Identify and explain two reasons why added value is important to P & P.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2016). The mark or mark type is shown in brackets.

1. [1] Knowledge [1] - award one mark for each relevant reason (maximum of two).
2. [1] Analysis [1] – award one mark for a relevant explanation for each reason (maximum of two).
3. [2] Application [2] – award two application marks for each reason (maximum of four).
4. Possible reason: Allows costs to be paid.
5. Possible reason: Ensures a profit is made.
6. Possible reason: Prices could be increased.
7. Award a maximum of three additional marks for each explanation – 2 of which must be applied to this context – of the reason why added value is important.
8. Indicative response: Allows costs to be paid (k) as wages and other factory costs are paid out of the revenue from sales of paint (ap) and the price of paint is higher than the total costs of producing it (ap). This means that P & P will make a profit (an).
9. Relevant points for (b) might include:
10. Take over a retail business in one of the other countries:
11. - Advantages: Will own many outlets to sell their paint.
12. - Disadvantages: Expensive to buy shares in the other business.
13. Change to a public limited company to raise additional capital:
14. - Advantages: So they can sell shares to the public; Pay additional costs of exporting/expanding.
15. - Disadvantages: Accounts are public and may be able to be taken over.
16. Form joint ventures in the other countries:
17. - Advantages: Local knowledge of the overseas market.
18. - Disadvantages: Have to share information and profit.
19. [1-3] Level 1: Outline of advantages and/or disadvantages of each possible change.
20. [4-6] Level 2: Detailed discussion of advantages and/or disadvantages of each possible change.
21. [7-8] Level 3: Some limited judgement shown in conclusion as to which change will be most helpful when selling products abroad.
22. [9-10] Level 3: Well justified conclusion as to which change will be most helpful when selling products abroad.
23. [1] Level 1 - 1 mark for each L1 statement (max of 3 marks) e.g. Remaining a private limited company means the business will keep its accounts private.
24. [4] Level 2 - 1 x L2 explanation can gain 4 marks, e.g. Changing to a public limited company means the business will not keep its accounts private and so it will be easier for competitors to obtain information about the company. However, it will be able to obtain capital from selling shares as it can now sell shares to more than family and friends and this will enable it to cover the increase in costs from starting to export.
25. [2] Award up to 2 additional marks for relevant application.