CAIE A-Level Business A2 8 Marketing Questions

Practise advanced Marketing through elasticity, forecasting, product development and strategic planning, combining calculations and case evidence to make commercial decisions.

Covered syllabus points

8.1 Marketing analysis 8.2 Marketing strategy

[Maximum number: 16]

(a)

Tour	Original price	New price	Unit sales before price increase (2020)	Unit sales after price increase (2021)	Price elasticity of demand
Bespoke clothing items	$200	$220	300	285	See 4(a)
Fast-fashion clothing	$5	$6	200 000	150 000	−1.25

Table 1.2 Data for price elasticity of demand (monthly unit sales)

Refer to Table 1.2. Calculate the price elasticity of demand (PED) for bespoke clothing.

[ 4 ]

Refer to Table 1.2. Calculate the price elasticity of demand (PED) for bespoke clothing.
Table 1.2 Data for price elasticity of demand

PED=% change in quantity demanded / \% change in price (1 mark if no relevant calculations)

\% change in quantity demanded = $-15 / 300 \times 100=-5 \%$ (1) (minus sign needed)

\% change in price $20 / 200 \times 100=10 \%(1)$

PED =-5 % / 10 %=-0.5 (4)

0.5 (3)

Incorrect units e.g. $-0.5 (3)

$0.5 (2)

(b)

Sunil’s Clothing Company (SCC)

SCC is a private limited company, owned by Sunil and his family. SCC is based in country Z, an island in Asia. Country Z is a developing economy. It is a popular manufacturing location for ‘ready made clothing’, which is exported to the rest of the world. SCC has grown quickly since it started in 2010 and now has two large factories. The clothing production work is labour intensive, carried out by mainly female workers using cloth cutting and sewing machines. SCC’s clothes are bought in large quantities by budget ‘fast-fashion’ brands in developed countries, which then add their own labels and packaging. SCC’s mission statement is ‘reliable quality clothing at the lowest possible prices’.

Sunil also has a small team who produce individual ‘bespoke’ clothing items, made to specified designs required by customers. These are ordered by consumers in country Z and include outfits for weddings and other occasions. For these items, the emphasis is on uniqueness and quality and SCC is able to charge high prices, as customers can specify exactly what they want and know that their clothes will be ‘one-off’ designs. Sunil would like SCC to expand production of the more exclusive designs, as he knows that in the mass-produced fast-fashion market it faces increased competition, both from other local firms and from companies based in other Asian countries. Overall capacity utilisation for SCC’s two factories is 85% on average, and Sunil is forecasting a 10% increase in sales next year.

External influences

SCC is impacted by changing external factors in country Z and also in the countries where its biggest customers are located. In country Z, inflation and unemployment are both rising and the currency has depreciated by 10% on average against major currencies. In the developed countries where SCC’s fast-fashion business customers are based, inflation is also rising and consumers’ real incomes are decreasing. There is also increasing consumer concern about unethical business practices used by some fast-fashion suppliers based in developing countries.

Price elasticity of demand and income elasticity of demand

Real incomes in SCC’s main export countries have fallen by 6% on average, and Sunil has estimated that demand for his fast-fashion clothing has increased by 8%. Sunil has also collected some sales figures, based on average prices, for fast-fashion and bespoke clothing items, as shown in Table 1.2.

Tour	Original price	New price	Unit sales before price increase (2020)	Unit sales after price increase (2021)	Price elasticity of demand
Bespoke clothing items	$200	$220	300	285	See 4(a)
Fast-fashion clothing	$5	$6	200 000	150 000	−1.25

Table 1.2 Data for price elasticity of demand (monthly unit sales)

Evaluate the usefulness of PED and income elasticity of demand (YED) to SCC's sales forecasting for mass-produced clothing.

[ 12 ]

Level	AO1 Knowledge and understanding 2 marks	AO2 Application 2 marks	AO3 Analysis 2 marks	AO4 Evaluation 6 marks
3				5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context.
2	2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	2 marks Developed application of relevant point(s) to the business context.	2 marks Developed analysis that identifies connections between causes, impacts and/or consequences.	3–4 marks Developed evaluation • A developed judgement/conclusion is made. • Developed evaluative comments which balance some key arguments.
1	1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	1 mark Limited application of relevant point(s) to the business context.	1 mark Limited analysis that identifies connections between causes, impacts and/or consequences.	1–2 marks Limited evaluation • A judgement/conclusion is made with limited supporting comment/evidence. • An attempt is made to balance the arguments.
0	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.

produced clothing.
Evaluate the usefulness of PED and income elasticity of demand (YED) to SCC's sales forecasting for mass-produced clothing.
Evaluate the usefulness of PED and income elasticity of demand (YED) to SCC's sales forecasting for mass-produced clothing.

Figure for Answer to Question (b) — CAIE A-Level Business A2

4(b)

OFR for 4(a)

Indicative content

Responses may include:

AO1 Knowledge and understanding

- Knowledge and meaning of PED and YED - responsiveness of demand to a change in income or price.

- Generic knowledge of PED and values, including price elastic/inelastic.

- Generic knowledge of positive and negative income elasticity and meaning of income elastic/income inelastic demand.

- Generic knowledge of reasons for sales forecasting and sales forecasting methods, such as extrapolation, correlation, time series analysis. (maximum 1 K mark)

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SCC once.

Developed application, ${ }^{\mathrm{APP}}+{ }^{\mathrm{APP}}$ applies knowledge to SCC twice

- The customers of SCC's mass-produced clothing are B2B budget brand companies, whereas the bespoke items are sold to consumers so B2C.

- Pricing should take into account the target market, but also in this case fast fashion is being sold 'in bulk', whereas bespoke items are 'one off'.

- Elasticity calculation suggest that mass-produced clothing has price elastic demand, but is also an inferior product, with demand increasing as real incomes fall.

- Mass-produced (fast fashion) clothing sales will be highly sensitive to changes in fashion and consumer tastes.

- Fast fashion clothing has a YED of -1.33 (inferior product).

- Calculations of revenue from table 1.2 before and after price increases:

Bespoke clothing $60000 increased to $62 700. Fast fashion $1000000 decreased to $900000

AO3 Analysis

Limited analysis ${ }^{\text {AN }}$ - candidate shows one link in the chain of analysis.

Developed analysis ${ }^{\text {L2 AN }}$ - candidate shows two or more links in the chain of analysis.

4(b)

- Development of application points, in terms of the likely usefulness of price and income elasticities in sales forecasting.

- Price elastic demand for mass-produced clothing suggests that B2B customers are price sensitive, and that decreasing prices is likely to result in higher revenues. AN This could mean that the currency depreciation will stimulate sales as it leads to cheaper export prices. L2 AN

- Negative income elasticity (-1.33) for mass-produced clothing suggests that falling real incomes may lead to higher demand ${ }^{\mathrm{AN}}$ as business customers opt away from higher priced suppliers, as they know that their customers will be looking for cheaper prices, this could also stimulate demand from the budget brand companies. L2AN

- Sunil has past sales data, so forecasting based on this may be a good starting point, such as time series analysis or simple extrapolation, will enable him to predict sales.

- However, markets are dynamic and the mass-produced clothing market is becoming more competitive. This may mean the likelihood of a price war. AN This would probably mean that elasticity data is not up to date and predicted demand may be lower, resulting in lower revenues. L2 AN

- Consumers are becoming more concerned about unethical business practises used by suppliers in developing countries. This could have a negative impact on SCC, especially if there is bad publicity or pressure group activity, leading to lower sales.

AO4 Evaluation

Limited evaluation ${ }^{\text {гval }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\left\lfloor 3 \text { rvat }^{\text {® }}\right.}$ — supported judgement in context and/or reasonable evaluative comment in context.

- It will be useful for SCC to keep a close watch on response from customers to both price and income changes, as these will have big influences on their ability to buy.

- However, other parts of the marketing mix and strategy will also be important, especially keeping up with fashion trends.

- Currency fluctuations, such as the depreciation may be short or long term and will vary across different currencies.

- YED is especially unreliable, as mass-produced clothing will be a 'normal' good for low-income earners, but an inferior good for high-income earners.

- Many other external factors could influence the demand for SCCs clothing, other than price and income changes.

- Elasticity data goes out of date very quickly, given other changing influences.

Accept all valid responses.

[Maximum number: 16]

(a)

Clean Delivery (CD)

Inflation and government economic policy

In recent months CD has experienced an increase in the cost of chemicals and other materials used to manufacture its products in country K. CD sources most of its chemicals and materials locally to reduce the environmental impact. Rising energy prices have also had a significant effect on costs. CD has absorbed these additional costs, but Gianni wants to increase the price of clothing detergent from $4.00 to $4.60 per unit. This would be the first price increase since 2022. However, he is concerned that this will reduce demand. CD’s marketing department estimates that the price elasticity of demand for the detergent is –0.6. Current sales are 100 000 units per month.

Refer to lines 36-40. Calculate the estimated change in quantity demanded if CD increases the price of its detergent from $ 4.00 to $ 4.60.

[ 4 ]

$4.00 to $4.60

Indicative content

PED = \% change in Qd / \% change in price and/or \% change in Qd = PED × \% change in price (1 mark)

Percentage increase in price $=0.6 / 4 \times 100=15 \%(1)$

\% change in Qd $=15 \times-0.6$ (3)

\% change in Qd = -9% OR a reduction of 9000 units (4)

(b)

Clean Delivery (CD)

Until 2017 Gianni Rousseau was a marketing executive for a multinational consumer goods company. His wife, Anna, worked in the research and development (R&D) department of the same business. In 2017 they set up CD in country K.

A cleaner brand

Gianni thought there was an opportunity to disrupt the household cleaning product market in country K with a new approach to distribution. CD manufactures and sells detergent which is used to wash clothes. Sales are made to households through a subscription service using postal deliveries to distribute the product. CD claims three main benefits for customers:
• cheaper per clothes wash than leading retail brands
• environmentally responsible as no plastics are used in packaging
• flexible and convenient delivery of the detergent.

Customers control the frequency of their home deliveries online. Payments are taken directly from customer bank accounts for each delivery.

Marketing success?

The household cleaning product market is competitive. Multinationals target the mass market whilst some smaller businesses focus on the environmental market segment. CD made effective use of social media when the company launched its washing detergent. A substantial marketing budget supported rapid sales growth. CD’s share of country K’s clothing detergent market is currently 5%. CD has an objective to double that within the next two years. CD has benefited from positive publicity in the media and Gianni and Anna have won entrepreneurial awards in country K.

However, some pressure groups have questioned whether CD’s products are as sustainable as other environmentally friendly brands. Product tests have also found that CD’s products provide less effective cleaning than the market-leading multinational brands.

Developing new products

Since 2018 CD has developed a small range of additional cleaning products. CD aims to ensure that each new product can be delivered easily by post. To ensure products are sustainable CD only uses materials that are not harmful to the environment.

CD plans to increase expenditure on research and development to 3% of revenue by 2025. In a recent interview Anna commented that CD’s R&D spending is, in relative terms, double the investment of the leading multinational brand.

Inflation and government economic policy

In recent months CD has experienced an increase in the cost of chemicals and other materials used to manufacture its products in country K. CD sources most of its chemicals and materials locally to reduce the environmental impact. Rising energy prices have also had a significant effect on costs. CD has absorbed these additional costs, but Gianni wants to increase the price of clothing detergent from $4.00 to $4.60 per unit. This would be the first price increase since 2022. However, he is concerned that this will reduce demand. CD’s marketing department estimates that the price elasticity of demand for the detergent is –0.6. Current sales are 100 000 units per month.

Shareholder pressure

CD’s expansion has been financed through loans, retained profit and share capital. CD is a public limited company although Anna and Gianni still own 40% of shares. At the recent Annual General Meeting (AGM) Gianni presented CD’s ambitious expansion plan which would require additional financing, possibly from external sources.

Gianni argued it was important for CD to expand operations to benefit from internal economies of scale. Some shareholders expressed their concerns that CD should focus more on generating short-term returns to shareholders.

Table 1.1 provides selected financial data and accounting ratios for CD.

	30 January 2024 ($m)	30 January 2023 ($m)
Revenue	21.3	18.6
Profit from operations	2.6	2.5
Issued share capital	3	3
Reserves	13.5	12.8
Non-current liabilities	16	15
Current ratio	0.8:1	0.6:1
Earnings per share $	0.6	0.6
Market price per share $	4.00	3.90
Dividend yield %	3%	3.3%

Table 1.1 CD’s selected financial data and accounting ratios

Evaluate the importance of new product development to CD's future success.

[ 12 ]

Level	AO1 Knowledge and understanding 2 marks	AO2 Application 2 marks	AO3 Analysis 2 marks	AO4 Evaluation 6 marks
3				5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context.
2	2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	2 marks Developed application of relevant point(s) to the business context.	2 marks Developed analysis that identifies connections between causes, impacts and/or consequences.	3–4 marks Developed evaluation • A developed judgement/conclusion is made. • Developed evaluative comments which balance some key arguments.
1	1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	1 mark Limited application of relevant point(s) to the business context.	1 mark Limited analysis that identifies connections between causes, impacts and/or consequences.	1–2 marks Limited evaluation • A judgement/conclusion is made with limited supporting comment/evidence. • An attempt is made to balance the arguments.
0	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.

Evaluate the importance of new product development to CD's future success.

4(b)

Indicative content

Responses may include:

AO1 Knowledge and understanding

- New product development is the design, creation and marketing of new goods and services.

- Research and development is the scientific research and technical development of new products and processes.

Benefits of new product development:

- Attract repeat purchase by offering a product that is new and better.

- Meet customer needs more effectively.

- Gain a competitive advantage over competition.

- Product differentiation.

- Control over pricing.

- Refresh the brand.

- Cost of product development.

AO2 Application

Limited application, ${ }^{\text {APP }}$ applies knowledge to CD once.

Developed application, ${ }^{\text {APP }}+{ }^{\text {APP }}$ applies knowledge to CD twice.

- Competitive market.

- Consumer product tests showing CD products not as good for cleaning.

- Environmental credentials of CD have been questioned.

- Cost of R&D - increase in expenditure to 3% of revenue (that would be $ 639000 in 2024).

- Shareholder pressure for returns.

- Reference to price inelastic demand (-0.6).

AO3 Analysis

Limited analysis AN - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- Improvements in cleaning power of products will maintain consumer interest and prevent the product becoming less effective relative to products of competitors AN. This will result in higher sales and increased profit L2AN.

- R&D can improve sustainability of CD's cleaning products further differentiating them from MNCsAN and attracting customers L2AN.

4(b)

- R&D can enable CD to launch new products and maintain growth in revenue AN which can help meet shareholder expectations for higher returns L2AN.

- Improved products could make CD's detergents more price inelastic AN.

- R&D is costly and may therefore negatively impact CD's cashflow and liquidity AN.

- R&D may be classified as an operating expense and can therefore result in a decrease in profit AN.

AO4 Evaluation

Limited evaluation ${ }^{\text {Eval }}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation $\left.{ }^{\text {L2 }}\right|^{\text {Evat }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\left\lfloor\mathbf{L 3}^{\text {Eval }}\right.}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Without product development CD will lose its competitive edge in the market. Products need to be continually improving.

- Can R&D match the results of the spending by MNCs which will be significantly more than CD can afford?

- R&D is risky and may not bring improvements to products.

- Is product development the most important factor to future success:

- Role of marketing to support new products.

- Role of marketing research as part of NPD.

- Competitor decisions.

Accept all valid responses.

[Maximum number: 20]

Performance Vehicles (PV)

Jack (a mechanic) and Jimmy (a car salesperson) set up PV as a private limited company in 2010. PV was initially financed through savings and a personal bank loan. The capital raised was used to finance a car sales showroom, a workshop and tools.

PV bought previously owned cars at low cost, repaired any faults and sold them in its showroom.

Timeline of PV

2010–2011
Competition in PV’s market is high.
Business objective of sales maximisation with a focus on low prices.
Low-cost local advertising is used to establish the business.
Cash flow is variable and profit margins low.

2012
Jimmy identifies a niche market to restore and sell rare old cars.
A strong brand identity develops and profit margins increase.

2013
Specialist magazines are used to exploit growing brand awareness.
Business objective changes to profit maximisation.

2014
PV features in a television programme about the restoration of rare old cars.
Sales increase by 50%.
Recruitment of experienced mechanics.

2015
PV accepts a two-year contract to appear in the car restoration television programme (see Appendix 1).
Pricing method changes to skimming.

2016
Sales continue to grow rapidly as the PV brand becomes better known.
PV purchases a large industrial unit and invests in specialist technology (see Appendix 2).

2017
Television contract ends.
Sales decline for the first time.

2018–2021
PV sponsors FAST, a Formula 2 car-racing team (see Appendix 3).
Sales do not grow.

Appendix 1: Data about the two-year contract to appear in the car restoration television programme (2015)

• Niche audience of people who like car restoration.
• Estimated viewing figures of 2 million worldwide.
• PV will not receive a fee from the television company, but PV’s logo and product placement will appear in every programme.
• PV is allowed to sell branded merchandise, made popular by the programme, on its website.

Appendix 2: PV purchases land and invests in technology in 2016

• New industrial unit financed by mortgage.
• Gearing ratio increases to 75%.
• New specialist technology financed by retained profit.
• Quality improvements marketed as a unique selling point (USP).
• PV reduces its marketing budget.

	2018–19	2019–20	2020–21
Annual sponsorship costs ($m)	2	3	4
League finishing position	3	2	7
TV viewing figures per race (m)	15	16	20
Target demographic	Male 45–60	Male 45–60	Male 45–60

Appendix 3: Key Formula 2 sponsorship data 2018–2021

Evaluate PV's marketing strategy between 2012 and 2021.

Level	AO1 Knowledge and understanding 3 marks	AO2 Application 2 marks	AO3 Analysis 8 marks	AO4 Evaluation 7 marks
3			7–8 marks Developed analysis of the overall strategy that identifies connections between causes, impacts and/or consequences.	6–7 marks Effective evaluation A developed judgement/conclusion is made in the business context that draws together developed evaluative comments which balance some key arguments in the business context.
2	2–3 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	2 marks Developed application of relevant point(s) to the business context.	4–6 marks Developed analysis of individual strategic element(s) that identifies connections between causes, impacts and/or consequences.	3–5 marks Developed evaluation • A developed judgement/conclusion is made. • Developed evaluative comments which balance some key arguments.
1	1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	1 mark Limited application of relevant point(s) to the business context.	1–3 marks Limited analysis that identifies connections between causes, impacts and/or consequences.	1–2 marks Limited evaluation • A judgement/conclusion is made with limited supporting comment/evidence. • An attempt is made to balance the arguments.
0	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.

Evaluate PV's marketing strategy between 2012 and 2021.

Level

AO1 Knowledge and understanding 3 marks

AO2 Application

2 marks

AO3 Analysis

8 marks

AO4 Evaluation

7 marks

3

7-8 marks
Developed analysis of the overall strategy that identifies
connections between
causes, impacts and/or
consequences.

6-7 marks

Effective evaluation

A developed judgement/conclusion is made in the business context that draws together developed evaluative comments which balance some key arguments in the business context.

2

2-3 marks

Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question.

2 marks
Developed application of relevant point(s) to the business context.

4-6 marks
Developed analysis of
individual strategic element(s) that
identifies connections between causes,
impacts and/or
consequences.

3-5 marks

Developed evaluation

- A developed judgement/conclusion is made.

- Developed evaluative comments which balance some key arguments.

1

1 mark

Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question.

1 mark

Limited application of relevant point(s) to the business context.

1-3 marks

Limited analysis that identifies connections between causes, impacts and/or consequences.

1-2 marks

Limited evaluation

- A judgement/conclusion is made with limited supporting comment/evidence.

- An attempt is made to balance the arguments.

0

0 marks

No creditable response.

0 marks

No creditable response.

0 marks

No creditable response.

0 marks

No creditable response.

1

Indicative content:

AO1 Knowledge and understanding

No other AO2, AO3 or AO4 marks can be awarded without AO1.

Candidates must show knowledge and understanding, they cannot just mention a key term.

- Strategy - A plan of action to achieve a long term aim.

- Marketing - the act of promoting and selling products and services.

- The contents of a marketing plan: objectives, resources, research, marketing mix (price, product, place, promotion).

AO2 Application

Candidates must apply their answers to marketing and marketing strategy.

- Strong brand identity begins in 2012 with rare old cars.

- Promotion in specialist magazines is used which changes objective to profit maximisation.

- Pricing method later changes to skimming.

- Use of TV restoration programme to raise brand awareness in 2015-16 leading to increased brand awareness worldwide.

- Use of website and social media to gain customers, brand awareness and sales.

- Sponsorship of Formula 2 team to raise brand awareness 2018-2021.

AO3 Analysis

Candidates need to identify an element of the marketing strategy and provide developed analysis to get to A2, this then needs to be counterbalanced to get to A3. If a candidate does this twice, they will gain 8 marks.

- A strategy to sell rare old cars in the niche market led to increased brand awareness. [A2] This brand awareness must have been high to attract the interest of a TV company which further developed the brand image. However, this will require specialist marketing to reach the niche. [A3]

- The marketing focus changes again to increasing brand awareness with the TV programme. This shows that PV is responsive to marketing opportunities and objectives can be fluid. [A2] But relies on product placement rather than direct advertising which may take longer to improve sales. [A3]

1

- The sponsorship of FAST continues to focus on brand awareness through an international platform. [A2] However, the sponsorship may not fit with the branding strategy as although costs are increasing by $\$ 2 \mathrm{~m}$ per year, the sponsored team is not providing the success necessary to increase or strengthen the brand image which leads to the marketing being abandoned. [A3]

AO4 Evaluation

Candidates MUST answer the question - a judgement on the strategy between 2012 and 2021. The development and support of this judgement will help them to move through N2 and N3.

To award N 3 the answer must be in context and draw upon the previous analysis.

Evaluation will largely depend on the points raised in the analysis of the marketing strategy of PV.

- Overall judgement required on the balance between strengths and weaknesses of PV's approach to its marketing strategy. [N1]

- The lack of a formal marketing plan suggests that PV is opportunist, and the approach is based on opportunity rather than a considered marketing strategy. Sales had stalled in 2017 and seemed to struggle to increase indicating the strategy had not worked.

- The TV programme was an effective and low-cost advertising method as the programme paid for filming, editing and managing the tv schedule which met the marketing strategy and objectives at the time. This also led to alternative revenue streams which suggests that the strategy to allow filming was successful.

- The sponsorship deal, while it could have been lucrative, was reliant on the FAST team who did not perform by 2020-21 - possibly impacting sales while the costs grew to $4m.

Accept all valid responses.

[Maximum number: 16]

(a)

Year	Quarter	Sales volume	Centred quarterly moving average
2022	3	29	22.75
2022	4	20	23.00
2023	1	16	23.75
2023	2	27	See Q3(b)
2023	3	35	26.00
2023	4	24
2024	1	20

Table 1.1 Sosoy Ice Cream selected sales data by volume (000 litres)

Refer to Table 1.1. Calculate for quarter 1, 2023, the seasonal variation.

[ 1 ]

Refer to Table 1.1. Calculate for quarter 1, 2023, the seasonal variation.

Seasonal variation $=16-23.75=-7.75 \mathbf{O R}-7750 \mathbf{O R}(7.75)(1)$

Note:

No mark for 7.75 OR 7750.

(b)

Year	Quarter	Sales volume	Centred quarterly moving average
2022	3	29	22.75
2022	4	20	23.00
2023	1	16	23.75
2023	2	27	See Q3(b)
2023	3	35	26.00
2023	4	24
2024	1	20

Table 1.1 Sosoy Ice Cream selected sales data by volume (000 litres)

Refer to Table 1.1. Calculate for quarter 2, 2023, the centred quarterly moving average.

[ 3 ]

(c)

Soymai Farms (SF)

SF is a private limited company. SF owns three farms in country B. SF’s core activity is growing a range of agricultural crops. Soya and maize account for 90% of output. Most of SF’s output is sold to manufacturers of products such as soymeal and soya oil.

To increase value added, SF has diversified into manufacturing soya-based products including tofu and soya ice cream. SF owns a factory close to its farms. SF’s sales of tofu have been successful since it was launched in 2010. SF has developed its branding and sells tofu to independent retailers and a national supermarket in country B.

Flexible employment contracts

Core workers, who are employed on full-time permanent contracts, include mechanics, farm labourers and machine operatives. Labour turnover is low.

Most employees, however, have flexible employment contracts which include temporary or zero-hour contracts. These employees are unskilled and receive limited training. All employees on flexible contracts are paid the same hourly wage.

Market conditions and sales forecasting

The market for soya and maize is competitive and SF has to accept the price set in the market in country B. Output can vary significantly each year because of the weather and this affects the market price. Country B currently imposes tariffs on all imported agricultural commodities, including soya and maize. Processed food imports also have a tariff of 10%.

There is a growing market for non-dairy products in country B. In 2015, SF launched Sosoy Ice Cream as a premium non-dairy ice cream. SF’s marketing department is responsible for forecasting sales and makes use of industry market reports, its own market research and quantitative techniques such as time series analysis. Table 1.1 is an extract of sales data for Sosoy Ice Cream. The marketing department is using it to forecast sales for 2024 and 2025.

Year	Quarter	Sales volume	Centred quarterly moving average
2022	3	29	22.75
2022	4	20	23.00
2023	1	16	23.75
2023	2	27	See Q3(b)
2023	3	35	26.00
2023	4	24
2024	1	20

Table 1.1 Sosoy Ice Cream selected sales data by volume (000 litres)

SF does not yet export any manufactured products. However, SF’s latest SWOT analysis highlights opportunities to sell its food products in neighbouring countries. The Marketing Director has recommended that SF export Sosoy Ice Cream to country D.

Factory operations nearing capacity

With the increasing sales of Sosoy Ice Cream, tofu and other soya products, capacity utilisation is a problem as it is above 90%. The factory already operates three shifts a day to fulfil demand. SF’s Managing Director is considering whether to expand capacity to meet forecast demand. He believes there are two viable options:
• invest in the latest technology to automate production in the existing factory
• outsource production of Sosoy Ice Cream.

Evaluate the usefulness to SF of sales forecasting.

[ 12 ]

Level	AO1 Knowledge and understanding 2 marks	AO2 Application 2 marks	AO3 Analysis 2 marks	AO4 Evaluation 6 marks
3				5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context.
2	2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	2 marks Developed application of relevant point(s) to the business context.	2 marks Developed analysis that identifies connections between causes, impacts and/or consequences.	3–4 marks Developed evaluation • A developed judgement/conclusion is made. • Developed evaluative comments which balance some key arguments.
1	1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	1 mark Limited application of relevant point(s) to the business context.	1 mark Limited analysis that identifies connections between causes, impacts and/or consequences.	1–2 marks Limited evaluation • A judgement/conclusion is made with limited supporting comment/evidence. • An attempt is made to balance the arguments.
0	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.

Evaluate the usefulness to SF of sales forecasting.

3(c)

0 &
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Figure for Answer to Question (c) — CAIE A-Level Business A2

Indicative content

AO1 Knowledge and understanding

Limited knowledge K will be demonstrated through knowledge of sales forecasting or knowledge of the usefulness or limitations of sales forecasting to SF.

Developed knowledge K+K will be demonstrated through knowledge of sales forecasting and knowledge of the usefulness or limitations of sales forecasting to SF.

- Sales forecasting involves making a prediction of future sales.

- Time series analysis is a method of forecasting based on extrapolation from past data.

- Benefits of sales forecasting include:

- Contribution to workforce planning

- Planning purchase of resources

- Greater accuracy in cash flow forecasting

- Aids operational decisions such as need to increase capacity

- Aids decisions about pricing

- Drawbacks of sales forecasting include:

- Inaccuracy

- Dynamic market

- Doesn't take into account qualitative factors

- Past can't predict the future

- Moving averages are based on past data

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SF once.

Developed application, ${ }^{\triangle \mathrm{PP}}+{ }^{\triangle \mathrm{PP}}$ applies knowledge to SF twice.

- Reference to current capacity utilisation of over 90%.

- Need for forecast of sales if start to export to country D.

- Role of market reports and market research in forecasting.

3(c)

- Identifying likely demand for tofu and Sosoy Ice Cream.

- Identifying employees needed in factory and decision about employment contracts to use.

- Inability to control the weather.

AO3 Analysis

Limited analysis ${ }^{\text {AN }}$ - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- Helps ensure efficient use of labour and machinery helping to control costs of production ${ }^{\text {AN }}$ and therefore increase profit L2AN.

- Contributes to creating cash flow forecast which will help ensure that SF has sufficient finance in place to deal with future needs AN.

- Sales forecasts for entering country D will help evaluate whether break-even can be achieved ${ }^{\mathrm{AN}}$ and therefore whether exports are likely to be successful L2AN.

- Because the market is dynamic it could lead to misallocation of resources such as having too many peripheral employees in the factory AN which would lead to increased costs ${ }^{\text {L2AN }}$ .

AO4 Evaluation

Limited evaluation ${ }^{[\text {vxil }]}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\text {L3 }}{ }^{\text {vast }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Using 4 period moving average fits the data well as there are clear seasonal variations ensuring that the technique is more likely to give reliable results.

- Unexpected changes in the external environment such as entry of a new competitor will result in the predictions being incorrect and therefore less useful in making the best decisions.

- TSA relies on future events behaving as in the past so may not be reliable as markets are dynamic.

- May be advisable to introduce an element of probability to the forecasts - what if analysis?

- The longer the time frame the less useful the forecast is because there are more likely to be external events that impact the forecast.

- Using simple moving averages and a line of best fit may be too simplistic.

- Usefulness is limited if managers don't use the sales forecast to make decisions.

- Should be used in conjunction with qualitative data and current market data to improve usefulness.

Accept all valid responses.

All question bank results loaded

Covered syllabus points

Question 1

Question (a)

Question (b)

Question 2

Question (a)

Question (b)

Question 3

Question 4

Question (a)

Question (b)

Question (c)