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10 Sample pages.

Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Revision Pack Unit 1: Developing new Business Ideas

For Edexcel’s Business Studies and Economics & Business


6BS01 and 6EB01

By Gerald Wood 1st edition, February 2010

Contents
1. CD with 120 slides covering the content of Unit 1:
a. most slides are in a ‘Question, Answer, Comment’ format, and are designed to
be used in the classroom or put on the school’s intranet
b. they follow the order of the specification
c. a second set of slides contains just the questions, and is designed to be printed
out for homework / personal study if required

2. Three sample papers, following the rough outline of past examinations of this unit.
Each paper contains:
a. a set of questions
b. a mark scheme, outlining the general approach expected of the student
c. a set of suggested answers. These are rather longer than most students would
have time to produce in an examination setting, and also contain more analysis
and detail than students would be expected to know. They will therefore be
useful as a source of further study. They inevitably contain some points of
view personal to the author and should therefore be seen as an example of how
the questions might be tackled. Except in multiple choice questions, there is of
course no such thing as a single ‘right’ answer.

Licence
The printed material is sold with a licence to photocopy for the benefit of students within the
institution, but not further afield. Equally, the CD may be used by the staff of the centre,
copied for the use of other staff at the centre, placed on the centre’s intranet, and printed out
for the benefit of students within that centre, but not further afield.

February, 2010

Resource may be ordered from www.geraldwood.com


10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Write your name here


Surname Other name

Centre Number:
Candidate Number

Sample Paper 1
Business Studies/Economics and
Business
Advanced Subsidiary
Unit 1: Developing new Business Ideas
Paper Reference
Date:
6BS01/01
Time: 1 hour 15 minutes 6EB01/01

You do not need any other materials. Total


Marks

Instructions
Use black ink
Answer all questions in both Section A and Section B
You may use a calculator

Information
Total marks for this paper is 70 (roughly 1 mark per minute)
Quality of written communication will be taken into account in the final question, Q 12. You
should take particular care on this question over spelling, punctuation, grammar and clarity of
expression

Advice
Read each question carefully
Keep an eye on the time
Try to answer every question
Check your answers if you have time at the end

Resource may be ordered from www.geraldwood.com


10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Unit 1 – Sample Paper 1


SECTION A Answer all 8 questions in this section. You should spend 30 minutes on this
section. Use the data to support your answers where relevant. You may annotate and include
diagrams in your answers.

1. Mike Smith left Fenwicks Ltd where he worked as a sales manager on the electricals floor to
set up his own gift shop. Which of the following is least likely to have been a factor in
Mike’s decision?

A. He is a self-confident individual

B. He has been educated to degree level

C. He is prepared to use his own initiative

D. His departmental displays show creativity

Explain why your answer is correct (1 + 3 marks)

2. Coffee is an international commodity, which is traded globally, particularly in New York and
London. Which of the following is most likely to account for an inward shift in the supply of
coffee?

A. A frost damaging coffee plants in a major producing nation such as Brazil

B. The development of a new pesticide which increases the yield per acre of coffee
plants

C. An effective advertising campaign by the coffee chain Starbucks

D. A newspaper report claiming that tea is much healthier than coffee

Explain why your answer is correct (1 + 3 marks)

3. The Internet has made it possible for many more companies to start up that are aimed at just a
small proportion of the population. Which of the following phrases best describes such a
target population?

A. A niche market

B. A market map

C. A primary market

D. A segmented market

Explain why your answer is correct (1 + 3 marks)

4. Kraft Inc, a US-based foodstuffs company, spent $18.9 billion buying up Cadbury early in
2010. Which of the following best describes the opportunity cost of this decision?

A. The debts Cadbury had accumulated for which Kraft will now be responsible

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10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

B. The consultancy fees Kraft had to pay during the tortuous negotiations prior to the
deal

C. The loss of jobs in Cadbury that will follow, to eliminate the duplication of posts

D. The next-best alternative use to which Kraft could have put the money

Explain why your answer is correct (1 + 3 marks)

Questions 5 to 8 omitted from this Sample ...

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10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

SECTION B Answer all questions in this section. You should spend about 45 minutes on this
section. Use the data to support your answers where relevant. You may annotate and include
diagrams in your answers.

Evidence A

The Dover Cake Company: the plan

The Dover Cake Company (DCC) was the name for Neil Lund’s (age 24) proposed new business in
2009, following his impending redundancy by a local firm of solicitors, where he had worked as a
junior lawyer since leaving university. Having always enjoyed cooking, Neil planned to buy a small
industrial-size oven for his spacious kitchen and produce fresh, home-made cakes that were far better
than anything you could buy in a supermarket. He would also need a large freezer to store the cakes
once they were baked. The equipment can be leased and maintained for £1,000 a year.

He saw his routes to market as two-fold. First, he would home-deliver cakes to his friends and
relatives and hoped his business would spread by word-of-mouth. He was prepared to consider a
leaflet drop in the richer areas of town. Second, he thought of selling to distinctly upmarket hotels
and restaurants. While he thought a basic website would be sensible, and would contain a method of
online ordering, he envisaged its main purpose would be to provide background information about his
company and its products. Every cake would be delivered with a couple of reply-paid order-forms in
postcard format.

For pricing, he thought £15-00 for an 8-inch cake home-delivered was about right, and £25-00 for a
10-inch party cake. He would charge a hotel or restaurant £7-50 and £12-50 and hope to sell much
larger orders. With free delivery within 2 miles of the city centre he hoped one single round trip per
day (in the evening, when most people are in) would be all that was required.

He envisaged producing 12 different flavours of cake at first and see which ones sold well, and was
also thinking of selling Selection Boxes with 15 individually-wrapped slices, which could be stored in
home freezers.

Cakes would be delivered either frozen or defrosted. The great benefit of this method of manufacture
and storage was that he could avoid the additives that shops normally require to give their cakes a
long shelf-life, and which give cakes their artificial mass-produced flavour. While frozen cakes, when
defrosted, taste completely fresh, he was concerned that his customers might lack confidence in this
production and storage method.

Production would consist of baking in batches of up to 20 same-variety cakes twice in a day, so over 6
days of work he would be able to produce 240 cakes, 20 of each of his 12 varieties. With an average
price of £20-00 a cake and ingredients (including packing materials) costing one-third of that, he was
looking at a potential weekly turnover of £4,800 and a gross profit of two-thirds of that, namely
£3,200. That would cover overheads including his wage – and leave a very healthy profit.

Neil’s estimated annual overheads are lease of equipment (£1,000), gas and electricity costs (£1000),
personal salary (£24,000 to start with), running costs of van(£1,800 – 40 pence per mile, 15 miles a
day over 300 days), personal liability insurance (£200), website, telephone bill and stationery
(£1,000), and miscellaneous (£1,000).

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10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Question 9a What is Neil’s break-even annual revenue? Express this in terms of how many £20-00
cakes he needs to sell in an average week (assume a 50-week year). (4 marks)

Question 9b Comment on your results in Question 9a. (6 marks)

Questions 10 and 11 omitted from this Sample ...

Question 12 Evaluate two sources of finance that Neil could use for his proposed business. (12
marks, including assessment for Quality of Written Communication)

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10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Unit 1 Sample Paper 1 Mark scheme


SECTION A Mark Scheme

NOTE 1: If part (a) of the question is INCORRECT, then a maximum of 2 marks can be awarded for
part (b)

NOTE 2: A maximum of 2 out of 3 can be awarded for part (b) if the explanation offered is entirely
about why the other responses are not correct

No. Question Marks


1(a) Answer – he has been educated to degree level (B) 1
1(b) Explain why this answer is correct
° Brief explanations of the need for self-confidence, initiative and creativity in
business (1+1+1)
° Degree-level skills not a requirement in business (1)
° Running a gift shop does not need subject-specific degree level skills (1)
° Degree-level skills more likely to be required running an electricals department
than a gift shop (1)

Any acceptable answer which shows selective knowledge/ understanding/ application


1-3
and/or development

No. Question Marks


2(a) Answer – a frost damaging coffee plants (A) 1
2(b) Explain why this answer is correct
° Will limit supply: less coffee will be produced (1)
° Illustrated with diagram (1)
° Pesticide will shift supply outwards (1)
° Advertising campaign by user of coffee will shift demand out (1)
° Newspaper report favouring health benefits of tea will shift demand for coffee in
(1)

Any acceptable answer which shows selective knowledge/ understanding/ application 1-3
and/or development

No. Question Marks


3(a) Answer – a niche market (A) 1
3(b) Explain why this answer is correct
° A ‘niche’ means a small, separate place (1)
° Hence niche market – small market separated from a larger one (1)
° A market map is a description of the position of competing brands in a market
with respect to key characteristics such as quality and price – nothing to do
with any single target population (1)
° A primary market is one in which primary goods such as foodstuffs and raw
material are sold – not necessarily a niche market (1)
° A segmented market is one that has been divided up into many niche markets:
the ‘target population’ is just one of these niches (1)

Any acceptable answer which shows selective knowledge/ understanding/ application 1-3
and/or development

Resource may be ordered from www.geraldwood.com


10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

No. Question Marks


4(a) Answer – the next best alternative use (D) 1
4(b) Explain why this answer is correct
° Any debt Cadbury has accumulated is part of the actual cost of the decision,
rather than the ‘alternative foregone’ (1)
° The consultancy fees are part of the total cost of the deal, not an ‘alternative
foregone’ (1)
° The consequent job losses are a social cost – nothing for which Kraft has to pay
(1)
° Kraft has had to pay an awful lot of money for Cadbury. There are other things
it will not now be able to do – these constitute the alternatives Kraft has had to
forego (1)
° These alternatives could include buying some other company, distributing cash
to shareholders, keeping assets it has had to sell to finance the deal (up to 2 for
development of ideas)

Any acceptable answer which shows selective knowledge/ understanding/ application 1-3
and/or development

Questions 5 to 8 omitted from this Sample ...

Resource may be ordered from www.geraldwood.com


10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Section B Mark Scheme

Q. What is Neil’s break-even annual revenue? Express this in terms of how many Marks
£20-00 cakes he needs to sell in an average week (assume a 50-week year).
9(a) Knowledge/understanding 2, Application 2

Knowledge/understanding – for defining break-even revenue and giving an 1-2


acceptable formula
Application: up to 2 for working out the annual break-even revenue of £45,000, 1-2
and for expressing this in terms of the weekly break even amount of £900 and the
number of cakes (45)
Total: 4

Q. Comment on your results in Question 9a. Marks


9(b) Application 2, Analysis 4

Application: for showing an understanding of the importance of the concept to this 1-2
business
Analysis: for commenting intelligently on the figures e.g. how easy it might be to
achieve break-even, possibly looking at hotels and restaurants as well as house 1-4
sales, or commenting on the potential of the website
Total: 6

Questions 10 and 11 omitted from this Sample ...

Q. 12 Evaluate two sources of finance that Neil could use for his proposed business.
Level Marks Descriptor
4 8-12 Evaluation: up to 5 further marks for evaluating which is the better source to use –
or both, or neither – with a balanced and perceptive conclusion QWC – to achieve
12, precise and effective use of business terminology, effectively organised answer,
coherent and fluent response, excellent spg
3 5-7 Analysis must be present: up to 6 marks for commenting thoughtfully on the
relative merits of the two proposed sources QWC – Business terminology used
quite well, style of writing appropriate to question, reasonable to good spg
2 3-4 Application must be present e.g. some understanding of what these two sources
mean in the context of Neil Lund’s proposed business QWC – some use of business
terms, some errors in spg
1 1-2 Knowledge/understanding must be present e.g. identification of two sources of
finance, and what ‘finance’ means QWC – struggling with business terminology,
frequent errors in spg and/or weak style and structure of writing

Resource may be ordered from www.geraldwood.com


10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

Unit 1 – Sample Paper 1. Suggested answers


SECTION A: 30 minutes, 8 questions, 32 marks

After choosing the correct answer from one of four options (1 mark), the student then has to “explain
why this answer is correct” (3 marks). A maximum of 2 out of 3 marks are available if the incorrect
option is chosen. Similarly, a maximum of 2 out of 3 marks is available if the entire focus is on why
the other three options were incorrect.

The ideal answer will then contain i) a brief explanation of why the chosen answer is correct,
followed by ii) a brief explanation of why at least two other options are incorrect.

There are 32 marks available and you are advised to spend 30 minutes on Section A – so you have
roughly one mark per minute. Your 3-mark explanations should therefore be short and to the point.

Question 1 Answer – B

It is not necessary to be educated to degree level to run a gift shop – many famous entrepreneurs such
as Alan Sugar and Charlie Dunstone of Carphone Warehouse never went to university. Indeed, Mr
Dunstone is on record as saying going to university would have made it harder for him to set up a
business as he would have had more to lose.

However, it is necessary to be self-confident to cope with setbacks, to use your own initiative when
faced with new situations and to be creative in your approach to problem-solving. These personal
qualities are far more important for the typical entrepreneur than formal academic qualifications.

Question 2 Answer – A

Supply curves show the amount of the product that will be supplied at each and every price.
Following a bad harvest, the supply of any agricultural commodity must fall – and this may be
illustrated by an inward shift of the supply curve, increasing price and reducing quantity.

By contrast, an improved pesticide will increase supply –what is known as an outward shift – while
the advertising campaign and newspaper report will both have an impact on the demand curve rather
than the supply curve.

Question 3 Answer – A

A ‘niche’ is a small space (whether literal or metaphorical) separated by some characteristic from a
bigger space - as in the phrase ‘environmental niche’. In a business context it means a small market
that has some characteristic clearly separating it from a larger, more mainstream market. A very
specialised product with a somewhat limited number of people who might buy it is therefore a niche
market – and the internet may well be the best way to find these people.

By contrast, a market map refers to the plotting of rival products against characteristics such as price
and quality. A primary market is one for raw materials. And a segmented market is one that can be
divided into lots of sections (or niches).

Question 4 Answer – D

The opportunity cost of anything at all is the “next best alternative foregone” i.e. what is sacrificed by
any chosen course of action. Kraft have committed themselves to an enormous expenditure, the

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10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

money being raised in a variety of ways including selling off a subsidiary and issuing new Kraft
shares (thereby diluting existing shares). Even a company as large as Kraft will be unable to pull off
many deals of this size close together – its inability to pursue a similar deal very soon will be part of
the overall opportunity cost.

By contrast, Cadbury’s debts and Kraft’s consultancy fees only refer to one cost among many, while
the job losses are a social cost rather than one which Kraft will have to pay.

Questions 5 to 8 omitted from this Sample ...

SECTION B: 45 minutes, 4 questions, 38 marks

These questions involve extended writing, and the total of 38 marks are split roughly 10 for
Knowledge/Understanding, 10 for Application, 9 for Analysis and 9 for Evaluation:

• Knowledge – show that you know and understand relevant business and economics concepts

• Application - show that you know how these concepts are relevant to the question asked

• Analysis – show that you can make thoughtful observations about the business situation,
using these concepts

• Evaluation – come to a balanced and considered conclusion, showing depth of understanding

Question 9a What is Neil’s break-even annual revenue? Express this in terms of how many
£20-00 cakes he needs to sell in an average week (assume a 50-week year). (4 marks)

The break-even annual revenue of a company is overheads / gross margin. The overheads add up to
£30,000 per annum. The gross margin is 66.67% (ingredients, we are told, cost one-third of the
selling price). So the annual break-even revenue level is £30,000 / 0.6667 = £45,000. This amounts
to £900 weekly or 45 cakes per week.

Question 9b Comment on your results in Question 9a. (6 marks)

On the face of it, selling 45 cakes per week doesn’t sound too difficult. On the other hand, even
regular customers might not buy more than one cake every three weeks or so. So that would mean he
needed 135 regular customers. The issue is – can he find them? How many people are prepared to go
to the bother and expense of ordering luxury cakes even if they are really nice, rather than just picking
up cheaper alternatives in the course of a weekly shop?

Of course, there is the shops-and-restaurants angle as well, but there the gross profit per cake is only
(price of £10 minus variable cost of £6-67) = £3-33 – just one quarter of the £13-33 he would make
selling the same cake direct to the final consumer for £20-00. So if he focussed on this route he
would need to sell four times as many to break even (i.e. 180 per week). With one big customer
(perhaps the town’s smartest hotel), he might make it – but relying on a single major customer carries
its own risks.

Questions 10 and 11 omitted from this Sample ...

Question 12 Evaluate two sources of finance that Neil could use for his proposed business. (12
marks, including assessment for Quality of Written Communication)

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10 Sample pages. Complete pack contains 42 pages of 3 complete past papers with mark schemes
and suggested answers - and 120 Power Point slides

I shall consider taking out a commercial bank loan, and selling shares to friends and relatives.

In the light of Neil Lund’s lack of business experience, a commercial bank loan is unlikely to be a
possibility unless a) Neil has some equity in his house, and b) he has a watertight business plan. First,
his need for equity, i.e. the outstanding mortgage on his house has to be a lot less than the full value of
the house. If this is the case, then he can offer his house as a guarantee i.e. if he fails to pay back the
loan then the bank can take his house and sell it. This will give the bank an (almost) cast-iron
guarantee that their money is safe. Secondly, the bank will need to be convinced that the business
plan is sound – and given Neil’s lack of previous experience a convincing marketing trial will
probably be necessary.

The great benefit of a commercial bank loan is that the ownership of the business is not diluted. Neil
may live at a relatively low standard of living for the 5 years or so when he is paying off both the
interest and the capital on the loan – but after that his personal standard of living may rise sharply as
he moves towards the potential of a gross profit of £3,000 a week with very little in the way of
overheads. On the other hand, the risk is that he will lose his home if the idea fails to take off.

Alternatively, Neil could set up as a private limited company and ask friends and relatives to buy a
share of it – the same method of financing as we see on Dragon’s Den where entrepreneurs pitch for
cash in exchange for a share of their business. Selling share capital in this way is much less risky for
Neil – if the business doesn’t work out he doesn’t have to pay anyone back. How much the
disappointment and irritation of his friends and relatives who put the money up will bother him in the
event of business failure is very much a personal thing. Some people will work far harder to avoid
disappointing their friends and relatives than they would to avoid losing their home. On the other
hand, others like to keep their personal life and their business life strictly separate.

In the event of the business being successful, Neil will have to share the profits with the other
shareholders. He might not mind this in the first few years but there may come a point several years
down the line when the business is making a lot of money – and Neil is no longer satisfied with just a
proportion of the distributed profit. So it is important that Neil thinks ahead – selling a share of the
business may turn out to be a lifetime decision, one that can never be undone.

In conclusion, my advice would be to take a commercial loan if one is available. If the banks decline
to lend, Neil Lund might like to think why this is so – and whether the proposed business is actually
such a good idea after all. If he cannot trial the business successfully (or if he has too little equity in
his home), he might think of considering other ways of supporting himself. If he is still determined to
go ahead with his business plan, he might wish to consider looking for a part-time job which will
leave him free in the evenings to do his rounds. If this paid him £15,000 a year, then this would meet
half his overheads and so halve his break-even revenue level. If he has friends or relatives who are
happy to invest in his business, their offers could perhaps be put on hold. If the business model takes
off, and he decides he needs a large injection of capital to expand the business way beyond the
confines of Dover, then that might be a more suitable time to look for equity investment from outside.

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