Paolo wants to start up a business making cakes. He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital. Table 1.1 Extract from Paolo's financial and sales data | | | |:------------------------------------|:---| | Average price per cake | $6 | | Average cost per cake | $4 | | Forecast average number of cake sales per day | 50 |

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [2] Award 2 marks for a full definition. Award 1 mark for a partial definition.
2. Finance needed by a business to pay day-to-day costs [2]
3. OR
4. The capital needed to finance the day-to-day running costs/expenses [2]
5. OR
6. Current assets less/minus current liabilities [2]
7. Partial definition e.g. funds to buy inventory/materials/pay wages [1] OR finance to pay short-term debts [1]
8. [2] Award 2 marks for a correct answer. Award 1 mark for correct method but incorrect answer.
9. Correct answer: $300 [2]
10. Method e.g.
11. Price x number of units sold [1]
12. $6 × 50 [1]
13. [4] Award 1 mark for each relevant reason (max 2).
14. Award 1 mark for each relevant reference to this business (max 2).
15. Points might include:
16. Protect the product/keep product safe/helps ensure quality especially as selling cakes
17. Promote brand image/differentiate it from other products for this new business
18. Add value/higher price than $6
19. Help advertise/attract customers/increase sales
20. Ease of storage/display at the wholesaler
21. Ease of transport for the 50 products
22. Provide information/meet legal requirements
23. Make the product easy/convenient to open
24. Other appropriate responses should be credited.
25. [6] Award 1 mark for each relevant advantage/disadvantage (max 2).
26. Award 1 mark for each relevant reference to this business (max 2).
27. Award 1 mark for each relevant explanation (max 2).
28. Advantages:
29. No/low interest so does not increase cash outflows for his start-up
30. Allows for the public reaction to be tested the cakes which could lead to more customers
31. No need to repay/permanent so does not add to its liabilities/debt
32. No collateral needed
33. Disadvantages:
34. No guarantee can raise full amount / may not raise enough / sufficient funds / must repay everyone if cannot raise full amount so must find another source
35. Competitors may learn more about your business before launch such as ideas for packaging leading to less revenue
36. Not a reliable/stable source of finance
37. A lot of paperwork
38. Other appropriate responses should be credited.
39. [6] Award up to 2 marks for identification of relevant points.
40. Award up to 2 marks for relevant development of points.
41. Award up to 2 marks for a justified decision as to whether selling to a wholesaler is the best channel of distribution for a start-up business.
42. Points might include:
43. Wholesaler:
44. Likely to buy in large quantities increasing sales
45. Can hold less inventory less storage space/costs
46. Only deliver to one location lowering transport costs
47. No direct contact/feedback with customer so difficult to build customer relationship/loyalty
48. Price may be higher leading to fewer sales
49. Lose (some) control over marketing/advertising
50. Wholesaler takes part of the profit which lowers profit margin
51. Other channels might include:
52. Sell direct (to customers)/ecommerce/online so has more control over its marketing/build rapport
53. Retailers so can reach wider range of customers
54. Agents as will have local knowledge so higher sales
55. Other appropriate responses should be credited.
56. Justification might include:
57. A wholesaler will help save storage space which reduces storage costs. They could sell online which would increase its access to customers. A wholesaler is the best channel to use because being able to lower costs is important especially as a start-up business will have limited capital. Whereas selling online is likely to increase delivery costs increasing their total costs.