use of the finance, level of existing debt.
77. [AO2] Application may include: sole trader, main business is based on the use of vans, already owns three vans, eight full-time employees, demand is growing fast, use of Table 1.2 – may be based on recommendation made in Q.1(c).
78. [AO3] Analysis points: Speed of acceptance (immediate purchase to capitalise on increased demand), Running costs (leasing/hire purchase may include these, reducing variable outgoings), Flexibility (repay over lifetime of van, reduce cost of finance, repay earlier if demand remains high, manage cashflow), Need to retain control (Obi likes to be in control, so unlikely to want partners/selling shares), Use of the finance (acquiring a van, long-term options like bank loans, capital item that loses value like leasing/hire-purchase), Level of existing debt (Obi used savings, so has no debt, has to use external sources).
79. [K] Cost of finance.
80. [APP] $30/40k loan.
81. [AN] Higher loan = larger repayments.
82. [DEV] Reduces cashflow/profits.
83. [K] Level of existing debt.
84. [APP] Savings used so no debt.
85. [AN] Means has to use external sources.
86. [DEV] Which may involve loss of control.