IGCSE Paper 2 Solutions

Business Activity

Stakeholders 8 marks

Identify and explain how the following two stakeholder groups might be affected by BA’s plans to expand.

The cost of expansion is $12m and they might be asked to provide share capital. This could reduce the market price of their shares in the soap company as it will take time for the new investment to lead to higher profits and possibly higher dividends.

Local Community
May benefit as 30 more production workers will be employed which will reduce community unemployment. This will mean there will be more money from the workers wages going into the local economy and local businesses will have more demand and higher profits too.

People in Business

Leadership Styles 12 marks

Consider three leadership styles the operations manager could use in the new factory. Recommend which leadership style should be used to improve decision-making. Justify your answer.

Leadership Style 1 Autocratic leadership style will lead to clear instructions being given by the manager. This means production workers will always know what to do and know what is expected of them. However, they will not feel they can contribute or make any comments if they feel something could be improved.

Leadership Style 2 Democratic leadership style will mean the 100 production workers will be consulted on decisions, thus improving motivation among the staff. However, decisions will take longer to make so it may lead to delays in the expansion to the new factory.

Leadership Style 3 Lassiez faire gives nearly all responsibility to the workers in the soap factory production line. Some workers may find this motivating as they have much more control over decision-making. Some workers may find it stressful if there are no clear lines of authority, especially when the business is moving to produce new niche products.

Recommendation Autocratic may lead to the operations manager not receiving important information about how the production line in the new factory is working as communication is one way, leading to bad decisions. Lassiez faire will mean the operations manager has very little control over decision-making in producing the new products. LF is only suitable for highly skilled workers. Democratic will allow the operations manager to get feedback on how the new factory is working from workers so she/he can deal with problems quickly and make decisions based on high-quality information, improving the efficiency of the new factory in the long term.


Niche Marketing 8 marks

Identify and explain one advantage and one disadvantage to BA of starting to sell new products in a niche market.

Advantage can sell specialist products that meet these specific customer needs

Explanation and SA want to sell shampoo aimed at people with older hair, so there are likely to be few competitors in this market as it is smaller and less attractive for larger businesses making it easier to have a higher market share and higher profits. . As incomes are increasing in country Z, older people will be able to afford this soap.

Disadvantage Less benefit from economies of scale

Explanation SA currently use flow production for their mass-market shampoo, but they will use batch production for the medicated shampoo, which will lead to an increase in unit costs and possibly less profits.


Lean Production 8 marks

Identify and explain two ways BA could use lean production in its factory.

Way 1 Just in Time

Explanation means that inventory is reduced to no or very low levels held in storage. This reduces the need for having warehouse space to hold the ingredients to make shampoo. BA will need to have good relationships with its suppliers to ensure that the flow production line is not interrupted by inventory running out.

Way 2 Kaizen

Explanation BA meaning “constant improvement” by using Kaizen in flow production of mass-produced shampoo workers will feel more motivated and it will also reduce waste and costs leading to higher profits.

Break Even Point (Short Answer Question) Paper 2

Identify four ways break-even analysis can be useful to a business.

Way 1: Predicts how many sales the business needs to make to break-even

Way 2: Predicts how much sales could fall by and still make a profit

Way 3:Shows potential profit/loss for the business at different levels of output

Way 3: Shows possible effect of change in price on the break-even level of output/profit


External Influences

Globalisation 8 marks

a) Identify and explain two opportunities and two threats for businesses in country Y from globalisation.

Opportunity 1 Access to global markets

Explanation so potential for higher sales

Opportunity 2 Access to reduced labour costs

Explanation and if businesses move production to another country they can may be able to reduce production costs

Threat 1 Increased competition

Explanation Multinational companies may enter country Y and force lower prices meaning lower profits and lower market share

Threat 2 susceptible to global shocks

Explanation a recession in another country may spread to Country Y and effect consumer spending reducing business profits
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