Cambridge International AS & A Level

BUSINESS 9609/22
Paper 2 Data Response February/March 2020

1 hour 30 minutes

You must answer on the enclosed answer booklet.

* 6 0 8 3 5 7 1 8 9 4 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer all questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.

INFORMATION
● The total mark for this paper is 60.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages. Blank pages are indicated.

DC (KS) 180735/4
© UCLES 2020 [Turn over
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1 Bob’s Furniture (BF)

Bob is a carpenter who uses job production to make furniture using premium materials. Each item
of furniture is priced using cost-based pricing with a 50% mark-up. He is a sole trader. Due to poor
economic activity in country X, Bob has fewer customers for his designs. To keep his cash flow
positive he is considering two different options. Both options have an opportunity cost.

Option 1: Make garden benches. 5

Bob is thinking about making garden benches from lower quality materials. Customers will be able
to customise some elements of the bench, such as colour. The bench would be delivered to their
home. Promotion of the benches would take place at craft fairs and markets.

Option 2: Make small wooden ornaments.

Bob has noticed other businesses selling lots of low-priced small wooden ornaments. Bob could 10
produce similar ornaments, using the premium wood left over after making his job-produced
furniture.

Table 1.1: Financial summary of the two options

Option 1 Option 2
Garden benches Ornaments 15
Cost of raw materials ($ per unit) 50 5

Transportation costs ($ per unit) 25 0

Cost of labour ($ per unit) 25 1

Forecast sales (units per month) 5 40

Whichever option Bob chooses, he will continue to use cost-based pricing and make premium 20
furniture when customers demand it.

(a) (i) Define the term ‘job production’ (line 1). [2]

(ii) Explain the term ‘opportunity cost’ (line 4). [3]

(b) (i) Refer to Table 1.1. Calculate the forecast profit margin for option 1. [4]

(ii) Explain one way in which Bob could increase the forecast profitability of option 1. [2]

(c) Analyse two benefits to Bob of using cost-based pricing. [8]

(d) Refer to Table 1.1 and any other relevant information. Recommend which of the two options
Bob should choose. Justify your recommendation. [11]

© UCLES 2020 9609/22/F/M/20

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2 Joe’s Smoothies (JS)

Joe graduated with a Business degree. He then spent a year travelling around Asia. He discovered
a local drink. This was a fruit smoothie, with added nuts and seeds for protein, that many people
drank instead of a meal. When he returned home to country Y he found no suppliers of this type
of product.

Joe is considering setting up a small café producing smoothies to supply this potential new market 5
segment. It would be called ‘Joe’s Smoothies’. This would be possible with a low level of start up
capital. This is important as he has no savings. He created a business plan with estimated costs
(Table 2.1) and estimated demand and average selling price (Table 2.2). This data was based on
a sole trader business in one location. Looking at the data, Joe thought that the business would be
low risk and had the potential for national expansion. 10

Table 2.1: Estimated cost information ($)

Spring Summer Autumn Winter

Capital Investment 2 000

Fixed costs 10 000 10 000 10 000 10 000

Average variable cost 2.50 2.00 2.50 3.00 15

Table 2.2: Estimated demand and average selling price (with no market research)

Spring Summer Autumn Winter

Demand (units sold) 1000 3500 1500 500

Average selling price $3.50 $6.00 $3.50 $2.50

Before opening Joe’s Smoothies, Joe approached a business adviser who asked him about his 20
market research. Joe had not done any. The business adviser suggested it would be a good idea
to do some primary market research to collect information about his target market and potential
demand.

(a) (i) Define the term ‘market segment’ (lines 5–6). [2]

(ii) Explain the term ‘start up capital’ (lines 6–7). [3]

(b) (i) Refer to Table 2.1 and Table 2.2. Calculate the break-even level of sales for JS in the
summer. [2]

(ii) Explain two factors which may influence the demand for Joe’s product. [4]

(c) Analyse two methods of primary market research that Joe could use. [8]

(d) Discuss sources of finance Joe could use to start up his business. [11]

© UCLES 2020 9609/22/F/M/20

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© UCLES 2020 9609/22/F/M/20