Planting Pots (PP) Emily and Kabir are entrepreneurs. In 2012 they set up PP in country K. As the business grew, they converted it from a partnership into a public limited company. Kabir and Emily own 50% of the shares between them. PP manufactures decorated pots for plants in its factory in country K. The pots can be used indoors and outdoors. The market for decorated pots is growing in country K and the business environment is dynamic. Some market data is shown in Table 2.1. Table 2.1: Market data for decorated pots: For 2020 (units sold): Total market sales in country K = 3.2 m, PP market sales = 0.8 m. For 2021 (units sold): Total market sales in country K = 4.1 m, PP market sales = 0.82 m. PP has 90 employees. Table 2.2 shows some data about PP's employees. Table 2.2: PP's employee data: Creative designers: Payment method = Salary, Main task = Create new designs for pots. Machine workers: Payment method = Piece rate, Main task = Batch production of pots. Supervisors: Payment method = Time-based, Main task = Supervise creative designers and machine workers. Managers: Payment method = Profit sharing, Main task = Make decisions in functional areas. The directors of PP have decided to build an additional factory. The capital cost will be $1.5m. The additional factory will allow PP to develop its product portfolio. The construction of the factory can start as soon as the directors have decided on a source of finance.

Mark scheme

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

1. Knowledge
2. [2] A correct definition
3. [1] A partial, vague or unfocused definition
4. [0] No creditable content
5. A correct definition should include the following elements:
6. • Separate groups/set amount/limited number – do not accept batch.
7. • Go through production process together before moving on to the next.
8. Batch production is where quantities of identical goods are produced in small groups. They go through the production process at the same time. Production is then switched over to allow another batch to be produced.
9. Example(s) not required.
10. Exemplar
11. Mark
12. Rationale
13. Batch production is where quantities of identical goods are produced together and then move on to the next process; A correct definition; [2]
14. A group of products go from one stage of production to the next together; Both elements covered; [2]
15. Produced at the same stage; Partial definition; [1]
16. When products are made in small quantities; Partial definition; [1]
17. Products made one a time; Confusion with job production; [0]
18. Products made continuously and are all the same; Confusion with flow/mass production; [0]
19. Award one mark for each point of explanation
20. [1] C Example or some other way of showing good understanding.
21. [1] B Understanding of one or more roles of an entrepreneur.
22. [1] A Knowledge of what an entrepreneur is/knowledge of a characteristic of an entrepreneur
23. Content
24. An entrepreneur is a person who sets up a business and takes on financial risks in the hope of profit. Someone who co-ordinates the other factors of production.
25. The role of an entrepreneur includes: Allow any reasonable characteristic of an entrepreneur, for example:
26. • risk taking
27. • innovative
28. • multi-skilled
29. • leader
30. • resilience/able to bounce back
31. • sets up a business
32. • passion
33. • self-confidence
34. • ambition
35. • hardworking
36. • persuasive
37. • aiming for profit (do not allow 'get rich' – too vague)
38. • makes decisions
39. • entrepreneurship is one of the factors of production
40. • organises the factors of production
41. • organises/raises/provides finance
42. • an example of an entrepreneur
43. • Takes initiative – starting a business and planning ahead.
44. • Innovative - changing, adapting and developing their products and the way they do things in a business.
45. • Identifying opportunities - new products and opportunities to expand into different markets.
46. • Organising resources – to effectively manage employees, money, buildings, products and any other business resources.
47. Exemplar
48. Rationale
49. Marks
50. A risk taker who sets up a business to make a profit, deciding the business' market and activities; All three elements; [3]
51. A risk taker who sets up a business to make a profit; All three elements; [3]
52. Takes the risk of bringing together the factors of production; A mark for risk and courage and B for brings together the factors of production; [2]
53. Risk taker; A only; [1]
54. Rationale
55. Marks
56. [3] Correct answer with or without correct working or %
57. [2] Correct calculation of both market share figures
58. [1] Formula or correct calculation of one market share figure
59. [0] No creditable content
60. Content
61. Business sales volume / Market sales volume × 100
62. 0.8m / 3.2m × 100 = 25% (2020)
63. 0.82m / 4.1m × 100 = 20% (2021)
64. 20% - 25% = -5% (decrease of 5%)
65. Answer = -5% (3)
66. Level 2b (APP): [3] Explanation of one implication of a change in market share in context
67. Level 2a (K+K): [2] Explanation of one implication of a change in market share
68. Level 1a (K): [1] Knowledge of one implication of a change in market share
69. Level 0: [0] No creditable content
70. Note: allow OFR from answer to Q2(b)(i)
71. Context:
72. • Market is growing but market share is decreasing.
73. • PP is a public limited company.
74. Implications may include:
75. • Increased competition – which PP may need to respond to
76. • PP may need to market their products more successfully – to remain competitive/relevant
77. • Need to improve promotion, price, distribution, product differentiation
78. • PP's share price may fall – lack of investor confidence
79. • Decrease in demand – if a loss of reputation or image (no context allowed as demand has increased in context)
80. ARA Example of how a response may develop and should be marked:
81. Identification of an implication (K-1 mark): Decrease in competitiveness; Explanation (K+K - 2 marks): Need to increase marketing budget; Possible context (APP - 3 marks): To gain back –5% MS
82. Identification of an implication (K-1 mark): Reduction in share price; Explanation (K+K - 2 marks): Lack of investor confidence; Possible context (APP - 3 marks): Share price
83. Knowledge and Application (4 marks) Level 2b: [4] Shows understanding of two factors affecting source of finance context
84. Knowledge and Application (4 marks) Level 2a: [3] Shows understanding of one factor affecting source of finance in context
85. Knowledge and Application (4 marks) Level 1b: [2] Shows knowledge of two factors affecting source of finance
86. Knowledge and Application (4 marks) Level 1a: [1] Shows knowledge of one factor affecting source of finance
87. Knowledge and Application (4 marks) Level 0: [0] No creditable content
88. Analysis (4 marks) Level 2b: [4] Developed analysis of two factors affecting source of finance in context
89. Analysis (4 marks) Level 2a: [3] Developed analysis of one factor affecting source of finance in context
90. Analysis (4 marks) Level 1b: [2] Limited analysis of two factors affecting source of finance
91. Analysis (4 marks) Level 1a: [1] Limited analysis of one factor affecting source of finance
92. Analysis (4 marks) Level 0: [0] No creditable content
93. Note: this question is not asking candidates to analyse possible sources of finance. Analysis should only be rewarded for a factor affecting the choice of a source of finance.
94. Indicative content: AO1 Knowledge and understanding: Factors may include:
95. • Cost
96. • Flexibility
97. • Control
98. • Use of finance
99. • Level of existing debt
100. • Timeframe
101. AO2 Application: Application may include:
102. • $1.5m capital
103. • fixed use (for a building)
104. • Emily and Kabir own 50% of shares
105. • factory is to develop product portfolio
106. • short term – can start construction immediately
107. AO3 Analysis: Analysis may include:
108. • likely to need a long-term source of finance – affordability of repayments
109. • Building project may over-run – PP may need some flexibility for contingencies
110. • Share issue may make them lose control of the business – ability to make future decisions
111. • extend sales in a growing market – future sales may cover any finance costs
112. • speed of funds could be important – may restrict options
113. ARA Examples of how an answer could develop and how it should be annotated.
114. K: Cost of finance; APP: $1.5m; AN: High monthly repayments; DEV: Increases financial risk
115. K: Length of finance; APP: Long term/mortgage; AN: May affect gearing ratio adversely; DEV: Which makes sourcing additional finance more difficult
116. Knowledge and Application (4 marks) Level 4: [4] Shows understanding of two payment methods in context
117. Knowledge and Application (4 marks) Level 3: [3] Shows understanding of one payment method in context
118. Knowledge and Application (4 marks) Level 2: [2] Knowledge of two payment methods
119. Knowledge and Application (4 marks) Level 1: [1] Shows knowledge of one payment method
120. Knowledge and Application (4 marks) Level 0: [0] No creditable content
121. Analysis and Evaluation (7 marks) Level 7: [7] Justified evaluation based on arguments in context
122. Analysis and Evaluation (7 marks) Level 6: [6] Developed evaluation based on arguments in context
123. Analysis and Evaluation (7 marks) Level 5: [5] An evaluative statement based on arguments in context
124. Analysis and Evaluation (7 marks) Level 4: [4] Arguments based on two payment methods in context
125. Analysis and Evaluation (7 marks) Level 3: [3] Argument based on one payment method in context
126. Analysis and Evaluation (7 marks) Level 2: [2] Limited analysis of two payment methods
127. Analysis and Evaluation (7 marks) Level 1: [1] Limited analysis of one payment method
128. Analysis and Evaluation (7 marks) Level 0: [0] No creditable content
129. Note: evaluation based on argument in context of any two methods can achieve full marks.
130. Indicative content: A01 Knowledge and understanding: Knowledge* of payment methods may include:
131. • Payment methods: time based - e.g. hourly rate; salary - paid the same every month; piece rates - paid per outcome; commission - paid per sale made; bonuses - extra payment for hitting targets; profit sharing – dividing profit by getting a percentage; performance related – different levels of pay for different targets
132. *Knowledge must be in the form of definition or understanding as the payment methods are clearly stated in the text
133. AO2 Application: Application may include:
134. • Public limited company – answerable to shareholders
135. • Decorated plant pots
136. • Growing market
137. • Creative designers – piece rate
138. • Manufacturing employees – time based
139. • Supervisors - salary
140. • Managers - salary and profit sharing
141. AO3 Analysis: Creative designers:
142. • Payment by results of how many new designs are created – may motivate employees to produce new design – links productivity to output – controls costs.
143. • Piece rate may lead to a focus on quantity not quality – unlikely to lead to creative innovation – more likely to lead to hitting specific targets.
144. Manufacturing employees:
145. • Time based, so could be an emphasis on 'going slow' to maximise pay but at a minimal output – may allow them to gain overtime payments but will increase PP's costs
146. • Since pots are made using batch production, other systems may not be suitable as the changeover time would not allow a piece rate system and might be unfair. Time based allows for different times to produce different pots and could be a simple payment method for these workers. May also be in line with minimum wage legislation in country K.
147. Supervisors:
148. • Salary allows for a known payment each week/month/year and this may allow PP to plan and forecast cashflow better. May also allow PP to get a higher output from the supervisors for the same payment.
149. • May not motivate the supervisors as their pay is not linked to hours worked or how many are produced. Might be most appropriate as they are not producing products.
150. Managers:
151. • Mangers are making the functional decisions and therefore the ultimate profitability of the firm is likely to be based on their decision making. Therefore, linking their pay to the profits is likely to motivate them and lead to better decision making.
152. • However, the market share is declining - does this mean that the managers might not get paid. Might this lead to a high staff turnover for managers leading to poor decision making. Loss of profit for the shareholders (including Emily and Kabir) – also less money for reinvestment, especially the new factory.
153. AO4 Evaluation: Evaluation may include:
154. • A judgement/evaluation over the suitability of different payment methods.
155. • Evaluation of the relative benefits/costs of each payment method.
156. • Elements that the evaluation/judgement might depend upon – type of worker, objectives of the firm, type of workers (theory X and Y), profitability of the firm, productivity of the different employees etc.
157. ARA Examples of how an answer could develop and how it should be annotated.
158. K: Piece rate paid per unit produced; APP: Plant pots designed; AN: Motivates employees to create as many designs as possible; DEV: However can lead to a lack of creativity/care; EVAL: PP's use of different payment methods is mainly beneficial because the employees do different tasks which have different motivational requirements Especially as they are in a dynamic market and need to be flexible
159. K: Time based paid per hour; APP: For decorated plant pots; AN: Manufacture wouldn't be rushed; DEV: So quality should improve/be high