October November 2025 Paper 21

Question 1(a)

Advantage 1:
LB has limited liability. This means the owners of the private limited company will not lose their personal possessions if the business cannot pay its debts. As LB plans to expand and build a new factory, this reduces the financial risk for shareholders.

Advantage 2:
LB can raise more capital by selling shares to family and friends. This means the business may be able to finance growth more easily than a sole trader or partnership, especially as LB is expanding internationally.

Disadvantage 1:
Accounts of a private limited company are not private. Competitors in the luxury bathroom market may be able to access LB’s financial information and use it to compete more effectively.

Disadvantage 2:
There are legal formalities involved in operating a private limited company. LB will need to prepare audited accounts and complete government paperwork, increasing costs and taking management time.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change

Question 1(b)

Financial:
Financial economies of scale happen when large businesses can borrow money more cheaply than smaller firms. LB is a large business that has operated for 20 years and continues to grow every year. Because of this, banks may see LB as low risk and offer loans at lower interest rates.

This is important because LB plans to build a factory in country Y and will probably use a bank loan to finance it. Lower interest rates reduce repayment costs and help LB keep costs lower during expansion. This may improve profitability and cash flow.

Purchasing:
Purchasing economies of scale happen when businesses buy raw materials and components in bulk and receive discounts from suppliers. LB manufactures baths, showers and basins on a large scale, so it is likely to buy large quantities of materials.

Lower purchasing costs reduce the average cost per bathroom product. This means LB may either increase profit margins or reduce selling prices to become more competitive in the luxury bathroom market, which is already very competitive in country X.

Managerial:
Managerial economies of scale occur when specialist managers are employed. LB is a large business and can afford experienced managers for different departments such as production, marketing and finance.

Specialist managers are usually more skilled and knowledgeable in their area. This can improve efficiency and decision-making. For example, experienced operations managers may improve production efficiency after the introduction of the new machinery.

Conclusion:
Financial economies of scale are likely to benefit LB the most. This is because LB is planning a major expansion by building a new factory in another country, which will require large amounts of finance. Lower interest rates on bank loans could save LB a significant amount of money over time.

Although purchasing and managerial economies are also important, LB is already a large and established business, so it may already be receiving many of these benefits. Therefore, the greatest additional benefit is likely to come from financial economies of scale during the expansion project.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change

Question 2(a)

Advantage 1:
Primary market research gives up-to-date information. LB will be able to identify current trends in luxury bathroom products and customer preferences before launching its new product range.

Advantage 2:
The information collected is directly relevant to LB. Since LB manufactures luxury baths, showers and basins, the business can specifically ask customers about designs, features and prices they prefer.

Disadvantage 1:
Primary market research can be expensive. LB may need to pay for surveys, interviews or focus groups to collect information about the highly competitive bathroom market.

Disadvantage 2:
Primary research can take a long time to complete. This may delay the launch of LB’s new range of bathroom products if information is not collected quickly enough.

Question 2(b)

Selling to specialist retail shops:
LB already sells its existing products through specialist retail shops, so the business already has relationships with these retailers. The retailers are likely to understand the quality and luxury nature of LB’s products and can explain product features to customers.

Customers can physically see and feel the bathroom products before purchasing them. This is important because luxury products often rely on appearance and quality to convince customers to pay higher prices.

Selling through retailers may also reduce delivery costs because LB can deliver large quantities to a few shops instead of transporting individual baths and basins to customers’ homes.

However, LB will have less control over how products are displayed in stores. The products may also be displayed next to competitors’ bathroom products, increasing competition. Retailers will also add their own profit margin, meaning the final selling price may become higher.

Selling directly to customers through LB’s website:
Selling directly through the website removes the retailer from the channel of distribution. This means LB can keep more profit per product or reduce prices to attract more customers.

LB will also have direct contact with customers. This allows the business to receive feedback and understand customer preferences more easily. It may reduce the need for future market research.

In addition, LB controls how the products are presented online. The company can provide detailed descriptions, videos and images to promote the luxury quality of the products.

However, there are several disadvantages. Baths and basins are large and heavy products, so delivery costs to customers may be very expensive. Products may also become damaged during transport, increasing replacement costs.

Customers cannot physically inspect the products online. Since LB sells luxury bathroom products, customers may prefer to see and touch the products before buying them. LB would also need to upgrade and maintain its website to process online orders, increasing costs.

Recommendation:
LB should continue selling the new range through specialist retail shops. This is because luxury bathroom products are expensive purchases, and customers are likely to want to inspect the products before buying them.

Retailers already understand LB’s products and can promote their quality to customers effectively. LB also already has experience using this channel of distribution, making it less risky than changing completely to online sales.

Although direct selling through the website could increase profits, the high delivery costs and difficulty of demonstrating luxury quality online make it less suitable for LB’s products.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change

Question 3(a)

Reason 1:
Working capital is needed to pay day-to-day expenses.

Explanation:
LB needs cash to pay wages, electricity bills and purchase raw materials used to manufacture baths, showers and basins. If LB does not have enough working capital, production may stop because the business cannot pay suppliers or employees. This would reduce output and sales revenue.

Reason 2:
Working capital helps prevent cash flow problems.

Explanation:
LB operates in a competitive market and plans to expand internationally. The business needs enough liquidity to continue operating smoothly. If LB runs out of cash, it may become insolvent and be unable to survive. Sufficient working capital also improves the chances of obtaining a bank loan for the new factory in country Y.

Question 3(b)

Naga:
Naga has worked at LB for 20 years and has been a supervisor for 15 years. She understands the production tasks for all products, making her highly experienced and flexible. This means she could supervise different production areas if needed.

However, Naga has the highest wage at $400 per week, increasing labour costs. Her redundancy payment would also be the highest at $8000. Despite this large one-off payment, LB would save the most money in the long term because her weekly wages are highest.

Reeta:
Reeta has only worked at LB for 2 years, so she has the least experience within the business. Her redundancy payment would only be $700, making redundancy cheaper in the short term.

However, she previously worked for LB’s competitor for 10 years and already knows how to use the new machinery. This is extremely valuable because LB has recently introduced new machinery into production. Reeta may be able to train other workers and improve efficiency.

Amy:
Amy has worked at LB for 14 years and is described as loyal and hardworking. This suggests she is committed to the business and unlikely to leave in the future.

Amy can also repair machinery if it breaks down. Since LB has recently introduced new machinery, this skill could reduce repair and maintenance costs and minimise production delays.

Her redundancy payment of $5250 is lower than Naga’s but much higher than Reeta’s.

Recommendation:
LB should make Naga redundant. Although she is highly experienced and loyal, she has the highest weekly wage cost at $400. Making her redundant would create the largest long-term saving in labour costs.

Reeta should be kept because she already understands the new machinery and has experience from a competitor, which could help improve efficiency. Amy should also be kept because her ability to repair machinery is valuable after the introduction of new equipment.

Therefore, despite the high redundancy payment, making Naga redundant is likely to provide the greatest long-term financial benefit for LB.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change

Question 4(a)

Factor 1:
How many employees need to receive the information.

Explanation:
LB is a large business and all employees may be affected by the expansion plans and the new factory in country Y. Therefore, managers should choose a method that can communicate information to many employees quickly, such as email or a meeting.

Factor 2:
Whether feedback is required.

Explanation:
Managers may need to know whether employees understand the expansion plans and how their jobs may be affected. Face-to-face meetings allow employees to ask questions and managers can immediately clarify misunderstandings. This reduces confusion and rumours within the business.

Question 4(b)

Benefits:
One major benefit is that LB building a factory in country Y will create jobs. This will reduce unemployment and increase incomes for workers. As people earn more money, consumer spending may increase, helping economic growth in country Y.

LB’s investment may also improve infrastructure in country Y. Roads, transport links and utilities may be developed around the new factory, benefiting other local businesses as well.

Another advantage is that LB may pay taxes to the government. This increases government revenue, which can be used to improve public services such as healthcare and education.

Consumers in country Y may also benefit from increased choice. Since incomes are rising and demand for luxury home products is increasing, customers will have access to more luxury bathroom products.

Drawbacks:
A major drawback is that local bathroom manufacturers may struggle to compete with LB. As a large multinational business, LB may have lower costs and stronger branding, causing local businesses to lose customers and sales.

Another disadvantage is that profits may be sent back to country X instead of remaining in country Y. This means country Y may not receive the full economic benefit from LB’s operations.

Building and operating the factory may also create environmental problems such as noise and air pollution. This could negatively affect the health of local residents and damage the environment.

In addition, some jobs created may be low-paid or unskilled, providing limited long-term benefits to workers.

Conclusion:
The benefits for country Y are likely to be greater than the drawbacks. The factory will create employment, increase incomes and encourage economic growth at a time when demand for luxury products is rising.

Although local businesses may face stronger competition and there may be environmental issues, the overall economic benefits such as investment, infrastructure development and increased tax revenue are likely to have a greater positive impact on country Y’s economy.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change