Identify and explain one advantage and one disadvantage of leasing all the equipment used in the business.

Mark scheme

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

1. [1] (a) (Advantage) The business does not have to find a large sum of cash to purchase the equipment
2. [1] (a) (Advantage) Care and maintenance is carried out by the leasing company
3. [1] (a) (Advantage) When the lease expires the latest equipment could be obtained
4. [1] (a) (Disadvantage) Total cost of leasing higher than to purchase the equipment outright
5. [1] (a) (Disadvantage) The equipment is not owned by VG
6. [1] (a) (Disadvantage) Cannot sell the equipment if not needed any more
7. [3] (a) Indicative response: The business does not have to find a large sum of cash in one go (1) as the equipment can be leased even if VG does not have the cash to buy it outright. (ap) This means VG can have better quality equipment such as treadmills for the gym at the start (ap) which will allow Peter to get the gym set up quicker and with better equipment than if he had to find all the cash at the start. (1)
8. [1-3] (b) (L1) Outline of the advantages and disadvantages of each change. (max of 3 marks) E.g. Lower demand for gyms as less income left over after essential bills paid.
9. [4-6] (b) (L2) Discussion of the advantages and disadvantages of each change. 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) E.g. Lower demand for gyms as less income left over after essential bills paid. Therefore the number of members and therefore revenue might fall for VG. However, as VG is a low cost gym it might attract members from luxury gyms and so membership might increase. (Level 2 plus one application mark for answering in the context of the gym membership)
10. [7-10] (b) (L3) For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion as to which change will have the greatest effect on profit. 7-8 marks for limited judgement shown in the conclusion as to which change will have the greatest effect on VG AND why the alternatives will have less effect on VG. 9-10 marks for well justified conclusion as to which change will have the greatest effect on VG OR why the alternatives will have less effect on VG. Award up to 2 additional marks for relevant application.
11. (b) (Relevant points for A multinational chain of luxury gyms) Advantages: Encourages increased gym membership for all gyms as it becomes more fashionable to go to a gym; May have no effect as aimed at different market segment; Little effect as low income workers cannot afford luxury gym membership. Disadvantages: Increased competition so may lose some existing gym members; May lose some staff such as personal trainers to the new gyms so will need to be replaced; May need to increase wages to retain staff
12. (b) (Relevant points for Increased proportion of elderly people) Advantages: Increased demand for exercise classes for the elderly because they have more leisure time; More potential elderly customers leads to increased revenue; Elderly people more likely to lead a healthier lifestyle – encouraged by government campaign. Disadvantages: May change the image of the gym and puts off potential younger customers; Increased costs of providing trainers specialised in providing classes or tuition for elderly members; Revenue may fall if the elderly do not go to the gym
13. (b) (Relevant points for Interest rates have increased) Advantages: Higher costs of borrowing means pressure on family income – less demand for high priced luxury gyms – increased demand VG. Disadvantages: Increased costs of borrowing if VG needs to take loans to purchase more gym equipment for expansion or replacement of equipment; Less discretionary income by members reduces less important spending
14. (b) (Possible application marks) Fitness instructor; helps people lose weight and get fit; membership fee for many gyms is monthly; payment each visit to the gym; demand for low-priced gyms; a bank loan was used to finance the opening of the gym; as a sole trader; 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 1 listing gym equipment; information from Appendix 3; government worried about increasing health problems of the population.