Identify and explain four reasons why making a profit is important to Peter.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [1] (a) Source of finance/retained profit/Peter could use the profit for reinvestment – expand the gym by buying new equipment
2. [1] (a) To ensure survival of the business/avoid closure
3. [1] (a) Reward for enterprise – reward for Peter's hard work/good ideas to start the business
4. [1] (a) Reward for risk taking – Peter risked losing his investment of $5,000
5. [1] (a) Indicator of success – the more profit Peter makes the more his success will be recognised by customers/employees
6. [3] (a) Indicative response: It is a reward for risk taking (1) as Peter has risked $5,000 of his own money in the business and could have gained interest on this money if he had put it in the bank.(1)
7. [1-3] (b) (L1) Outline of advantages and/or disadvantages of each option. (max of 3 marks) E.g. Peter has full control over his own trainers if he employs them.
8. [4-6] (b) (L2) Discussion of advantages and/or disadvantages of each option. 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) E.g. Peter has full control over his own trainers if he employs them. The right equipment, such as a cross trainer, needs to be purchased so that customer needs are met. However, it can be time consuming and expensive to carry out the market research required to ensure this happens. (Level 2 plus one application mark for answering in the context of the gym and its equipment)
9. [7-10] (b) (L3) For L3 to be awarded there needs to be at least two L2 marks awarded and then a recommendation of which option to choose. 7-8 marks for limited recommendation on which option to choose OR why not the other option. 9-10 marks for well justified recommendation of which option to choose AND why not the other option. Award up to 2 additional marks for relevant application.
10. (b) (Advantages of Employ his own personal trainers) Full control over trainers; Higher profit especially when busy with many clients
11. (b) (Disadvantages of Employ his own personal trainers) Pay trainers whether or not they have clients; More expensive when not busy
12. (b) (Advantages of Charge a fixed fee to personal trainers) Fixed amount paid to VG; Risk of low demand taken by the trainer; Less expenses as no wages to pay each month
13. (b) (Disadvantages of Charge a fixed fee to personal trainers) Additional revenue/profit lost to gym; Cannot control the quality of the training provided for clients; Maybe unreliable and this could affect reputation of VG
14. (b) (Possible application marks) Fitness instructor; membership fee for many gyms is monthly; payment each visit to the gym; demand for low-priced gyms; needs to attract more customers to continue to expand the gym; needs to employ 4 personal trainers; 2 receptionists; gym is open 7 days a week; Information from Appendix 3; qualifications to meet health and safety requirements.