Explain two reasons why finance is needed by CC.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [1] For the purchase of investment goods/capital/expansion of existing business
2. [1] e.g. buy equipment/machinery
3. [1] high amount of finance needed so may not all be from owners capital
4. [1] To provide working capital/pay expenses/fixed costs/variable costs/overheads/day-to-day expenses
5. [1] e.g. payment of wages/purchase of raw materials
6. [1] if not able to pay costs then output cannot be produced &/or - prevents cash flow problems/lack of liquidity
7. [1] Development of new product
8. [1] high cost of producing prototypes/cost of market research for new product
9. [1] outflow of cash with no inflow for a certain time
10. [1] Start up a new business
11. [1] needs to purchase equipment/raw materials
12. [1] owner may lack sufficient capital
13. [1] &/or – may take time for sufficient cash to be built up in the business to pay for assets
14. Award a maximum of 3 additional marks for each explanation of the reason – one of which must be applied to this context.
15. For example: CC needed money when it started up (1) and each partner invested $10000 (app). This finance paid for training new employees, so they are effective at work (1) and for equipment to help the workers be efficient (1).
16. Application could include: mobile phone covers; $10000 invested by each partner; bank loan of $10000; leased a factory; brother; two partners.
17. Quality control - Advantages: Products checked at the end of the production line tries to eliminate faults and errors before the customer receives the mobile phone cover
18. Quality control - Advantages: Less training is required for the 10 workers as inspectors check the quality of the covers before they leave the factory
19. Quality control - Disadvantages: It raises costs as inspectors need to be employed
20. Quality control - Disadvantages: Identifies faulty products at the end of the process but does not identify where the fault has occurred
21. Quality control - Disadvantages: If do not identify the fault, then it does not eliminate the faulty process
22. Quality control - Disadvantages: High costs if phone covers need to be scrapped
23. Quality assurance - Advantages: Products checked at every stage of the production process to try to eliminate faults or errors at each stage of production before passing to the next stage reducing faults at the end
24. Quality assurance - Advantages: Therefore there are fewer customer complaints of faulty phone covers
25. Quality assurance - Advantages: Reduced costs if fewer mobile covers are scrapped
26. Quality assurance - Advantages: Can make workers feel trusted and may improve motivation
27. Quality assurance - Disadvantages: Can be expensive to train employees to check the quality of their own work
28. Quality assurance - Disadvantages: The reliability of employees is important, and they need to be committed or quality assurance will not be effective
29. Quality assurance - Disadvantages: Takes longer to produce phone covers as each worker needs to do their own check for faults
30. Recommendation Justification: If the process to produce a mobile phone cover is simple, then quality control may be most suitable as inspectors may just carry out a simple check at the end of the production line and the 10 production workers do not need to be trained to check their own work, reducing training costs, which they would have to do if quality assurance was used.
31. Recommendation Justification: Quality assurance is best because each stage of production can be checked so it is less likely for a faulty product to go to customers than if quality control is used. It keeps a good brand image for CC products. It will ensure faults do not need to be repaired, reducing costs of faulty products being scrapped. Also cost of employing inspectors is saved, which would have to be paid with quality control.