Size of Business (Cambridge (CIE) A Level Business): Exam Questions

Child Play (CP)

Su is a sole trader who started a business called CP which operates a play area for children. The play area is inside a building and includes toys and other play equipment. Customers book on CP’s website for each hour that they would like to use the play area. CP is two kilometres away from the nearest city which has a large population.

Su does not pay for any promotion and she relies on recommendations and reviews from previous customers. Su currently charges a price of $10 an hour for a group of up to 5 children. Only one group can book CP for each hour. Demand is greater than supply so Su may increase the price to $15 per hour. She has completed some market research to see if this is a good idea. Her findings are in Table 1.1.

Table 1.1: Market research about prices for CP

Su is also thinking about expanding the business by opening a café targeted at parents with children.

The café would be located at the entrance to CP’s play area. There are many other cafés in the city centre two kilometres away. Su believes that product differentiation is essential for the profitability of the café.

Su plans to use CP’s working capital as the source of finance to open the new café. The café will need to earn revenue quickly, so she plans to open it in four weeks. She will need quick and low‑cost promotion methods if the café is to succeed.

Super Heroes (SH)

SH is a leisure (theme) park aimed at 10–18 year olds. It is owned by two companies, X and Y, which started SH as a joint venture. Company X owns many leisure centres and swimming pools. Company Y owns many brands based on superheroes.

SH employs 200 full-time workers and an extra 50 seasonal workers during the busiest times of the year. The park has 10 large rides which take up 2km² of land. There are also many smaller rides, restaurants, toilets and shops. The price of an entrance ticket is $11 per customer. Table 1.1 shows the costs for SH in 2019.

Table 1.1: SH costs for 2019

One of the larger rides at SH is the Iron Blaster. The number of customers who use this ride has decreased each year for the last three years. This has led the management of SH to consider its options for internal growth.

Option 1 – A new virtual reality (VR) ride
This option would involve developing the Iron Blaster into a VR ride. Most of the structure of the Iron Blaster could be used but customers would be given a VR headset to wear during the ride. The cost of developing the VR ride would be $2m. The Iron Blaster ride would be closed for a three month period during the off-peak season for the development to be carried out. No employees would be made redundant or dismissed.

Option 2 – A new hotel
SH does not currently have a hotel. It could demolish the Iron Blaster to provide the space to build one. Many of the competitors of SH have a hotel near or within their leisure parks. Hotel customers would pay a high price for a room but have free access to the leisure park’s facilities. Market research suggests that the average hotel customer would spend twice as long in the leisure park than a non-hotel customer. The cost of developing the hotel would be $15m and take a year to build. All of the employees currently working on the Iron Blaster ride would face redundancy or dismissal.

Braid Runner (BR)

Lewis is a hairdresser. He rents a small shop which he uses as a hairdressers called Braid Runner (BR). Lewis is a sole trader and he set up BR 25 years ago.

BR is the smallest of all the hairdressers in city Y. Lewis works on his own. He has repeat customers who have been using BR for many years. However, there are many large franchises in city Y which offer a much cheaper haircut than BR.

Lewis is considering increasing the price of a haircut and he has outlined the costs and revenue of the business in Table 2.1.

Table 2.1: Costs and revenue of BR

Lewis would like to employ another hairdresser so that he can work fewer hours in BR. The new employee would have to be able to work in BR on their own. They would be responsible for taking bookings, dealing with customers and some financial transactions. Lewis has drawn up a person specification (see Fig. 2.1) that will be placed on a job website.

Fig. 2.1: Person specification created by Lewis