Cambridge IGCSE®

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BUSINESS STUDIES 0450/02

Paper 2 Case Study For examination from 2020
SPECIMEN PAPER 1 hour 30 minutes

You must answer on the question paper.

You will need: Insert (enclosed)

INSTRUCTIONS
● Answer all questions.
● Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
● Write your name, centre number and candidate number in the boxes at the top of the page.
● Write your answer to each question in the space provided.
● Do not use an erasable pen or correction fluid.
● Do not write on any bar codes.
● You may use a calculator.

INFORMATION
● The total mark for this paper is 80.
● The number of marks for each question or part question is shown in brackets [ ].
● The insert contains the case study.

This document has 10 pages. Blank pages are indicated.

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1 (a) Explain two possible reasons why Bethany wants the business to remain small.
Wants to be her own boss
Reason 1: .................................................................................................................................

...................................................................................................................................................
Bethany has been her own boss for 10 years, to still make decisions
Explanation: ..............................................................................................................................
by herself, she has to keep the business small. If the business became bigger,
it would have more positions and more hierarchy structures, and she'd still
...................................................................................................................................................
need help and consultancy even if she was a senior. If decisions or ideas from
a manager or director contradicts from Bethany's there may be conflict arising
...................................................................................................................................................

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More flexible
Reason 2: .................................................................................................................................

...................................................................................................................................................

As business is smaller, that means communication, changes, or making

Explanation: ..............................................................................................................................

new products can be more flexible as it is produced at a smaller scale. For

...................................................................................................................................................

...................................................................................................................................................
instance. If there were a change in new technology, Bethany can adapt

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faster because she hasn't brought as much equipments for her business.

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Decision making is also quicker in a smaller business as communication is

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quicker. [8]

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(b) Explain why the following three factors are important to Bethany when choosing a business
partner:
• knowledge of new technology
• experience in managing a health spa
• capital to invest.

Which factor do you think is most important? Justify your answer.

Knowledge of new technology: .................................................................................................

Know how to use new machines for treating clients –
..............................................................................................................................
can operate new machines without training – so less
training required – lower costs.
..............................................................................................................................
• Can train other staff in the spa – reducing training costs
...................................................................................................................................................
for all staff – can introduce new treatments more quickly.

...................................................................................................................................................

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So that they're able to manage all of the employees
Experience in managing a health spa: .....................................................................................
for her health spa, to ensure customer satisfaction. Being able to manage a health spa
...................................................................................................................................................
also means that they're is able to do planning in terms of future aims and objectives to
...................................................................................................................................................
obtain more revenue. More experience means that they understand the market knowledge
...................................................................................................................................................
for the health spa market, so it helps both make effective decisions on the marketing mix
...................................................................................................................................................

especially promotion where business can promote on social media sites.

...................................................................................................................................................

In order to invest more into equipments and new and more effective
Capital to invest: .......................................................................................................................

technology to attract more customer, no need for loans, less interest

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payments so lower costs

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...................................................................................................................................................

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Experience in managing a health spa will help Bethany have more free time
Conclusion: ...............................................................................................................................
as they are able to control and coordinate employees. However, Bethany
...................................................................................................................................................

may need to borrow capital which increases overall costs

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............................................................................................................................................ [12]

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2 (a) Explain two reasons why it is important to Bethany to identify changes in customer
preferences.

To develop service according to that

Reason 1: .................................................................................................................................

...................................................................................................................................................

So that her service is as similar as possible to needs and wants of her

Explanation: ..............................................................................................................................

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customer. Increasing customer satisfaction and loyalty. This improves brand

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image, attracting more customers to her health spa.

...................................................................................................................................................

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To remain competitive
Reason 2: .................................................................................................................................

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To be able to satisfy customer who are people of all ages and are interested
Explanation: ..............................................................................................................................

in their health with their needs and wants, whilst keeping the price low
...................................................................................................................................................

so that it's more affordable to a wider demographic. Identifying changes

...................................................................................................................................................

also means she's one step above of her competition so she has a competitive
...................................................................................................................................................

edge. She could also develop a unique selling point from the changes
...................................................................................................................................................

..............................................................................................................................................
in customer preferences such as sports therapy, gym, and yoga. [8]

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(b) State the advantages and disadvantages of the following three ways to achieve good quality
service at the health spa:
• only employ highly trained workers
• record all customer complaints
• buy only the best quality materials to use in the health spa.

Which do you think is the most important way? Justify your answer.
So that this lowers training costs, and new treatments
Only employ highly trained workers: .........................................................................................
can be implemented into the health spa quicker. Highly trained workers also will make less mistakes while carrying
...................................................................................................................................................
out health spa service, so there will be less customer complaints and there'll be less materials wasted due to
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mistakes, reducing overall costs. However, the two qualified workers will have to be paid
...................................................................................................................................................
higher due to their qualification, this increases business costs.
...................................................................................................................................................

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Record all customer complaints: ..............................................................................................

To know weaknesses of BB Health spa and how to change according to the complaints
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in order to keep customer loyalty, it also establishes customer base as they know that
...................................................................................................................................................
businesses learn and improve from their health spa. Recording customer complaints
...................................................................................................................................................
can be time consuming and because Bethany records everything using books by hand.
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it'll take lots of time to respond.
...................................................................................................................................................

Buy only the best quality materials to use in the health spa: ....................................................

Customers are able to feel the quality materials so more satisfaction and more likely to go
...................................................................................................................................................
back to BB Health Spa, treatments are more effective in making skin look younger. However,
it...................................................................................................................................................
is much more costly, so increases cost of sales and in order to react break even quicker,
Bethany has to increase price of service which may not attract customers.
...................................................................................................................................................

...................................................................................................................................................

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I think BB Health spa should employ highly skilled workers. Because best
Conclusion: ...............................................................................................................................
materials won't give best treatment results if staff are poorly trained. And recording
customer complaints is more time consuming, so staff may have to lend hand in
...................................................................................................................................................
recording the customer complaints which may decrease their quality of service.
...................................................................................................................................................

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............................................................................................................................................ [12]

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3 (a) Explain four reasons why effective communication between the owner and employees in a
business is important.
Improve motivation of employees
Reason 1: .................................................................................................................................

...................................................................................................................................................

Explanation: Owner and employees regularly communicate, employees can give feedback
..............................................................................................................................
to owners, they'll feel like they're able to contribute to business, increasing
motivation
...................................................................................................................................................

Action is carried out properly

Reason 2: .................................................................................................................................

...................................................................................................................................................

Explanation: So that products and services are up to the required standard

..............................................................................................................................

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Faster decision making
Reason 3: .................................................................................................................................

...................................................................................................................................................

Explanation: Both
..............................................................................................................................
employee and owner are able to decide which decision is the best
for business
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Less mistakes made
Reason 4: .................................................................................................................................

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Less mistakes made meaning businesses don't increase cost on faulty products
Explanation: made
..............................................................................................................................
due to inaccurate message received
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(b) Consider the weekly forecasts in Appendix 2 for the two additional services Bethany could
choose:
• hair cuts
• steam room.

Include calculation of profit for the two services in your response.

Which additional service should Bethany choose to offer? Justify your answer.
Profit 200*5-(60+400+40) = 1000 - 500 = 500
Hair cuts: ..................................................................................................................................
Gross profit 200*5-(40) = 960
GPM = 960/1000 * 100 = 96%
...................................................................................................................................................
PM = 500/1000* 100 = 50%
...................................................................................................................................................

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Profit 50*25-(400+125+175) = 550
Steam room: .............................................................................................................................
Gross profit 50*25-(125) = 1125
GPM = 1125/(50*25)*100 = 90%
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PM = 550/(50*25)*100 = 44%
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Steam room has higher profit ($50) and higher gross profit ($165).
Recommendation: ....................................................................................................................

However, profit margin is higher in hair cut (6%), and gross profit
...................................................................................................................................................

margin is also higher in haircut 6%. Steam room is better in

...................................................................................................................................................

terms of profitability. As gpm and pm only compares profit and

...................................................................................................................................................

...................................................................................................................................................
gross profit based on revenue to let businesses find out if they should

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reduce overall costs or not.

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............................................................................................................................................ [12]
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4 (a) Explain four ways the new technology identified in Appendix 3 could help Bethany improve
her business.
More effective in making the skin younger
Way 1: .......................................................................................................................................

...................................................................................................................................................
Can use this as marketing strategy
Explanation: ..............................................................................................................................

...................................................................................................................................................

Makes service more successful x improve effectiveness of advertising

Way 2: .......................................................................................................................................

...................................................................................................................................................

Due to it appearing on social media sites and apps, it increases demand

Explanation: ..............................................................................................................................

...................................................................................................................................................
Quicker and more efficient
Way 3: .......................................................................................................................................

...................................................................................................................................................
make customer booking easier, quicker with less mistakes
Explanation: ..............................................................................................................................

...................................................................................................................................................
Improve communication
Way 4: .......................................................................................................................................

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Automatic text messages remind customers for their appointments
Explanation: ..............................................................................................................................

.............................................................................................................................................. [8]

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(b) Explain how the following two changes are likely to affect The BB Health Spa:
• lower income tax in country X
• increase in interest rates in country X.

Which change is likely to have the most effect on profit? Justify your answer.

Lower income tax in country X: ................................................................................................

Customer income is also higher, increases standards of living and can purchase
...................................................................................................................................................
products aimed for their wants instead of needs - for instance, services in BB Health Spa
...................................................................................................................................................
as it is more of a luxury
...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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Higher cost of loans if Bethany wants to purchase latest
Increase in interest rates in country X: .....................................................................................
technology => increase ocerall costs becayse it is small
=> less sources of finance
...................................................................................................................................................

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...................................................................................................................................................

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If Bethany does not need a loan higher interest rates
Conclusion: ...............................................................................................................................
may have little effect on the business but lower income
tax will have an effect on most of her customers.
...................................................................................................................................................

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............................................................................................................................................ [12]

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