REW has won many awards for the design and style of its carpets and rugs. All the wool it uses is from local suppliers. REW's objective for this year is to survive and remain in business. The Managing Director is concerned that the country's Gross Domestic Product has been falling for some time. During the recession the Managing Director plans to start selling REW's products in other countries. Market research suggests demand would be high. Table 2: Extract from REW's accounts | | 2017 | 2018 Current ratio | 1.5 | 2 Acid test ratio | 1.2:1 | 1:1 Profit margin | 20% | 16%

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [2] Clear understanding: the total value of output of goods and services in a country (in one year OR at a given point in time)
2. Some understanding [1]: e.g. Output of a country
3. OR amount of goods / services produced by a country [1]
4. [2] Knowledge [2 × 1] award 1 mark for each effect
5. Lower demand / sales
6. Easier to recruit employees / may need to make workers redundant
7. More difficult to raise prices / may need to reduce prices
8. Less likely to invest / expand
9. Lower profits
10. Spare capacity increases
11. Reduce levels of inventory / stock / less output
12. [4] Knowledge [2 × 1] Award 1 mark for each reason identified
13. Application [2 × 1] Award 1 mark for each explanation in context
14. Change in economic conditions e.g. decrease in interest rates / decrease in taxes / decrease in employment [k] as the country is seeing GDP falling [app]
15. Previous objectives met / business has become established [k]
16. Change in competition / market / demand e.g. decrease in demand [k] for carpets [app] OR Competitors enter market [k] so survival becomes main objective again [app]
17. Change in board of directors / ownership OR changing demands of stakeholders [k]
18. Change in profit / business costs e.g. decrease in profit [k]
19. [6] Knowledge [2 × 1] Award 1 mark for each relevant change
20. Application [2 × 1] Award 1 mark for each relevant reference made to this business
21. Analysis [2 × 1] Award 1 mark for each relevant explanation
22. Acid test
23. decreased / fallen [k] by 0.2 or 0.1 [app]
24. Analysis could be awarded for:
25. so may need to reduce creditors / trade payables [an]
26. improve cash by selling more products / sell unwanted OR non-current assets [an]
27. may have problems paying its short-term liabilities OR may have less liquidity OR may have less cash [an]
28. may make it harder to obtain finance [an]
29. suppliers may be less willing to provide goods (on credit) [an]
30. Profit margin
31. decreased / fallen [k] by 4% [app]
32. Analysis could be awarded for:
33. need to look for ways to increase added value [an]
34. may look for ways to lower costs [an]
35. may increase prices [an]
36. may need to sell more products to maintain current level of profit [an]
37. [6] Knowledge [1] Award max. 1 mark for identification of relevant issue(s)
38. Application [1] Award 1 mark for a relevant reference made to this business
39. Analysis [2] Award up to 2 marks for relevant development of point(s)
40. Evaluation [2] Justified decision made as to whether REW should start selling its products in other countries.
41. Access to more markets OR more (potential) customers [1] leading to higher revenue [an]
42. Spread risk [k] as GDP in own country falling [app] and sales elsewhere could make up for the shortfall in demand [an]
43. Greater recognition OR brand awareness [k] for its award winning products [app]
44. Existing competition [k] could make it difficult to achieve high sales [an] even though market research suggests high demand [app]
45. Lack knowledge of local markets and tastes [k] about rugs [app] so might need to spend money changing products [an]
46. Language barriers [k]
47. Exchange rates problems [k]
48. Tariffs [k] which could increase prices [an]
49. Quotas [k] which restricts the amount of products the business is able to sell [an] which may make it harder to meet customer demands [an]
50. Transport problems OR distribution problems [k] increases expenses / cash outflow [an]