2025 Cambridge IGCSE Enterprise (0454) Practice Paper with Answers

A new social enterprise may focus on objectives such as survival in the short term, or breaking-even (covering all costs) so that it can continue to operate and support its social cause.

Award 1 mark for each correct financial objective stated (up to 2 marks). Acceptable answers include: survival, break-even / covering costs, increasing sales revenue, reinvesting surplus to meet social targets.

An effective action plan should include clear descriptions of the specific tasks to be completed, and realistic target deadlines or timescales for each task.

Award 1 mark for each correct element identified (up to 2 marks). Accept: specific tasks / activities, name of person responsible / roles, target completion dates / deadlines, resources required / budget.

A variable cost is a business expense that rises or falls in direct proportion to the volume of goods or services produced. For a bicycle repair shop, an example would be spare parts like replacement chains or inner tubes used in repairs.

Award 1 mark for a correct definition of variable cost (a cost that changes/varies directly with the level of output/sales). Award 1 mark for a correct, relevant example (e.g., spare parts, tyres, lubricant).

Legal requirements are rules established by law that an enterprise must follow (such as paying tax or minimum wage). Ethical decisions go beyond the law and involve making choices based on what is morally right or wrong (such as sourcing fair-trade ingredients).

Award 1 mark for explaining a legal requirement (must do/compulsory by law). Award 1 mark for explaining an ethical decision (based on morals/doing the right thing/voluntary).

Oral communication allows team members to ask questions and receive immediate clarification, making decision-making faster. It also enables the use of tone and body language, which can prevent misunderstandings.

Award 1 mark for each valid advantage stated (up to 2 marks). Acceptable answers: allows immediate feedback, faster/more efficient, permits non-verbal cues (tone/body language), helps build personal relationships/team spirit.

Secondary research uses existing data, which is usually cheaper to acquire than setting up new surveys. It is also faster because the data has already been compiled by government bodies, trade journals, or internet sources.

Award 1 mark for each valid reason stated (up to 2 marks). Acceptable answers: cheaper / lower cost, faster / saves time, easier to access / readily available, can provide a broader overview / larger sample sizes.

Daily receipts record all money coming into the business from sales. Keeping accurate records of these inflows allows the enterprise to calculate its total revenue correctly, monitor cash flow, and ensure it pays the correct amount of tax.

Award 1 mark for identifying a reason (e.g., to monitor cash inflows, calculate total revenue, prevent fraud/errors, for tax purposes). Award 1 mark for explaining/developing the importance of that reason to the enterprise.

Successfully resolving conflict in a partnership requires communication skills to understand the other person's perspective, and negotiation skills to find a compromise that benefits both parties.

Award 1 mark for each correct enterprise skill identified (up to 2 marks). Acceptable answers include: negotiation / persuasion, effective communication / listening, problem-solving, empathy / interpersonal skills, leadership.

Non-financial objectives are goals not directly related to making a profit or financial gain. Examples include providing a service, ethical or social responsibility, survival, or personal satisfaction.

1 mark for each correct non-financial objective stated, up to a maximum of 2 marks. Acceptable answers include: Providing a service to the local community; Personal satisfaction / independence; Business survival (in the short term); Ethical / environmental / social responsibility; Customer satisfaction / reputation.

Verbal communication allows direct interaction. The key advantages are immediate feedback and the ability to convey tone, facial expressions, and body language, which reduces the chance of misunderstanding.

1 mark for each correct advantage stated, up to a maximum of 2 marks. Acceptable answers include: Immediate feedback / dynamic discussion; Ability to clarify points instantly; Allows tone / emotion / emphasis to be heard; Usually faster / saves time; More personal / builds relationships.

Primary market research is first-hand information collected directly from respondents. Standard methods include questionnaires, surveys, face-to-face interviews, focus groups, and observation.

1 mark for each correct primary market research method identified, up to a maximum of 2 marks. Acceptable answers include: Questionnaires (online, paper or postal); Surveys; Interviews (face-to-face or telephone); Focus groups; Observation / consumer panels; Product testing / trials.

Formal sources of help and support are professional, organized entities that provide advice, training, or finance. These include government departments/agencies, banks, accountants, business consultants, or local chambers of commerce.

1 mark for each correct formal source of help and support stated, up to a maximum of 2 marks. Acceptable answers include: Government departments / agencies; Banks / financial institutions; Accountants / lawyers / solicitors; Business consultants / advisors; Chamber of Commerce; Enterprise agencies / local councils; Charities / NGOs promoting business. Do not accept: Friends, family, or other informal sources.

By acting ethically (such as sourcing fair trade products or reducing pollution), an enterprise builds trust with the public. This positive reputation serves as a marketing advantage, leading to higher customer loyalty and sales.

1 mark for identifying a reason. 1 mark for explaining how this benefits or impacts the enterprise. Acceptable answers include: To improve brand image / reputation [1] which leads to increased customer loyalty/sales [+1]; To motivate employees [1] which increases productivity/reduces staff turnover [+1]; To avoid legal issues / fines / protests [1] saving the enterprise money and protecting its operations [+1]; To attract investors / ethical funding [1] which provides capital for growth [+1].

Resourcefulness involves finding creative ways to overcome difficulties using available assets. In this scenario, the bakery can: 1. Identify alternative local suppliers (e.g., local mills) to secure flour quickly. 2. Substitute the missing flour with alternative ingredients (like spelt or rye) to introduce new seasonal products. This maintains sales revenue and keeps customers engaged despite the supply chain failure.

1 mark: Clear identification of a resourceful action appropriate for a bakery.
1 mark: Explanation of how this action resolves the flour shortage.
1 mark: Application of the skill to maintain bakery operations or sales.

Peer-to-peer (P2P) lending cuts out traditional financial intermediaries like banks. For an app developer, this is beneficial because: 1. Apps are intangible assets, which banks rarely accept as collateral. 2. The application process on P2P platforms is typically faster, which is vital for tech markets. 3. It allows the entrepreneur to gain early interest and feedback from the individual lenders who act as early adopters.

1 mark: Identifies a characteristic of peer-to-peer lending (e.g., lack of collateral requirements, speed).
1 mark: Explains why this is an advantage over a traditional bank loan.
1 mark: Applies the explanation specifically to the context of a new mobile application startup.

A referral scheme works by leveraging word-of-mouth. 1. The existing customer is incentivised to recommend the service to friends. 2. Once the friend books a grooming session, the original customer receives a reward (e.g., 20 percent off their next pet groom). 3. This reward directly encourages the original customer to return to the business, thereby improving retention.

1 mark: Explains the mechanism of a referral scheme (rewarding existing customers for bringing in new ones).
1 mark: Explains how the reward leads directly to repeat business (retention).
1 mark: Applies the concept to the pet-grooming context (e.g., discount on future grooms).

Risk transfer involves passing the financial consequences of a risk to another party. For an outdoor concert: 1. The organisers identify bad weather as a major threat to revenue. 2. They buy a specialised insurance policy before the event. 3. If severe weather forces cancellation, the insurance provider compensates the organisers for lost ticket sales and non-refundable costs.

1 mark: Identifies 'purchasing insurance' as the method of risk transfer.
1 mark: Explains how the mechanism of insurance transfers the financial burden (premium vs payout).
1 mark: Applies the explanation to the outdoor music concert scenario (e.g., covers losses from cancellation due to rain).

Negotiating with raw material suppliers requires flexibility. Verbal communication (e.g., a phone call or face-to-face meeting): 1. Allows for instant counter-offers on materials like essential oils or bases. 2. Helps build trust and rapport, which can lead to better long-term credit terms. 3. Prevents misunderstandings that can easily occur in written emails.

1 mark: Identifies a key advantage of verbal communication (e.g., immediate feedback, relationship-building).
1 mark: Explains how this advantage improves the negotiation process.
1 mark: Applies the explanation to the soap enterprise negotiating for raw materials.

Minutes are crucial for formal meetings because: 1. They act as a permanent record of what was agreed, preventing future disputes. 2. They list specific action points with assigned names and deadlines, which improves accountability. 3. They serve as a reference point to check progress at the start of the next meeting.

1 mark: Defines minutes as a written record of discussions, decisions, and action points.
1 mark: Explains how they prevent disputes or keep track of agreed points.
1 mark: Explains how they ensure accountability by linking tasks to specific team members and deadlines.

Demographics refer to population characteristics like age, income, and housing. For Sanjay: 1. Identifying an influx of younger, urban professionals who live in apartments. 2. Realising these residents lack gardens but still desire green spaces inside their homes. 3. Tailoring his service to deliver indoor plants directly to their doors, creating a convenient solution for a specific growing customer segment.

1 mark: Identifies a relevant demographic change (e.g., age, occupation, housing types).
1 mark: Explains how this change creates a new consumer need or demand.
1 mark: Applies the analysis directly to Sanjay's home-delivery plant business concept.

Ethical choices often involve a trade-off: 1. The immediate cost of biodegradable cups is higher than plastic, which raises variable costs and can reduce profit per cup. 2. However, this action enhances the shop's green reputation. 3. This positive image can attract new eco-conscious customers and allow the shop to charge a premium price, potentially increasing overall revenue and profit.

1 mark: Explains the negative impact on profit (e.g., increased costs of ethical sourcing reducing unit margins).
1 mark: Explains the positive impact on profit (e.g., improved brand reputation attracting more customers).
1 mark: Demonstrates an understanding of the overall balance or net effect on profits.

Award marks as follows:
- Identification of a method to find an opportunity (e.g. identifying a gap in the market / conducting a local survey / analyzing competitor weaknesses) [1 mark]
- Explanation of how this method helps to identify the opportunity (e.g. by highlighting a specific customer demand that is not currently being met by existing businesses) [1 mark]
- An appropriate local business example [1 mark]

- Identification of a way: 1 mark
- Explanation showing understanding: 1 mark
- Applied example: 1 mark

1. Calculate Total Revenue:
\( \text{Revenue} = 30 \times \\$15.00 = \\$450.00 \)

2. Calculate Variable Cost per candle:
\( \text{Variable Cost per unit} = \\$3.00 + \\$2.00 = \\$5.00 \)

3. Calculate Total Variable Cost for 30 candles:
\( \text{Total Variable Cost} = 30 \times \\$5.00 = \\$150.00 \)

4. Calculate Total Cost:
\( \text{Total Cost} = \text{Total Variable Cost} + \text{Fixed Cost} = \\$150.00 + \\$50.00 = \\$200.00 \)

5. Calculate Profit:
\( \text{Profit} = \text{Total Revenue} - \text{Total Cost} = \\$450.00 - \\$200.00 = \\$250.00 \)

Award 4 marks for the correct profit of $250.

If the final answer is incorrect, award a maximum of 3 marks for the following working:
- Revenue = \( 30 \times \\$15 = \\$450 \) [1 mark]
- Variable Cost per unit = \( \\$3 + \\$2 = \\$5 \) OR Total Variable Cost = \( 30 \times \\$5 = \\$150 \) [1 mark]
- Total Cost = \( \\$150 + \\$50 = \\$200 \) [1 mark]
- Profit formula: Total Revenue - Total Cost [1 mark]

Candidates are expected to select and analyse two enterprise skills shown in the scenario.

Possible skills include:
1. Creativity / Innovation: Shown when Rohan uses his artistic talent to paint unique skateboard designs, which serves as his unique selling point (USP).
2. Persuasion / Negotiation: Shown when Rohan has to persuade a local sports shop owner to stock his products, helping him secure a distribution channel.
3. Problem-solving / Resourcefulness / Resilience: Shown when he quickly finds alternative suppliers after his main wood supplier shuts down, preventing production delays.

Example analysis point:
- Rohan applied the skill of creativity when he hand-painted unique designs on each skateboard (Application). This helped differentiate his brand from mass-produced competitors, creating a unique selling point that attracted local skaters and allowed him to charge a higher premium price, ultimately increasing his profit margins (Analysis).

Level 3 (8–10 marks):
- Good analysis consistently applied to the scenario.
- Demonstrates good knowledge of enterprise skills.
- Explains the clear impact or benefit of these skills on Rohan's skateboard enterprise.

Level 2 (4–7 marks):
- Some analysis supported by good application to the scenario.
- Demonstrates knowledge of enterprise skills.
- Explains how Rohan used or showed the skills, but the impact on the enterprise is less developed.

Level 1 (1–3 marks):
- Limited application to the scenario.
- Demonstrates basic knowledge of concepts (identifying skills without clear application/analysis).

Level 0 (0 marks):
- No creditable response.

Candidates should focus on how they addressed two ethical considerations within their own enterprise project.

Examples of ethical considerations:
- Sourcing raw materials from ethical/Fairtrade suppliers.
- Reducing environmental footprint (e.g., minimizing waste, recycling, or using eco-friendly/biodegradable packaging).
- Ensuring fair treatment and wages for team members.
- Honest and transparent marketing communications (no misleading claims).
- Donating a portion of the enterprise's profits to local charities.

Example analysis point:
- In our handmade soap enterprise, we made sure to package our products in fully biodegradable paper rather than plastic wrap (Application). Although this raised our variable costs per unit, it successfully appealed to environmentally conscious students and teachers. This positive ethical image boosted our overall sales volume and generated word-of-mouth promotion within the school (Analysis).

Level 3 (8–10 marks):
- Good analysis consistently applied to the candidate's own enterprise project.
- Demonstrates good knowledge of ethical practices and considerations.
- Fully explains the impact/outcomes of managing these ethical decisions on the project's performance or stakeholder relationships.

Level 2 (4–7 marks):
- Some analysis supported by good application to the candidate's own enterprise project.
- Demonstrates knowledge of ethical concepts.
- Explains the actions taken to be ethical, but the broader impact on the enterprise's overall success is not fully developed.

Level 1 (1–3 marks):
- Limited application to the candidate's own enterprise.
- Demonstrates basic knowledge of ethical concepts (e.g., lists ethical actions with no link to their own project).

Level 0 (0 marks):
- No creditable response.

To earn high marks, candidates must weigh the pros and cons of both options specifically for Liam's start-up juice enterprise:

• Loan from parents:
- Advantages: Longer repayment time (six months), which relieves cash flow pressure in the critical start-up weeks; parents may be flexible if sales are initially slow.
- Disadvantages: 5% interest increases the total cost of borrowing (e.g., $300 + 5% = $315); could create personal relationship strain.

• Trade credit from wholesale fruit supplier:
- Advantages: 0% interest for 30 days reduces short-term costs; allows him to sell juice made from the fruit before paying for the raw materials.
- Disadvantages: Short repayment period (30 days) is highly risky for a brand-new enterprise; cannot be used to purchase the non-current asset (commercial blender) because trade credit is only for inventory (fresh fruit).

• Evaluation/Justification:
Liam should choose a combined approach or prioritize the parental loan. The blender is a capital cost that cannot be funded by trade credit. Therefore, the parental loan is much more suitable for the blender as it provides the necessary medium-term finance. However, he could use trade credit to acquire fresh fruit inventory once the stall is operational to optimize cash flow.

Level 4 (12–15 marks):
- Candidate offers a two-sided evaluation of both a parental loan and trade credit.
- Explicitly connects the characteristics of the sources to Liam's startup requirements (e.g., purchasing a blender vs buying fruit inventory).
- Reaches a clear, logical conclusion on which source is best, with a detailed justification of why the alternative was rejected.

Level 3 (8–11 marks):
- Explains the benefits and drawbacks of both options (e.g., trade credit saves interest but must be repaid quickly; parental loans carry interest but offer longer terms).
- Shows clear analytical links between these features and the success/survival of the 'Zest' juice stall.

Level 2 (4–7 marks):
- Applies knowledge of loans and trade credit to the context (e.g., mentioning the $300 start-up cost, the 30-day limit, or the 5% interest rate).
- Explanations are present but may lack depth or remain one-sided.

Level 1 (1–3 marks):
- Demonstrates basic knowledge of sources of finance.
- Defines trade credit or loans without meaningful application to Liam's business plan.

Responses will vary depending on the candidate's actual enterprise project (e.g., selling handmade keychains, organizing a school sports event, running a cake stall):

• Risk 1 (e.g., Financial Risk - exceeding the budget on ingredients):
- Identification: High ingredient prices could lead to a loss.
- Mitigation: Comparing wholesale prices at three different supermarkets and negotiating a discount.
- Analysis of outcome: This kept total start-up costs below the $50 budget, allowing a profit margin of 40%.

• Risk 2 (e.g., Operational Risk - team member absence on sales day):
- Identification: If the main baker was absent, no products would be ready to sell.
- Mitigation: Training all team members in basic baking procedures and establishing a backup production schedule.
- Analysis of outcome: Although the main baker was late, the backup plan kept production on time, ensuring full inventory.

• Evaluation:
To reach Level 4, the candidate must critically evaluate whether these actions were fully successful (e.g., 'While comparing wholesale prices was highly effective at cutting initial raw material costs, the backup baking schedule was only partially successful because team members lacked the speed of the main baker, resulting in minor sales delays').

Level 4 (12–15 marks):
- Considers at least two distinct risks (financial, operational, market, or legal).
- Evaluates the success of the mitigation strategies with clear, realistic reflections on what worked well and what could have been improved.
- Highly specific, detailed references to the candidate's own project (e.g., actual costs, numbers, dates, or specific incidents).

Level 3 (8–11 marks):
- Explains the mitigation of at least two risks.
- Analyses the link between the risk mitigation action and its impact on the project's performance or survival.

Level 2 (4–7 marks):
- Describes the risks encountered in their project.
- Attempts to explain how these risks were handled, but lacks deep analysis of the consequences or outcomes.

Level 1 (1–3 marks):
- Lists or briefly states risks faced in the project.
- Limited or no reference to specific events or outcomes in their own enterprise.