Cartoon Costumes (CC) Ava is an entrepreneur. After leaving school she set up CC as a private limited company and she owns 100% of the shares. CC sells 'dressing up' costumes (outfits) for children using ecommerce. Each costume is based on popular TV and movie characters that appeal to children. CC owns a large sewing machine which Ava uses to create the costumes. Each costume is made from brightly coloured materials which CC purchases in bulk. Ava has to produce more inventory to grow the business. This can be expensive so Ava is thinking of using crowdfunding to finance this growth. CC has completed its second full year of trading. An extract from the statement of financial position is in Table 2.1. Table 2.1: Extract from CC's statement of financial position at 31 August 2022 2021 $(000) $(000) Non-current assets 8 8 Current assets 60 50 Current liabilities 40 45 Non-current liabilities 18 3 Reserves and equity 10 10 Until recently CC operated from Ava's house. However, two months ago she rented a shop in a shopping centre. Ava wants to recruit a salesperson for the shop so that she can concentrate on designing and making costumes. Details about the two best applicants are in Table 2.2. Ava must now decide who to employ. Table 2.2: Details about the two best applicants Liu Ahura Date of birth 12 February 2004 19 September 1975 Employment history • 2 years working part-time • 10 years as an actor in a small retail food shop • 10 years as manager of a large clothing shop • 5 years unemployed Highest qualifications A Levels in Business, University degree in Acting Design Technology and Mathematics Personal attributes • Good customer service • Highly motivated skills • Good administrative skills • Likes working with other • Works well on their own people Career ambitions • Would like to go to None university • Would like to own a business in the future

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2022). The mark or mark type is shown in brackets.

1. [2] (a)(i) Knowledge: A correct definition [2]
2. [1] (a)(i) Knowledge: A partial, vague or unfocused definition [1]
3. [0] (a)(i) Knowledge: No creditable content [0]
4. [2] (a)(i) A correct definition should include the following elements: • Stock/raw materials/work in progress/finished goods/current asset • An idea of the function, e.g. to be able to produce, to be able to meet customer demand etc.
5. [2] (a)(i) Exemplar: The raw materials needed to produce a product. Rationale: Both elements
6. [2] (a)(i) Exemplar: The store of finished products used to sell to customers. Rationale: Both elements
7. [1] (a)(i) Exemplar: Inventory is another word for stock. Rationale: One element
8. [1] (a)(i) Exemplar: Inventory is stock and can be made up of raw materials, work in progress or finished products. Rationale: One element repeated
9. [0] (a)(i) Exemplar: Inventory is used to grow the business. Rationale: No elements and copied from data
10. [3] (a)(ii) Award one mark for each point of explanation: Rationale Three characteristics of an entrepreneur [1] Two characteristics of an entrepreneur [1] One characteristic of an entrepreneur [1]
11. [3] (a)(ii) Content: Allow any reasonable characteristic of an entrepreneur, for example: • risk taking • innovative • multi-skilled • leader • resilience/able to bounce back • sets up a business • passion • self-confidence • ambition • hardworking • persuasive • aiming for profit (do not allow 'get rich – too vague) • makes decisions • one of the factors of production (entrepreneurship) • organises the factors of production • organises/raises/provides finance • an example of an entrepreneur (do not allow Ava) Only reward each characteristic once.
12. [3] (a)(ii) ARA: Exemplar: An entrepreneur is a risk-taker (1) who tries to make a profit (1) by organising the factors of production (1). Rationale: Three characteristics
13. [3] (a)(ii) ARA: Exemplar: Someone who makes decisions (1) about factors of production (1) to make a profit (1). Rationale: Three characteristics
14. [2] (a)(ii) ARA: Exemplar: An entrepreneur works hard (1) and has confidence (1). Rationale: Two characteristics
15. [1] (a)(ii) ARA: Exemplar: Someone who organises the land that a business needs (1). They also organise the number of workers a business needs and they also organise the capital that a business may need. Rationale: Only one mark for 'organising' the factors of production – do not keep rewarding the same characteristics
16. [0] (a)(ii) ARA: Exemplar: Entrepreneurship is one of the factors of production. Rationale: NAQ
17. [3] (b)(i) Rationale: Correct answer with or without correct working or $ [3]
18. [2] (b)(i) Rationale: Correct calculation of both working capital figures (2021 and 2022) [2]
19. [1] (b)(i) Rationale: Formula or correct calculation of one working capital figure (2021 or 2022) [1]
20. [0] (b)(i) Rationale: No creditable content [0]
21. [3] (b)(i) Content: Current assets – current liabilities 2021: 50 – 45 = 5 (1) 2022: 60 – 40 = 20 (1) Increase of $15 000 (1) Answer = $15 000 (3) allow 15. Also allow 300% as a correct answer.
22. [3] (b)(i) Note: OFR only applies for a mathematical error – candidate must have attempted to calculate working capital to award OFR
23. [3] (b)(i) Common incorrect answers: Answer: 300% (no working). Mark: 3. Rationale: Correct answer based on the %
24. [3] (b)(i) Common incorrect answers: Answer: 15 (no working). Mark: 3. Rationale: Correct answer
25. [0] (b)(i) Common incorrect answers: Answer: 20 5 (no working). Mark: 0. Rationale: Do not allow 'random' use of these numbers – there must be working to show they were calculated.
26. [3] (b)(ii) Level 2 (APP): Explanation of revenue expenditure and capital expenditure in context [3]
27. [2] (b)(ii) Level 1b (K+K): Knowledge of capital and revenue expenditure [2]
28. [1] (b)(ii) Level 1a (K): Knowledge of capital or revenue expenditure [1]
29. [0] (b)(ii) Level 0: No creditable content [0]
30. [3] (b)(ii) Note: context is only required once to award APP but must be based on K of both capital and revenue expenditure.
31. [3] (b)(ii) Content: Capital expenditure is spending on non-current assets like property, plant and equipment. Revenue expenditure is spending on short-term expenses used in the current period or typically within one year.
32. [3] (b)(ii) Contextual examples include: Capital expenditure: • Large sewing machine • Non-current assets value of $8000 Revenue expenditure: • Brightly coloured materials • Rent on new shop • Wages for the new employee
33. [3] (b)(ii) ARA: Example of how a response may develop and should be marked: Identification of a distinction (K – 1 mark): Revenue expenditure is for short-term expenses. Explanation (K+K – 2 marks): Capital expenditure is for long-term non-current assets. Possible context (APP – 3 marks): So, the rent on the shop is revenue expenditure and the large sewing machine is capital expenditure.
34. [8] (c) Level 2b (APP + APP) Knowledge and Application (4 marks): Shows understanding of one advantage and one disadvantage of crowd funding in context [4]
35. [8] (c) Level 2a (APP) Knowledge and Application (4 marks): Shows understanding of one advantage or one disadvantage of crowd funding in context [3]
36. [8] (c) Level 1b (K+K) Knowledge and Application (4 marks): Shows knowledge of one advantage and one disadvantage of crowd funding [2]
37. [8] (c) Level 1a (K) Knowledge and Application (4 marks): Shows knowledge of one advantage or one disadvantage of crowd funding [1]
38. [8] (c) Level 0 Knowledge and Application (4 marks): No creditable content [0]
39. [8] (c) Level DEV + DEV Analysis (4 marks): Good analysis of one advantage and one disadvantage of crowd funding to finance growth in context [4]
40. [8] (c) Level DEV Analysis (4 marks): Good analysis of one advantage or one disadvantage of crowd funding to finance growth in context [3]
41. [8] (c) Level AN + AN Analysis (4 marks): Limited analysis of one advantage and one disadvantage of crowd funding to finance growth [2]
42. [8] (c) Level AN Analysis (4 marks): Limited analysis of one advantage or one disadvantage of crowd funding to finance growth [1]
43. [8] (c) Note: advantage/disadvantage must be for CC, not investors, customers, etc.
44. [8] (c) AO1 Knowledge and understanding: Knowledge of advantage may include: • A speedy/easy way to raise finance. • No upfront fees for the business. • May not need to be repaid. • May be a way of advertising the business. • Feedback from potential customers. • It is a good way to test market the product/business idea. • Ideas that may not appeal to conventional investors can often get financed more easily. Investors often become loyal customers. Knowledge of disadvantages may include: • It can include more complex issues when gaining finance. • Not all crowdfunding projects reach their goal. • Marketing/operational costs of setting up on a crowdfunding platform. • If the funding target is not reached, money is usually returned to investors. • Risk to reputation of a failed project. • The idea may be copied • The cost of giving rewards/discounts may make it unprofitable. • Difficulties of having a large number of potential investors.
45. [8] (c) AO2 Application: • Ava owns 100% of the shares of CC. • Ava is planning to use the crowdfunding to purchase inventory to grow. • Sales of children's costumes (outfits). • Costumes are sold through e-commerce. • Costumes based on popular TV and movie characters (allow relevant examples). • Costumes are made from brightly coloured materials which CC buys in bulk. • CC owns a large sewing machine. • CC has completed two full years of trading (in third year). • Use of Table 2.1. • CC used to be operated from Ava's house, now in a rented shop in a shopping centre. • CC is recruiting a salesperson. • CC is private limited company (so limited in finance options)
46. [8] (c) AO3 Analysis: Analysis of the advantages may include: • Marketing benefits – potential customers may see CC's crowdfunding campaign and choose to purchase her outfits. • A way of gaining finance without interest – lower cost OR a way of reducing the interest payable. • Can be a quick way of gaining finance – the quicker CC opens a shop the more sales. • Crowdfunding can provide CC with feedback on the business and products. • May provide more finance than CC requires now, giving more opportunities for growth in the future. • Investors are likely to become customers (and vice versa), may increase CC's customer base. Analysis of the disadvantages may include: • Ava may lose equity in CC, may reduce her motivation and she might (eventually) lose control of the business. • Ava may have to give a dividend to the new owners, which may reduce any future profits available for reinvestment and growth in the future. • Ava may have to pay a penalty if the funding is not repaid or lose ownership of an asset (assuming loan crowd funding). • If the target amount is not reached, CC will not gain any money and have wasted time and effort on this. • Risk of competitors seeing what Ava's plans are for CC. • Time and money required to set up the crowdfunding project – takes Ava away from design and sales.
47. [11] (d) Level EVAL + EVAL + EVAL Analysis and Evaluation (7 marks): Justified evaluation based on arguments in context [7]
48. [11] (d) Level EVAL + EVAL Analysis and Evaluation (7 marks): Developed evaluation based on arguments in context [6]
49. [11] (d) Level EVAL Analysis and Evaluation (7 marks): An evaluative statement based on arguments in context [5]
50. [11] (d) Level DEV + DEV Analysis and Evaluation (7 marks): Arguments based on two factor affecting employee selection in context [4]
51. [11] (d) Level DEV Analysis and Evaluation (7 marks): Argument based on one factor affecting employee selection in context [3]
52. [11] (d) Level AN + AN Analysis and Evaluation (7 marks): Limited analysis of two factors affecting employee selection [2]
53. [11] (d) Level AN Analysis and Evaluation (7 marks): Limited analysis of one factor affecting employee selection [1]
54. [11] (d) Level 2b (APP + APP) Knowledge and Application (4 marks): Shows understanding of two factors affecting employee selection in context [4]
55. [11] (d) Level 2a (APP) Knowledge and Application (4 marks): Shows understanding of one factor affecting employee in context [3]
56. [11] (d) Level 1b (K+K) Knowledge and Application (4 marks): Knowledge of two factors affecting employee selection [2]
57. [11] (d) Level 1a (K) Knowledge and Application (4 marks): Shows knowledge of one factor affecting employee selection [1]
58. [11] (d) Level 0 Knowledge and Application (4 marks): No creditable content [0]
59. [11] (d) Knowledge may include: • Selection • Selection criteria
60. [11] (d) Application may include: • Details in Table 2.2 • Sells 'dress up' outfits for children • Based on popular TV and film characters • Shop in a shopping centre • Salesperson job.
61. [11] (d) Analysis may include: Liu • Younger (18) – may be closer to age of consumers (children dress up). • Some experience but less than Ahura – only part time probably while doing A-Levels. Food retail, still retail, but not in this industry. • A-Levels, especially in Business which may be useful. However how useful are academic qualifications to working in a shop. • Good customer service skills – useful for shop work. • Likes working with people but this is a role working on own may not be suitable. • Likely to be short-term as she wants to go to university and own her own business. May train and then she leaves. Ahura • Older (47) – may be closer to age of customers (parents). • Far more experience and specifically in a clothing shop. Acting experience may also help in 'dress up' clothing sales. However, unemployment may have reduced his skills – but also may work for lower wages. • University degree, but likely to be irrelevant. • Highly motivated which is likely to be important when selling in the shop. Only person in shop so likely to need admin skills and works well on his own. All necessary in this position. • Lacks career ambitions but does this suggest no drive. Likely to stay in job, but if it does not work out, might be difficult to get dismiss.
62. [11] (d) Evaluation may include: • A recommendation over which person Ava should employ, Liu or Ahura. • A judgement/evaluation over the suitability of each candidate. • Evaluation of the relative benefits/costs of each. • Elements that the evaluation/judgement might depend upon – length of job, wage of job, Ava's personal feelings, geographical location, etc.
63. [11] (d) Examples of how an answer could develop and how it should be annotated. K: Based on experience. APP: Liu has less experience than Ahura since she only worked for two years in a shop. AN: This means that Ahura is less likely to need training in how to work in a clothes/costume shop. DEV: which means Ava can more quickly start making new costumes. EVAL: Overall, Liu would make the better employee as she is likely to be more independent. Ahura may also struggle because she has been unemployed for five years and may have forgotten how a shop should be run.
64. [11] (d) Examples of how an answer could develop and how it should be annotated. K: However, based on their qualifications. APP: Liu has a more relevant degree in Business and DT. AN: This could mean she needs less training than Ahura, especially in the financial aspects of the shop. DEV: Meaning Ava can concentrate on what she is best at and increase the revenue potential of the shop. EVAL: However, this depends on when Liu decides to go to university as she may only choose to work for Ava for a very short time.