O-LevelCommerceProduction7100/22 · May/June 2017 · Q220 Marks

O Ltd is a manufacturer of wooden furniture. Its factory is on the outskirts of a town which is a long way from its raw materials. It uses specialisation and adds value when making the furniture.

(a)Identify the sector of production that O Ltd is concerned with.[1]
(b)Explain what is meant by added value. Give an example relating to furniture.[3]
(c)State two advantages and two disadvantages to O Ltd of using specialisation when manufacturing furniture.[4]
(d)Should O Ltd open a new factory in a remote forested area? Give reasons for your answer.[4]
(e)O Ltd wishes to buy a new machine costing $100000. It has two possible sources of finance available: Bank loan Hire purchase
(e)(i)Discuss these sources and recommend which one might be better for O Ltd. Give reasons for your answer.[6]
(e)(ii)Explain one reason why O Ltd is not using retained profits (retained earnings) to buy the new machine.[2]

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

[1] Secondary
[3] 1 mark for a relevant example.
[3] Up to 2 marks for the explanation.
[4] 1 mark for each advantage stated to a maximum of two advantages.
[4] 1 mark for each disadvantage stated to a maximum of two disadvantages.
[4] 1 mark for each reason stated plus 1 mark for each judgement made. Reasons can be either side.
[6] Level 2 (4–6 marks) Has discussed both sources of finance and has given a reasoned recommendation.
[6] (If a candidate has discussed only one option award 4 marks max).
[6] Level 1 (1–3 marks) Has commented on one or both options with/without recommendation.
[6] Accept any other relevant points.
[2] Up to 2 marks for an explanation.

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