Mr Tan is a trader in Singapore. He imports goods from countries in South East Asia and sells to customers in Singapore.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2011). The mark or mark type is shown in brackets.

1. [2] (a)(i) Any two points × 1 mark:
2. • a clearly defined geographical area inside a country, e.g. at a port or example
3. • where no customs duty is charged on goods entering or leaving the freeport
4. • entrepot trade.
5. Any other relevant point.
6. [2] (a)(ii) Any two advantages × 1 mark or one well-explained advantage × 2 marks:
7. • he need not pay import duty on the goods he imports so reducing costs/increasing profit
8. • he can prepare the goods for sale within the freeport (or example e.g. bottling)
9. • he can look for buyers while the goods are in the freeport.
10. Any other relevant point.
11. [2] (b)(i) Any two advantages × 1 mark each:
12. • he receives immediate payment (increased sales = 0)
13. • there are no bad debts as payment is refused if no funds available
14. • payment is made directly into his bank account
15. • does not have to give credit to customers
16. • aids cash flow
17. • saves time paying in bank
18. • less cash on premises.
19. Any other relevant point.
20. [2] (b)(ii) Any two advantages × 1 mark each:
21. • increased sales/competitive edge
22. • from people to whom he offers the facility of buy now, pay later
23. • guaranteed payment by the credit card company
24. • may attract a wider range of customers
25. • encourages impulse-buying
26. • can clear stocks more quickly
27. • less cash on premises.
28. Any other relevant point.
29. [6] (c) Level 2 (4-6 marks)
30. Candidate has considered the arguments for and/or against giving cash discount and has made a reasoned judgement either for or against giving cash discount. (One-sided argument, award 4 marks max.)
31. Mr Tan may decide to give cash discount so that he is paid promptly and can then use the payments to fund more purchases. By offering cash discount, he may retain customers who regularly buy from him and these customers may recommend him to others. He may also have a competitive edge over competitors who do not offer cash discount. On the other hand, for each transaction he loses some money. He has to weigh up whether or not it is better to have money early and less of it so that his cash flow is maintained or whether it is better to have full payment but risk bad debts. On balance, it is probably better to offer cash discount to selected customers. (He should, however, offer trade discount to these customers as they are regular customers.)
32. Level 1 (1-3 marks)
33. Candidate has made some statements about cash discount and may/may not have given an opinion about offering cash discount to regular customers.
34. Cash discount is money off for prompt payment. Customers pay less. Mr Tan would have money to buy more goods.
35. [2] (d)(i) $12 000 × 0.2 (1 mark) = $2400 (1 mark).
36. Own Figure Rule (OFR) applies. If a candidate gives the correct answer without working, award full marks.
37. [4] (d)(ii) Any two reasons × 2 marks each:
38. • she may take too long to sell them, so has to reduce the price of some to sell all of them
39. • some of the goods may be faulty and so she reduces the price
40. • she may be selling a large quantity to one customer who wants discount for quantity
41. • some of the goods become too dated/obsolete and so she cannot sell them
42. • she may offer reduced prices to some favoured customers
43. • she may have mistakenly charged the wrong price/priced some of the goods incorrectly and cannot correct the error
44. • a recession may force price reductions as people cannot afford goods
45. • lower prices and sales promotions may be offered by competitors so customers go elsewhere
46. • may be offering sales promotions plus example
47. • some of the goods may have been bought cheaply so difficult to achieve high mark-up
48. • makes goods too high a price so people do not buy them
49. • tastes/fashions may change plus example.
50. Any other reason explained.