2025 Cambridge IGCSE Enterprise (0454) Practice Paper with Answers

A fixed cost is a business expense that remains constant regardless of the quantity of goods produced or sold. An example is the monthly rental fee for factory premises.

Clear definition of fixed cost [1 mark]. Valid example appropriate for a manufacturing enterprise [1 mark].

Two features of a private limited company are: 1. The owners benefit from limited liability, meaning they only risk losing the amount they invested. 2. Shares are sold privately to known individuals and cannot be advertised or traded on a public stock exchange.

1 mark for each correct feature identified, up to a maximum of 2 marks.

Direct marketing is a form of advertising where an enterprise communicates directly with pre-selected customers via channels like email, SMS, or direct mail, bypassing retail intermediaries.

Identification of direct communication to a targeted customer group [1 mark]. Explanation of the method, channel used or omission of middle channels [1 mark].

Two common risks that a newly established enterprise may encounter are: 1. Financial risk, which is the possibility of losing invested capital. 2. Market risk, which is the threat of low demand or intense competitor activity.

1 mark for each correct type of risk identified, up to a maximum of 2 marks. Acceptable answers include financial risk, market risk, operational risk, legal risk, or reputational risk.

A win-win outcome refers to a collaborative resolution in a negotiation where both sides reach an agreement that is mutually beneficial, satisfying the primary interests of all parties involved.

Award 1 mark for showing that both negotiating parties benefit or feel satisfied. Award 1 mark for explaining that both parties' needs, goals or interests are successfully addressed.

1 mark for identifying a valid method (e.g., pre-ordering, taking deposits, flexible supplier contracts).
1 mark for explaining how it works (e.g., food is only prepared when confirmed).
1 mark for linking to the reduction of risk (e.g., fewer ingredients spoiled, less money wasted on unsold food).

Identify a valid method [1]
Explain how the method works in context [1]
Explain how it reduces the risk of food wastage [1]

1 mark for identifying a resourceful action (e.g., renting instead of buying, using free marketing).
1 mark for explaining how this action is implemented (e.g., utilizing social media to reach customers).
1 mark for linking to solving the startup finance shortage (e.g., preserving limited cash for essential operations).

Identify a resourceful action/alternative [1]
Explain how this action is carried out [1]
Explain how it solves/mitigates the finance shortage [1]

1 mark for identifying a characteristic of focus groups (e.g., qualitative feedback/direct discussion).
1 mark for explaining how it applies to a clothing brand (e.g., discussing fabric/design preferences).
1 mark for showing the benefit of this understanding (e.g., tailoring products to meet exact consumer demands/reducing unsold stock).

Identify a key feature of focus groups (e.g., group discussion/qualitative data) [1]
Apply to the clothing/product context [1]
Explain how this leads to a better understanding of target needs [1]

Contribution per unit = Selling price - Variable costs per unit
Variable costs per unit = Cost of raw materials + Cost of packaging
Variable costs per unit = $6.20 + $1.30 = $7.50
Contribution per unit = $15.00 - $7.50 = $7.50

State the correct formula for contribution: \( \text{Selling price} - \text{Variable cost} \) [1]
Correct calculation of total variable cost ($7.50) OR correct working showing \( 15.00 - (6.20 + 1.30) \) [1]
Correct final answer of $7.50 (unit sign not required) [1]
OFR (Own Figure Rule) applies if variable costs are summed incorrectly but subtracted correctly.

1 mark for identifying the immediate impact (e.g., delayed cash inflows/payment lag).
1 mark for explaining the consequence on cash reserves (e.g., lack of liquid funds to buy stock).
1 mark for linking to the disruption of daily operations (e.g., inability to pay daily operating expenses/power bills).

Identify the cash delay/outflow impact [1]
Explain the effect on current assets/liquidity [1]
Explain how this disrupts daily business operations [1]

1 mark for identifying the concept of separate legal identity / limited liability.
1 mark for explaining the limit of loss (e.g., only losing the invested capital/shares).
1 mark for explaining the protection of personal assets (e.g., personal savings/possessions cannot be seized by creditors).

Identify limited liability/separate legal entity [1]
Explain the limit of financial liability to the amount invested [1]
Explain how this protects personal assets (e.g., home, savings) from creditors [1]

1 mark for identifying the purpose of monitoring dates (e.g., to review progress/check schedule).
1 mark for explaining how it helps identify issues (e.g., spotting delayed tasks early).
1 mark for linking this to project completion (e.g., allowing corrective action/reallocation of resources to meet the final deadline).

Identify the role of monitoring (e.g., measuring progress/tracking performance) [1]
Explain how it helps spot delays or issues early [1]
Explain how this enables corrective action to stay on course [1]

Variable cost per unit = timber ($10) + paint ($2) = $12. Contribution = Selling price ($25) - Variable cost ($12) = $13.

1 mark for identifying the correct formula or calculating total variable costs of $12. 1 mark for correct final calculation of $13.

Break-even point = Fixed costs / Contribution per unit. Break-even point = $650 / $13 = 50 cars.

1 mark for the correct break-even formula. 1 mark for correct substitution of values ($650 / $13). 1 mark for correct final answer of 50 (allow own figure rule if an incorrect contribution from the previous question is used correctly).

One consequence is a damaged reputation. If the public finds out the enterprise is acting unethically, customers may choose to buy from competitors instead, reducing the enterprise's market share. A second consequence is recruitment difficulties. Talented people often prefer to work for socially responsible companies, so an unethical business might struggle to attract high-quality staff, leading to lower productivity.

Award marks as follows (up to 2 marks per consequence, maximum 4 marks total):
- Identification of a consequence [1 mark]
- Explanation showing the impact/effect on the enterprise [+1 mark]

Possible answers include:
- Damaged brand image/reputation [1] leading to loss of customer loyalty and reduced sales [+1]
- Difficulty in recruiting or retaining employees [1] because workers prefer working for morally responsible employers [+1]
- Negative publicity or community backlash [1] which increases the costs of future marketing to rebuild trust [+1]
- Difficulty in obtaining finance/investments [1] as banks or venture capitalists increasingly favor ethical businesses [+1]

If choosing Amit:
• Advantages: Amit can share the heavy workload of sourcing and delivering organic vegetables. The partner brings in additional finance/capital to fund the expansion, reducing Amit's reliance on costly personal savings or bank loans. They can also share the burden of decision-making.
• Disadvantages: Amit has to share the profits of 'Amit's Greens' with the new partner. Decision-making may become slower as they must agree, and there is a risk of conflict over the direction of the business (e.g., pricing or delivery areas). Both share unlimited liability for business debts.

If choosing the new partner:
• Advantages: They gain a share of the profits from an already established, successful organic delivery brand ('Amit's Greens') without starting from scratch. They can actively participate in running the business.
• Disadvantages: They risk losing their invested capital if the expansion fails. Under unlimited liability, they could be held personally responsible for all business debts incurred by the partnership.

Marking scheme matches Level of Response criteria:
- Level 3 (8-10 marks): Good analysis consistently applied to the case study.
- Level 2 (4-7 marks): Some analysis supported by good application to the case study.
- Level 1 (1-3 marks): Identification of advantages/disadvantages of partnership (knowledge points).
- Level 0 (0 marks): No creditable response.

Example response using social media advertising and personal selling:
• Social media advertising: In our cupcake enterprise, we created an Instagram page to post daily photos of our fresh bakes. This was highly effective because it cost nothing (important since our budget was under $20) and reached our exact target market of students instantly, leading to a surge in pre-orders.
• Personal selling: We set up a stand during lunch breaks and actively approached students, describing the unique ingredients of our cupcakes. This direct communication helped reassure customers about allergen details and persuaded hesitant buyers, directly increasing our sales volume on the day of the market.

Marking scheme matches Level of Response criteria:
- Level 3 (8-10 marks): Clear, reasoned analysis of two methods applied directly to the candidate's own enterprise.
- Level 2 (4-7 marks): Some analysis of how the chosen methods were utilized, with basic application.
- Level 1 (1-3 marks): Generic identification/description of the marketing methods without application to the project.
- Level 0 (0 marks): No creditable response.

Here is an example of a high-scoring response:

I recommend that Samir uses Option 2 (creating a social media page) because his capital is extremely limited. Social media is free to set up, which eliminates any initial cash outflow. Since Samir operates a mobile smoothie cart, his target market is likely younger, health-conscious individuals who are highly active on social platforms. Daily updates showing colorful photos of fresh smoothies can create viral interest and build a loyal local following. Over time, this digital presence will build a stronger brand identity than a one-off newspaper advert.

I rejected Option 3 (the local newspaper advertisement) because print media requires immediate cash payment, which Samir cannot easily afford with his tight budget. Furthermore, print newspaper readership has declined significantly, especially among the younger demographic likely to buy fresh, healthy smoothies on the go. This makes the advertising spend highly risky and unlikely to generate a positive return on investment.

While Option 1 (buy one, get one free) could attract immediate crowds on Friday afternoons, it directly cuts into Samir's profit margins. Without an established online presence to inform people about the deal, it may only attract existing customers rather than bringing in new ones, making it less effective for long-term growth compared to social media marketing.

### Level of Response Marking Grid (15 marks total)

#### Level 4 (12–15 marks)
* **Descriptor**: Clear reasoned evaluation is present. Good analysis is consistently applied to the case study. Demonstrates excellent knowledge of marketing concepts.
* **Guidance**: Candidate evaluates the suitability of their chosen option against at least one rejected option. The recommendation clearly addresses the long-term success of Samir's mobile smoothie enterprise, factoring in constraints like limited capital and the nature of his target market.

#### Level 3 (8–11 marks)
* **Descriptor**: Good analysis applied consistently to the case study, leading towards an evaluation. Demonstrates solid knowledge of relevant marketing concepts.
* **Guidance**: Candidate explains the positive and negative impacts of at least two options on Samir's cash flow, customer reach, or profitability. A basic recommendation is made but lacks fully balanced justification or clear rejection reasoning.

#### Level 2 (4–7 marks)
* **Descriptor**: Some application to the case study supported by basic analysis. Demonstrates basic knowledge of marketing concepts.
* **Guidance**: Candidate outlines the general advantages and disadvantages of the options (e.g., social media is free; newspaper reaches the local area). The application to 'Samir’s Smoothies' or his mobile cart setup is present but limited.

#### Level 1 (1–3 marks)
* **Descriptor**: Limited application or purely descriptive answer. Demonstrates superficial knowledge of concepts.
* **Guidance**: Candidate lists features of promotion or offers a simple opinion with no analytical support.

#### Level 0 (0 marks)
* No creditable response.

In our school-based cupcake enterprise, 'Sweet Treats', our business plan was highly critical to our overall success, though it had some limitations.

Firstly, in terms of identifying potential risks, the business plan forced us to conduct a SWOT analysis. We identified that a key risk was a competitor selling similar baked goods on the same day. Because we anticipated this risk in our plan, we decided to differentiate our cupcakes by offering gluten-free and vegan options. This risk-identification process directly saved us from losing market share and ensured we met our sales revenue targets.

Secondly, the business plan was essential for securing funding. We needed an initial loan of $50 from our business teacher to purchase raw ingredients like flour, sugar, and decorative boxes. Without presenting a structured business plan containing a detailed cash flow forecast, the teacher would not have approved our loan. Thus, the plan was the absolute gateway to obtaining our startup capital.

Lastly, the plan helped us monitor progress against targets, specifically our sales volume target of 100 cupcakes. During the lunch break, we noticed we had only sold 40 cupcakes. By referring to our planned target schedule, we realized we were underperforming. This prompted us to actively walk around the school courtyard with sample trays, allowing us to hit our target of 100.

In conclusion, the business plan was incredibly critical. Without it, we would have lacked the funding to start, been unprepared for competitor risk, and failed to adjust our sales tactics to meet our volume targets.

### Level of Response Marking Grid (15 marks total)

#### Level 4 (12–15 marks)
* **Descriptor**: Clear reasoned evaluation is present. Good analysis is consistently applied to the candidate's own enterprise experience. Demonstrates excellent knowledge of business plan elements.
* **Guidance**: Candidate evaluates how having (or lacking) a business plan impacted the success of their project, explicitly linking it to risks, resource acquisition, and target monitoring. A clear, balanced judgment on its overall critical importance is provided.

#### Level 3 (8–11 marks)
* **Descriptor**: Good analysis applied consistently to their own enterprise experience, leading toward an evaluation. Demonstrates sound knowledge of business planning.
* **Guidance**: Candidate analyzes the cause-and-effect relationship of planning in their project (e.g., 'Writing down the cash flow forecast meant we knew exactly how much ingredients to buy, which prevented waste...'). Covers at least two of the bullet points well.

#### Level 2 (4–7 marks)
* **Descriptor**: Some application to their own enterprise project supported by basic analysis. Demonstrates basic knowledge of what a business plan contains.
* **Guidance**: Candidate describes what they did in their project regarding resources, risks, or targets, but the link to how the business plan helped or would have helped is weak or descriptive rather than analytical.

#### Level 1 (1–3 marks)
* **Descriptor**: Limited application or purely generic answer about business plans without clear reference to a real student project.
* **Guidance**: Lists general benefits of business planning without personal context.

#### Level 0 (0 marks)
* No creditable response.