Unit 1 – Business in the real world – 2 marker exam questions!

Q1.
Explain one method a business may use to expand.

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(Total 2 marks)

Q2.
Explain one benefit to shareholders of limited liability.

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(Total 2 marks)

Q3.
Explain one reason why the objectives of a business may change over time.

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(Total 2 marks)

Q4.

Style the Chic (STC)

STC has experienced rapid growth since 2018. It outsources all the production
of its collections. It currently uses six suppliers who are based in the UK and
China.
Each collection (range of clothing items) can contain up to 30 items of clothing
including jackets, dresses and tops. Items will be available to buy for about four
weeks. Suppliers are sent designs based on the current trend. They must
create clothing samples for marketing within 48 hours. Full production and

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 launch is a month later. If sales are high, more orders are expected quickly.
Otherwise the business moves on to another collection.
STC’s costs and sales

2020 2016

Average unit cost £29.99 £40.99

Output/sales (volume) 450 000 50 000

Using data from the table, describe how the information indicates STC has experienced
growth.

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(Total 2 marks)

Q5.

Style the Chic (STC)

STC has experienced rapid growth since 2018. It outsources all the production
of its collections. It currently uses six suppliers who are based in the UK and
China.
Each collection (range of clothing items) can contain up to 30 items of clothing
including jackets, dresses and tops. Items will be available to buy for about four
weeks. Suppliers are sent designs based on the current trend. They must
create clothing samples for marketing within 48 hours. Full production and
launch is a month later. If sales are high, more orders are expected quickly.
Otherwise the business moves on to another collection.
Table 1 – STC’s costs and sales

2020 2016

Average unit cost £29.99 £40.99

Output/sales (volume) 450 000 50 000

Table 2 – STC’s suppliers

2020 2016

Average amount (per

£29.99 £40.99
unit) paid to suppliers

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 Using data from Table 1, explain one benefit to STC of its growth.

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(Total 2 marks)

Q6.
Identify two stakeholders of a business.

1 _____________________________________________________________________

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2 _____________________________________________________________________

_______________________________________________________________________
(Total 2 marks)

Q7.

Swiftly Services
Ellie has decided to offer gardening services. There are already a lot of
businesses offering home and gardening services in Ellie’s local area. Many of
these businesses have loyal customers. Ellie has decided to segment her
market and will focus on the family market. She has a lot of friends with children
and understands what type of garden families want. To attract families with
children, Ellie’s gardening services will include creating play areas for children,
vegetable patches and BBQ patio areas.
Ellie would like to use leaflets to advertise her gardening services. Ellie has
designed a leaflet herself that has a bright, fun design and includes images of
play areas and vegetable patches to show families how their gardens could
look.
Ellie will offer a special discount to anyone who books using a code on the
leaflet. Ellie’s parents think it would be better if she put an advert in the local
newspaper which is read by around 8000 people every day. The newspaper
has a ‘Family Fun’ section each week where local businesses targeting families
often advertise.
It would cost £150 each week for a minimum of four weeks to place a black-
and-white advert in the local newspaper.

Ellie estimates that her weekly revenue from the gardening services will be £1320. Cost of
goods sold, eg plants, will be £528. Other expenses are £396.

Calculate the gross profit margin for the gardening services.

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 _______________________________________________________________________

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_______________________________________________________________________

Answer _______________%
(Total 2 marks)

Q8.
Identify and explain an objective a business might set.

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(Total 2 marks)

Q9.
Explain, using an example, the difference between a need and a want.

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(Total 2 marks)

Q10.
Explain what is meant by the term ‘economies of scale’.

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(Total 2 marks)

Q11.
Explain one way a business can minimise risk.

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 _______________________________________________________________________
(Total 2 marks)

Q12.
Explain one way that shareholders can have an impact on a business.

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(Total 2 marks)

Q13.

Devine Jewellery (DJ) plc

Devine Jewellery (DJ) plc is an international business that sells a range of
luxury jewellery items such as bracelets, necklaces and rings. The business
was started by British jewellery designer Dev Anand who developed a unique
selling point (USP) of jewellery that can be personalised with a message or
initials. This USP has attracted customers from all over the world. All DJ
products are crafted from high quality gold and gemstones. This has enabled
DJ to create an exclusive brand image that has attracted wealthy customers.
As a profitable business, DJ’s shareholders receive dividend payments each
year. Dev understands that his business must be willing to respond to current
trends to maintain sales levels. Silver jewellery is very common as it is much
more affordable than gold. Reputable brands already sell jewellery in a range of
precious metals, including silver.
Dev is keen to produce a new jewellery collection using silver instead of gold.
The new collection would not be personalised or include gemstones. The
current selling price of DJ’s best-selling gold bracelet is £4700. A silver version
of this bracelet would be sold for £1175.

Use the information above to calculate the percentage decrease in the selling price of a
bracelet if it is made from silver instead of gold.

Show all workings.

Workings: ______________________________________________________________

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_______________________________________________________________________

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Answer _______________
(Total 2 marks)

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Q14.
Businesses produce goods or supply a service.

Explain, using an example, what a service is.

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(Total 2 marks)

Q15.
State two factors of production.

Factor 1 ________________________________________________________________

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Factor 2 ________________________________________________________________

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(Total 2 marks)

Q16.
Explain one reason why a business would choose to expand.

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_______________________________________________________________________

_______________________________________________________________________
(Total 2 marks)

Q17.
Identify two sections of a business plan.

Section 1 _______________________________________________________________

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Section 2 _______________________________________________________________

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(Total 2 marks)

Q18.
Describe one characteristic of an entrepreneur.

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 _______________________________________________________________________

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(Total 2 marks)

Q19.
Define ‘cost of goods sold’.

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(Total 2 marks)

Q20.

HelloFresh
HelloFresh has experienced rapid growth and now has more than 1.45 million
customers worldwide. In 2017 it became a public limited company and is now
aiming to break even.
In the UK, the selling price for one HelloFresh meal is around £5 per person
with a minimum order value of £34.99. In a 2017 survey 59% of people said
they had never subscribed to a meal-kit delivery service because it was too
expensive, however the target market for HelloFresh expect a high-quality
product and this requires a certain level of cost. For example, HelloFresh work
with local suppliers to source seasonal, fresh food and its meal-kits are
packaged mainly using recycled materials instead of cheaper solutions which
have a more negative impact on the environment.
HelloFresh focuses its marketing activity online, including social media, to
advertise meal-kits to its target market. HelloFresh sometimes combines
advertising with a sales promotion, such as 50% off your first box, to attract new
customers to its subscription service. Marketing is very important to HelloFresh
as it operates in an increasingly competitive environment. In 2018 one major
competitor launched a TV advertising campaign costing £2 million. HelloFresh
incurred marketing expenses of £140 million in 2016 which increased to £215
million in 2017.

Adapted from HelloFresh Extract of Income Statement

Euros have been converted to pounds.

2017 2016 2015

(£ million) (£ million) (£ million)

Revenue 800 536 274

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 Cost of goods sold 325 230 130

Total expenses 563 397 259

Net profit/loss (91) (115)

Explain one reason why the objectives of HelloFresh might have changed since starting in
2011.

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_______________________________________________________________________
(Total 2 marks)

Q21.
Identify two methods of external growth that a business could choose.

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(Total 2 marks)

Q22.
Identify two stakeholders of a business.

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_______________________________________________________________________

_______________________________________________________________________
(Total 2 marks)

Q23.
Explain one reason why someone might want to start up their own business.

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 (Total 2 marks)

Q24.
Explain, using one business example, the meaning of the tertiary sector.

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(Total 2 marks)

Q25.
Explain one objective which a business may set.

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(Total 2 marks)

Q26.
State two factors that could affect where a business chooses to locate.

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(Total 2 marks)

Q27.
State two reasons a business might create a business plan.

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(Total 2 marks)

Q28.

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 State two advantages of setting up as a partnership instead of a sole trader.

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(Total 2 marks)

Q29.
Explain one objective of an entrepreneur.

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(Total 2 marks)

Q30.

Adam’s Gardening Services

Having worked as a gardener for his local council for many years, Adam
decided that it was time to set up his own business. His main reason for the
change was to have the freedom to make his own decisions. He thought that he
could make a living from gardening for people who did not want to do the work
themselves. Adam could offer services like lawn mowing, hedge cutting and
tidying up gardens. He would need to buy his own gardening equipment.
Adam had £6000 in savings. He went to his bank to ask about a loan and to get
some advice. The bank’s business adviser said that Adam could either choose
to create his own independent business as a sole trader, or pay to join one of
the many established gardening franchises. Adam would have to pay £5000 to
become a franchisee. The adviser stressed that if Adam wanted to run as a sole
trader, he would need to do some market research. This would allow him to find
out if there was a demand for the services he planned to provide. Adam was
also told he would have more chance of being successful if he wrote a business
plan.

Explain one reason why Adam might want to run his own business.

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_______________________________________________________________________

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(Total 2 marks)

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Q31.
State two features of a private limited company.

Feature 1 _______________________________________________________________

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Feature 2 _______________________________________________________________

_______________________________________________________________________
(Total 2 marks)

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Mark schemes

Q1.
[AO1 = 2]

1 mark for identifying a method of expansion.

1 mark for explaining the method of expansion.

Answers may include:

Organic/internal expansion:
• franchising
• opening new stores
• e-commerce
• outsourcing
• new customers through advertising/targeting specific groups.

External expansion:
• horizontal
• vertical
• conglomerate
• merger/takeover
• expanding overseas/abroad.

Example of a developed answer

A business can expand by growing overseas (1). The business will focus on new foreign
customers who are not currently its target audience (1).
[2]

Q2.
[AO1 = 2]

1 mark for a identifying a benefit of limited liability for shareholders.

1 mark for explaining how or why this is a benefit for shareholders.

Possible answers may include:

Benefit:
• personal possessions are protected/safe
• only the amount of investment is lost
• guaranteed limit to their losses
• shareholders are not liable for business’ debts.

Examples of a developed answer

Shareholders personal possessions are protected (1) as they are not liable for the
business’ debts (1).

Guaranteed limit to their losses (1) as only the amount the shareholder has paid for their
shares can be lost (1).
[2]

Q3.
[AO1 = 2]

1 mark for stating why objective may change

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 1 mark for how objectives change

Answers may include:

• more established
• original objective has been achieved so needs to change
• changes in the external environment.

Examples of a developed answer

Objectives may become more ambitious as a business becomes more established (1), for
example from making profit to becoming a market leader (1).
[2]

Q4.
[AO2 = 2]

2 marks for using the figures or completing a calculation.

• Unit costs have fallen by £11 (1) or from £40.99 to £29.99 (1).
• Sales have increased by 400 000 (1) from 50 000 to 450 000 (1).
[2]

Q5.
[AO2 = 2]

2 marks for explaining how STC has benefited from growth.

• Economies of scale have occurred.

• Unit costs have fallen as the business grows.
• Its volume of sales had increased.

Example of developed answers

One benefit is economies of scale. As the business grows, they are able to buy their
materials in greater quantities which means that they have a lower price per unit (1).

Economies of scale will allow for a higher profit margin per item which can be reinvested
in the business (1).
[2]

Q6.
[AO1 = 2]

1 mark for each correct stakeholder identified × 2

Answers may include:

• owners/shareholders
• employees
• customers
• local community
• suppliers
• Government.
[2]

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Q7.
[AO2 = 2]

Method
Gross profit = £1320 – £528 = £792 (1)
£792 (OFR) ÷ £1320 × 100 = 60% (1)

Markers Note:
If students calculate net profit margin, one mark can be awarded.

£396 ÷ £1320 × 100 = 30% (1)

[2]

Q8.
[AO1 = 2]

1 mark for identifying an objective and 1 mark for some explanation of what the objective
is or why it might be an objective.

Answers may include:

• survival
• profit maximisation/make a profit
• growth
• market share
• customer satisfaction
• social or ethical
• shareholder value
• increased sales.

Examples of a developed answer

Survival (1) this is where a business aims for revenue to equal costs (1).

Profit maximisation (1) they want to increase profits from a previous year (1).

Make a profit (1) where a business is aiming to turn around a loss/survival from a previous
year (1).
[2]

Q9.
[AO1 = 2]

1 mark for giving a description and 1 mark for an example.

Examples of a developed answer

A need is a basic human requirement whereas a want is the desire for a particular product
(1), for example you need to eat but you desire chocolate (1).

A need is a basic requirement, eg food (1) whereas a want is a luxury, eg a holiday (1).
[2]

Q10.
[AO1 = 2]

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 1 mark for giving limited description and 1 mark for some development.

Answers may include:

• unit cost reduces
• example, eg bulk buying or technical.

Example of a developed answer

Economies of scale arise because unit costs fall (1) as output increases (1).

The individual cost of a product falls (1), for example due to bulk buying (1)
[2]

Q11.
[AO1 = 2]

1 mark for identifying a way a business can minimise risk and 1 mark for some
development.

Answers may include:

• preparing a business plan
• training employees
• market research.
• risk assessment

Example of a developed answer

Conducting market research (1) to prevent launching a product there is no demand for (1).

Markers Note

Do not accept reference to health and safety law.

[2]

Q12.
[AO1 = 2]

1 mark for giving limited description and 1 mark for some development.

Answers may include:

• business objectives – focus on profit to receive high dividends
• owners of the business – vote in major business decisions/new ideas
• provide further investment – source of finance/expansion

Example of a developed answer

Shareholders provide investment (1) so that a business can expand and produce more
goods (1).
[2]

Q13.
[AO2 = 2]

75% (2)

Method

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 4700 – 1175 = 3525 (1)
3525/4700 x 100 = 75% (1) OFR
[2]

Q14.
[AO1 = 2]

1 mark for knowledge of a service and 1 mark for an example.

Answers may include:

• Services are intangible/non-physical
• Services can’t be touched/not an object
• A service is something which is done for you

Example of developed answer

Services are intangible products (1) e.g. cutting someone’s hair (1).
[2]

Q15.
[AO1 = 2]

1 mark for knowledge of a factor of production × 2

Answers may include:

• Land
• Labour
• Capital
• Enterprise
[2]

Q16.
[AO1 = 2]

1 mark for giving a reason and 1 mark for some development.

Answers may include:

• Lower unit costs/economies of scale
• Increase market share
• Reduce competition
• Improved status/recognition
• Increase profit
• Increase sales

Example of a developed answer

If a business expands it will mean goods are bought in larger quantities (1) therefore the
business can benefit from purchasing economies of scale (1).
[2]

Q17.
[AO1 = 2]

1 mark for each correct reason identified up to a maximum of 2 marks.

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 Answers may include:
• Background information/legal structure
• Owner details/personal details
• Target market
• Aims/objectives
• Product/service description
• Competitor analysis
• Market research
• Staffing requirements
• Finance section e.g. cash flow forecast, profit predictions
• Marketing strategy

Markers note
Mark two correct sections anywhere in the students’ response.
[2]

Q18.
[AO1 = 2]

1 mark for identification of characteristic and 1 mark for development.

Answers may include:

• Hard working/motivated
• Dedicated
• Innovative
• Confident
• Organised
• Willingness to take a risk

Example of developed answer

Innovation (1) because entrepreneurs need to come up with new ideas (1).
[2]

Q19.
[AO1 = 2]

1 mark for giving limited description and 1 mark for some development.

Answers may include:

• Direct costs
• Costs of producing goods
• For example, raw materials, labour costs, packaging, delivery
• Used in the calculation of gross profit = revenue − cost of goods sold

Example of developed answer

Cost of goods sold are the direct costs (1) connected to the production of goods (1).
This is the cost of making the product (1) for example packaging (1).

Markers note
Do not award expenses such as rent, rates, advertising or salaries etc.
Award a maximum of 1 mark for examples.
[2]

Q20.

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 [AO2 = 2]

1 mark for applying knowledge of a reason why the objectives of HelloFresh have
changed as the business has evolved.
1 mark for explaining the reason.

Answers may include:

• Change in size of the business
• Increasingly competitive environment
• Financial position of the business
• Became a PLC/satisfy the needs of shareholders
• HelloFresh is now an established business

Example of developed answer

HelloFresh is now an established business (1) and it has now increased revenue so the
business can start setting objectives to make a profit (1).
[2]

Q21.
[AO1 = 2]

1 mark for each method identified up to 2 marks.

Possible answers include:

• Takeover
• Merger
[2]

Q22.
[AO1 = 2]

1 mark for each item of knowledge of stakeholders up to 2 marks.

Indicative content:
• customers
• local community
• suppliers
• owners
• employees

The indicative content is not exhaustive; other credit worthy material should be awarded
marks as appropriate.
[2]

Q23.
[AO1 = 2]

1 mark for knowledge of why someone may start a new business

1 mark for explaining why someone may start a new business

Indicative content:
• Dissatisfied with current job
• Earn more money
• Identified a gap in the market

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 • Flexible working hours
• Be their own boss
• To pursue an interest.

Example of developed answer:

A reason why someone may start a new business is to have flexible working hours (1) this
would allow them to fit work around their other priorities (1).
[2]

Q24.
[AO1 = 2]

1 mark for knowledge of the tertiary sector

1 mark for an example of tertiary sector

Possible examples:
• Banking
• Hotel
• Shops
• Entertainment
• Travel
• Insurance.

Example of developed answer:

The tertiary sector is concerned with providing services for its customer (1) for example a
business selling holidays (1)
[2]

Q25.
[AO1 = 2]

1 mark for identifying an objective for a business

1 mark for explaining the objective

Indicative content:
• profit maximisation
• market share
• growth (domestic and international)
• customer satisfaction
• ethical
• survival
• social
• shareholder value.

Example of developed answer:

A business may want to increase market share (1) they will be looking to take sales away
from competitors (1).
[2]

Q26.
[AO1 = 2]

1 mark for identifying suitable factor x 2

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 Possible factors include:
• close to raw materials
• close to labour
• near to owner’s home
• near to large market
• away from competition
• near suppliers.
[2]

Q27.
[AO1 = 2]

1 mark for stating suitable factor × 2

Possible answers include:

• to help raise finance
• to identify what resources are needed
• to decide if a business idea is viable.
[2]

Q28.
[AO1 = 2]

1 mark for each correct reason identified up to a maximum of 2 marks.

Possible answers include:

• shared finance
• shared responsibility
• different skills/expertise
• more ideas
• easy to set up
• greater flexibility in working
• cover for illness/holiday.
[2]

Q29.
[AO1 = 2]

1 mark for knowledge of an objective of an entrepreneur and 1 mark for explaining the
objective

Possible answers include:

• to be their own boss
• flexible working hours
• to pursue an interest
• earn more money
• dissatisfaction with current job.

Example of developed answer:

To be their own boss (1) because they want the freedom to make decisions for
themselves (1).
[2]

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Q30.
Possible reasons include:
• freedom to make his own decisions / wants to be his own boss
• greater flexibility with working hours
• sense of achievement
• possibility of making more money than being employed.

1 mark for identifying suitable reason plus 1 for some explanation / development.

NB – Two separate reasons not explained max 1 mark.

[2]

Q31.
Possible answers include:
• limited liability
• has shareholders
• certain amount of capital needed
• restricted share transferability
• shares not traded on the stock exchange.

NB for assets safeguarded (limited liability) the assets must refer to personal (or
shareholder) assets not company assets.

1 mark for a correct feature.

Apply twice.
[2]

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