Lu is a sole trader. He manages a bakery shop making and selling bread and cakes. He employs 4 workers all of whom are paid on time rate. Lu wants to expand the business by buying a new shop and using it as a café (restaurant). He also wants to make a wider range of cakes, such as wedding and birthday cakes, for which he thinks there is a demand. At present the business sells all of the bread and cakes it makes.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [2] Clear understanding e.g. a business owned and controlled by one person OR ownership lies in the hand of an individual.
2. [1] Some understanding e.g. a business where one person works/runs on their own.
3. [2] Some understanding plus a relevant feature can gain e.g. keeps all profits / unlimited liability.
4. Note - Features alone max [1]
5. [2] Application [2 × 1] one mark per method.
6. Points might include: piece rates, salary, performance related pay, bonuses/commission, profit sharing.
7. Note - Do not accept wage as this implies time rate
8. [4] Knowledge [2 × 1] – award 1 mark for each relevant source.
9. [4] Analysis [2 × 1] - award 1 mark for each relevant explanation.
10. Relevant points might include:
11. Long term loan [k] (bank loan alone not acceptable) which he can pay back over a long period of time [an]
12. Retained profits [k] because he will not have to repay the money back [an]
13. Mortgage [k]
14. Existing owners capital [k]
15. Additional owners capital [k]
16. Venture capitalist [k].
17. [6] Knowledge [2 × 1] – award 1 mark for each method identified.
18. [6] Application [2 × 1] – award 1 mark if relevant reference made to Lu's business,
19. [6] Analysis [2 × 1] – award 1 mark for each relevant explanation (e.g. how it would help increase sales),
20. Relevant points might include:
21. advertising (allow only once) e.g. leaflets/posters [k] showing pictures of their food [app] which raise awareness of business [an]
22. Point of sales displays [k] as attracts attention of customers [an]
23. Samples [k] as people are able to taste the products [app] and if liked more willing to buy [an]
24. money off incentives (allow only once) e.g. promotional pricing or buy one get one free [k] which will encourage them to come into the shop [app] and buy the product [an]
25. Attending fairs [k] such as wedding events [app] which will gain Lu new customers
26. publicity / sponsorship [k] loyalty card [k] personal selling [k]
27. Competitions [k] people will buy a wedding cake from Lu [app] to have a better chance of winning the prizes [an].
28. Note - Reference to cakes alone is not sufficient for application as this is in the question stem.
29. Specific examples of promotion are required so do not accept above and below the line promotion or forms of media alone e.g. newspapers, as these are not specific methods.
30. Two distinct examples of application required for the 2 app marks.
31. [6] Knowledge [2 × 1] award 1 mark for each relevant issue identified.
32. [6] Application [1] – award 1 mark if relevant reference made to Lu's business.
33. [6] Analysis [1] – award 1 mark for relevant development of point(s).
34. [6] Evaluation [2] – justified decision made as to whether Lu's business will be more profitable if he expands it by opening a new café.
35. Points might include:
36. Sales revenue of the business should increase [k] if more/new customers are attracted [an] who might buy cakes [app]
37. Extra costs [k] such as additional rent [app] he may need more than 4 workers [app] which will increase Lu's expenses [an]
38. Reaction of competition [k]
39. Is there sufficient demand [k] Lu only thinks there is a demand [app].
40. Developed example:
41. Sales revenue of the business should increase [k] but expansion creates extra costs [k] such as the additional rent [app] so profits may not increase [an]. Everything depends upon the success of the venture in generating new customers [eval].