BB is a newly established social enterprise in country X. It was set up by Brenda. Brenda has no experience of running a national business, but she used all her savings to recruit a team of young intrapreneurs. Country X specialises in recycling plastic waste from other countries. It has a dynamic business environment and many businesses have recently failed. Brenda saw an opportunity to recycle low-cost plastic waste into construction bricks. These could be used to help the poorest in society to build waterproof houses. BB recently featured in a government promotion highlighting successful innovators. BB has trialled the method using job production and needs investment to produce its bricks commercially. A large national business, CC, is keen to invest in community projects to improve their corporate social image. CC needs to see a business plan before making a decision. Brenda has started to investigate the costs of production for the business plan that CC has requested. (See Table 1.1.) Table 1.1: Data about BB's costs and methods of production | | Batch production | Flow production | |:--------------------|:-------------------------------------------|:-------------------------------------------| | Purchase cost | $100000 capital cost | $150000 capital cost | | Hire purchase cost | $500 per month over a 20-year period | $600 per month over a 25-year period | | Output | A variety of sizes manufactured to customer preferences | One size of brick used in 80% of house construction | | Manufacturing time | Average 40 bricks per hour | 100 bricks per hour |

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2024). The mark or mark type is shown in brackets.

1. [1] lack or loss of customers/demand/reputation/image
2. [1] financial - poor cashflow management/unexpected costs/low profits
3. [1] competition - new competitors/new more superior competing products/new substitutes
4. [1] IT failure/cyber-attack/supply chain disruption/pandemic/economic factors
5. [1] operational/compliance/legal/strategic risks
6. [1] changing external factors, e.g. poor economic climate
7. [1] inexperienced managers
8. [1] bankruptcy/insolvency/business failure
9. [1] Knowledge of national business: in one country / within a country / only one country / only domestic
10. [1] Explanation of a national business: the business only sells products (in one country) / sell / the business only operates (within a country) / trading / customers from (only one country) / (only domestic) target market / not worldwide or global
11. [1] Context: Application can be made to BB/CC or any other scenario/context/business/person, e.g. BB has no experience of running a national business in Country X.
12. [3] Correct answer: $180 000 (allow 180 000)
13. [2] Correct formula for the hire purchase cost over a 25-year period (figures or words) AND ONE OF: Correct calculation of the hire purchase cost per year ($7200) OR Correct calculation of the number of months over the 25-year period (12 × 25 = 300 months)
14. [1] Correct formula for the hire purchase cost over a 25-year period (figures or words) OR Correct calculation of the hire purchase cost per year ($7200) OR Correct calculation of the number of months over the 25-year period (12 × 25 = 300 months)
15. [1] Knowledge of an advantage of hire purchase: fixed monthly repayments / own the product after the final payment is made (unlike leasing) / can budget as know the fixed monthly repayment / business does not have to make a large initial cash payment / long timescale to finance the asset
16. [1] Explanation of an advantage of hire purchase: e.g. fixed monthly repayments allows for easy budgeting.
17. [1] Context: Applied to BB, e.g. BB needs to finance machinery costing $150 000, and hire purchase would allow fixed monthly repayments of $600 per month.
18. [2] (AO1) Knowledge of limitations to BB of creating a business plan: requires skill to produce a business plan / require experience to produce a business plan / waste/use of resources to create business plan, e.g. time, financial / opportunity cost of producing a business plan / could create a false sense of certainty / based on estimates/predictions / may lead entrepreneurs to be inflexible/reduce creativity – new opportunities may arise that are not in the plan, and could be overlooked/rejected / cannot account for changes in the external environment
19. [2] (AO2) Context applied to a limitation of BB creating a business plan: BB is a newly established enterprise / Brenda is inexperienced / no sales data / social enterprise / dynamic business environment / many businesses have recently failed / recycle low-cost waste to help the poorest in society / any financial data from Table 1.1 / CC is keen to invest to improve its own corporate social image
20. [4] (AO3) Developed analysis identifying connections between causes, impacts and/or consequences of two points:
21. requires skill, experience and understanding to produce a business plan which Brenda does not have may make errors with the market research/predictions – may lead to CC not investing in the project
22. waste/use of resources to create business plan, e.g. time, financial; which could be used on other tasks in the business – leading to reduced profits/revenue
23. could create a false sense of certainty; leading to poor decisions – business failure
24. based on estimates/predictions which may be inaccurate; leads to a shortfall in funds – banks may not be willing to increase investment
25. inflexibility; BB may miss out on new opportunities – limit growth potential/profitability
26. [2] (AO1) Knowledge of features of flow production: continuous production/24–7 / mass production / higher productivity / suited to identical/standardised products (no changes/undifferentiated)/lack of flexibility / automation / high purchase cost / use of machinery/technology / machines need to be maintained / large quantities of output
27. [2] (AO2) Context applied to features of flow production: BB is a newly established enterprise / no sales data / social enterprise / dynamic business environment / many businesses have recently failed / recycle low-cost waste / any financial data from Table 1.1 / CC is keen to invest to improve its own corporate social image / BB's target market are the poorest in society/citizens on low incomes / mass production produces one standard brick/batch production creates a variety of sizes of bricks according to customer preferences / one size of brick used in 80% of house construction
28. [4] (AO3) Developed analysis identifying connections between causes, impacts and/or consequences for flow production (positive):
29. higher productivity; increased efficiency – increase profitability
30. mass production; higher market share – increased revenue and profits for future growth
31. the standard brick is used in 80% of house construction – potential for a large share of the market – market leadership
32. higher productivity; economies of scale/reduced unit cost of production – can lower prices for customers
33. [4] (AO3) Developed analysis identifying connections between causes, impacts and/or consequences for flow production (negative):
34. higher purchase cost; larger source of finance needed to purchase outright – increased cost of borrowing/less funds available for future expansion
35. higher purchase cost per month; higher monthly expenses – increased cash outflow
36. cannot change the design of the brick; reduced customer satisfaction – reduced market share as customers move to competitors with more choice
37. [6] (AO4) Evaluation: A developed judgement/conclusion made in the business context, balancing arguments:
38. a judgement over whether BB should use flow production to produce bricks
39. what the judgement might depend upon; the amount of investment and level of risk CC is prepared to accept for a new social enterprise, the likely requirements of the target market, the ability and skill of the end users and the lifespan of the machinery
40. weighing up of the arguments for flow production on the success of the social enterprise
41. Exemplar (L3): BB should use flow production because 100 bricks can be produced per hour which is 60 more per hour than batch production.
42. Exemplar (L3): No, batch production is better than flow production because a variety of brick sizes can be made leading to greater customer satisfaction. 20% of house construction do not use the standard brick size so these customers' needs would otherwise be unmet.
43. Exemplar (L3): Flow production should be used by BB as the higher productivity will enable the business to generate more revenue, which can be used to cover the $600 hire purchase cost per month.