AQA GCSE Business: Expanding a business (8132) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set covers section 3.1.7 Expanding a business in the AQA GCSE Business (8132) specification, for first teaching from September 2017. All businesses and figures are invented. The questions mix short answers, calculations and short case studies.

Read the study guide and the revision notes first. For the wider topic, see the Business in the real world practice questions. Course links: AQA GCSE Business hub, printable checklist and the free diagnostics.

Questions

1. Define the term “economies of scale”. [2]

2. Quarrydale Print makes packs of leaflets. Its total cost for 12,000 packs is £33,600.

(a) Calculate the average unit cost. [2] (b) At 20,000 packs the average unit cost is £2.45. Calculate the total cost. [2]

3. Explain one purchasing economy of scale that a growing business might gain. [3]

4. Explain one technical economy of scale that a growing business might gain. [3]

5. Glenhaven Tea sells loose-leaf tea from two shops and plans to expand through e-commerce. Explain one benefit and one drawback of this method of growth for Glenhaven Tea. [4]

6. Stonebarrow Cafes opens new cafes. Its weekly figures are:

Output (drinks)	Total cost
6,000	£10,500
15,000	£24,000
30,000	£52,500

(a) Calculate the average unit cost at each output. [3] (b) Interpret your results. [3]

7. Quarrydale Print packs 50,000 orders a year in its own warehouse at £0.64 per order. A specialist firm offers to do the same for £0.55 per order.

(a) Calculate the yearly saving from outsourcing the packing. [2] (b) Analyse one drawback of outsourcing for Quarrydale Print. [3]

8. Sandrigg Bakes is franchising its shops. Each franchisee pays an initial fee of £10,000 and then 5% of annual sales revenue. Eight franchisees each have sales revenue of £150,000 in the first year.

(a) Calculate the total amount Sandrigg Bakes receives from the eight franchisees in the first year. [3] (b) Analyse one disadvantage of franchising for Sandrigg Bakes. [3]

9. Distinguish between a merger and a takeover. [4]

10. Harkstead Joinery makes kitchen doors. Its figures are:

Output (doors a month)	Total cost
800	£40,000
1,400	£63,000
2,000	£100,000

(a) Calculate the average unit cost at each output. [3] (b) Analyse two possible reasons for the change in average unit cost between 1,400 and 2,000 doors. [4]

11. Glenhaven Tea sells 45,000 packs a year at a total cost of £90,000. A rival, Yarnley Teas, sells 15,000 packs at a total cost of £36,000. Glenhaven can take over Yarnley for £400,000 and has £150,000 in cash reserves. It would need a loan for the rest. It expects the combined firm to sell 60,000 packs at a total cost of £114,000. Evaluate whether Glenhaven Tea should take over Yarnley Teas. [9]

Answers

1. Economies of scale are unit cost advantages from growth [1], so the average unit cost falls as output rises [1]. [2] Examiner insight: Answers that say “costs fall” without saying “per unit” or “average” tend to lose the second idea, because total cost does not fall.

2. (a) Average unit cost = total cost / output [1] = £33,600 / 12,000 = £2.80 per pack [1]. [2] (b) Total cost = average unit cost x output = £2.45 x 20,000 [1] = £49,000 [1]. [2] Examiner insight: Write the formula, then the substitution. A wrong final number with clear working usually earns more than a bare wrong number. Include the £ sign.

3. A larger business orders materials in greater quantities [1]. The supplier gives a lower price per unit as a bulk discount [1], so the average unit cost of each item falls, for example flour costing less per kilogram when bought by the lorry load [1]. [3] Examiner insight: Name the type, then follow the chain from bulk order to lower price per unit to lower average unit cost. Stopping at “buys in bulk” leaves the chain incomplete.

4. A larger business can afford bigger or more specialised machinery [1]. The cost of the machine is spread over many more units [1], so each unit carries less of the cost, for example a high-speed press that prints thousands of leaflets an hour at a lower cost per leaflet [1]. [3] Examiner insight: Keep technical economies separate from purchasing economies. Technical economies concern production methods and equipment, not supplier discounts.

5. Benefit: Glenhaven can reach customers beyond its two shops [1], so sales could rise without opening more premises [1]. Drawback: it needs a website, secure payment, packing and delivery systems, which cost money [1], and it faces many other online tea sellers [1]. Award marks for any one benefit and one drawback, each developed. [4] Examiner insight: Both the benefit and the drawback must be developed and tied to Glenhaven. Naming a point with no explanation usually earns less than explaining one point well.

6. (a) £10,500 / 6,000 = £1.75 [1]; £24,000 / 15,000 = £1.60 [1]; £52,500 / 30,000 = £1.75 [1]. [3] (b) Average unit cost falls from £1.75 to £1.60 as output rises to 15,000 drinks [1], which shows economies of scale [1]. At 30,000 drinks it rises back to £1.75, which suggests diseconomies of scale beyond some output [1]. [3] Examiner insight: Interpretation answers do best when they quote the figures, name the pattern and place the turning point between the outputs given.

7. (a) In-house cost = 50,000 x £0.64 = £32,000 [1]. Outsourced cost = 50,000 x £0.55 = £27,500, so the saving is £4,500 a year [1]. [2] (b) Quarrydale has less control over how orders are packed [1]. A poorly packed order could arrive damaged, and customers would blame Quarrydale [1], which could reduce repeat sales and wipe out the £4,500 saving [1]. [3] Examiner insight: A drawback is analysed when it ends in a consequence for the business. Say what could go wrong and why it matters.

8. (a) Revenue share per franchisee = 5% x £150,000 = £7,500 [1]. Income per franchisee = £10,000 + £7,500 = £17,500 [1]. Total = 8 x £17,500 = £140,000 [1]. [3] (b) Sandrigg has less control over each shop [1]. A franchisee who bakes poor products or serves customers badly can harm the brand name in every shop [1], so sales could fall across the whole business [1]. (Sharing profit with franchisees is another acceptable disadvantage if developed.) [3] Examiner insight: Take care to apply the 5% to the revenue and then add the one-off fee. Mixing up the two parts is a common cause of lost credit.

9. A merger is where two businesses agree to join together to form one [1], usually with both sides consenting [1]. A takeover is where one business buys enough of another to gain control of it [1], which can happen even if the target’s managers do not want it [1]. [4] Examiner insight: “Distinguish” needs a clear difference, not two separate definitions. Words such as “agreed” and “control” show the contrast.

10. (a) £40,000 / 800 = £50 [1]; £63,000 / 1,400 = £45 [1]; £100,000 / 2,000 = £50 [1]. [3] (b) Poor communication: with more staff and shifts, instructions about door sizes and finishes may be missed [1], so doors are remade and cost rises [1]. Reduced staff motivation: workers in a bigger workshop may feel less valued [1], so they work more slowly or leave, raising the average unit cost [1]. Coordination issues are also acceptable if developed. [4] Examiner insight: The question names the output range, so tie each reason to the rise from £45 to £50. Reasons with no link to the business tend to stay at one mark.

11. Points in favour:

• Combined average unit cost would be £114,000 / 60,000 = £1.90, against Glenhaven’s current £90,000 / 45,000 = £2.00 [1]. That is a fall of 5%, evidence of economies of scale [1].
• Yarnley’s own cost is £36,000 / 15,000 = £2.40, so joining it to Glenhaven’s larger output could spread costs and lower unit cost [1].
• A takeover gives quick growth in customers and output [1].

Points against:

• The price is £400,000 and Glenhaven has £150,000, so it must borrow £250,000 [1]. Interest and repayments could outweigh a unit cost saving of ten pence [1].
• The two businesses may have different cultures, and poor communication or coordination could cause diseconomies of scale [1].
• The £1.90 is only an expectation. Actual costs may differ [1].

Judgement [1]: for example, the takeover is worthwhile only if the loan repayments are less than the extra profit from the lower unit cost and added sales; a more cautious option such as e-commerce could be considered first. The judgement must be supported by the evidence above. [9] Examiner insight: An evaluate answer needs both sides in the context of the figures and a conclusion that says what the decision depends on. A one-sided list of advantages usually limits the mark.

Where marks are usually lost

• Writing “costs fall” instead of “average unit cost falls”.
• Using the wrong order in the formula, output divided by total cost.
• Leaving out units, such as £ per pack.
• Stopping at “buys in bulk” without the lower price per unit.
• Confusing technical economies with purchasing economies.
• Treating diseconomies of scale as certain rather than a risk.
• Describing a method of growth without a benefit and a drawback.
• Using general points that do not refer to the named business.
• Finishing an evaluate answer without a judgement or the condition it depends on.

Next steps

• Review the revision notes and the study guide.
• Go to the AQA GCSE Business hub and the printable checklist.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Frequently asked questions

What does section 3.1.7 Expanding a business cover in AQA GCSE Business (8132)? Methods of expansion, their benefits and drawbacks, economies and diseconomies of scale, and calculating and interpreting average unit cost. The questions here are original, not AQA past paper questions.

How do you calculate average unit cost? Divide total cost by output, then give the answer with a unit such as £ per pack. Dividing output by total cost is a common mistake.

What is the difference between purchasing and technical economies of scale? Purchasing economies come from buying in bulk, so the price per unit of materials falls. Technical economies come from larger or more specialised machinery whose cost is spread over more units.

How do I distinguish between two terms for the marks? Give a clear difference between them, not just two separate definitions. For example, show what one has that the other does not.

What do examiners want in an evaluate question on growth? Both sides in the context of the figures given, then a judgement and the condition it depends on, such as whether loan repayments can be afforded.

Official syllabus

AQA GCSE Business (8132) specification, for first teaching from September 2017, published by AQA. This set covers section 3.1.7 Expanding a business.