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GCSE · Enterprise

BUS.EN9 Risk and Reward in Business Enterprise

AQA 8132 · Calculators not allowed · about 40 minutes

Total Marks

Name: _______________________________ Date: ____ / ____ / ______

Answer ALL questions in the spaces provided. Show clear reasoning for explanations. At least four questions require full sentence answers.

Amelia's Artisan Bakes is a small sole trader bakery in Bristol. Which one of the following best describes 'risk' for Amelia when she leaves her salaried job to run the bakery full time?

A) The chance Amelia will enjoy baking
B) The uncertainty over whether the bakery will make enough income
C) The guaranteed reward Amelia will receive if the bakery succeeds
D) The amount of money Amelia saved before starting

(Total for Question 1 is 1 mark)

Which one of the following is an example of a 'reward' for an entrepreneur like Amelia running Amelia's Artisan Bakes?

A) The risk of losing savings
B) Personal satisfaction from being your own boss
C) A supplier delaying payment
D) Having to work long hours

(Total for Question 2 is 1 mark)

State two tangible rewards Amelia might gain if Amelia's Artisan Bakes becomes profitable within its first year.

(Total for Question 3 is 2 marks)

State two examples of risks faced by a partnership opening a small cafe in Manchester, naming the risk and why it is a risk in that business context.

(Total for Question 4 is 2 marks)

Amelia considers giving up a salaried job that paid 24,000 pounds a year to run Amelia's Artisan Bakes. Define 'opportunity cost' in this decision context and give the specific opportunity cost for Amelia.

(Total for Question 5 is 2 marks)

Explain the risk and reward Amelia faces when deciding whether to spend 3,500 pounds of her savings on a new commercial oven for Amelia's Artisan Bakes, rather than keeping the cash as an emergency fund.

(Total for Question 6 is 4 marks)

A two-partner bakery in Leeds is offered the chance to lease a second shop for 220 pounds per week extra in rent. Explain the risks and rewards the partners face if they take on the new shop.

(Total for Question 7 is 4 marks)

Amelia must decide whether to give up her secure job paying 24,000 pounds a year to work full time in the bakery. Her forecast for year one as a full-time baker shows expected net profit of 18,000 pounds and she values the non-financial rewards of independence at 3,000 pounds in satisfaction. Analyse whether the potential reward justifies the risk for Amelia, using the figures given and other qualitative factors.

(Total for Question 8 is 6 marks)

Which one of the following best describes 'calculated risk' for a small business owner such as the partners in the Manchester cafe context?

A) Taking a risk without any information
B) Taking a risk after assessing likely outcomes and planning to reduce downsides
C) Avoiding all risk at any cost
D) Relying only on chance to win new customers

(Total for Question 9 is 1 mark)

Identify one non-financial reward the Manchester cafe partners might gain if the cafe becomes successful.

(Total for Question 10 is 1 mark)

State one opportunity cost for the Manchester cafe partners of spending their savings on a costly new espresso machine rather than keeping the cash as a reserve.

(Total for Question 11 is 1 mark)

State one way the partners could reduce the risk of taking on the second shop that charges 220 pounds per week in extra rent.

(Total for Question 12 is 1 mark)

Which of the following is the best example of an entrepreneur accepting a reward that is not monetary?

A) Receiving a bank loan to expand
B) Feeling proud and having greater control over work decisions
C) Paying back hire purchase instalments
D) Losing personal savings after a failed product launch

(Total for Question 13 is 1 mark)

State one risk specific to a sole trader like Amelia that is less of a risk for a limited company.

(Total for Question 14 is 1 mark)

Identify one factor outside the entrepreneur's control that can increase the risk of running a small food business such as a cafe or bakery.

(Total for Question 15 is 1 mark)

State one benefit of taking a calculated risk rather than avoiding risk entirely when starting a small business.

(Total for Question 16 is 1 mark)

Mark scheme · BUS.EN9 Risk and Reward in Business Enterprise

Question 1

B1 B cao
Answer: B

Question 2

B1 B cao
Answer: B

Question 3

B1 higher personal income or profit
B1 ability to reinvest profits to grow the business, or to hire staff
Answer: Any two: higher personal income/profit; ability to reinvest profits to expand or hire staff.

Question 4

B1 a drop in customer numbers, because revenue would fall and the partners might not cover costs
B1 a supplier problem, because late deliveries of food mean the cafe cannot serve customers and loses sales
Answer: Examples: a drop in customers, which reduces revenue and may leave costs uncovered; supplier problems, which stop service and cause lost sales.

Question 5

B1 definition of opportunity cost as the next best alternative forgone
B1 the specific cost: the 24,000 pounds salary she gives up (or the job security/income forgone)
Answer: Opportunity cost is the next best alternative forgone; for Amelia it is the 24,000 pounds a year salary and the job security she gives up by running the bakery full time.

Question 6

B1 identifies a risk: using savings reduces Amelia's financial buffer if sales fall
B1 develops the risk, e.g. without the emergency fund she may struggle to pay rent or suppliers during a quiet period
B1 identifies a reward: the oven could increase capacity or improve quality leading to higher sales
B1 develops the reward, e.g. higher sales or lower unit costs could raise profit, making the investment pay back over time
Answer: Risk: spending 3,500 pounds reduces Amelia's emergency savings, leaving little financial buffer if sales fall; she could struggle to pay bills in a slow period. Reward: the new oven could increase output or improve product quality, attracting more customers and raising sales and profit so the investment could pay back over time.

Question 7

B1 identifies a risk: higher fixed costs from the extra rent if sales are not sufficient
B1 develops the risk, e.g. increased rent payments could reduce profit or cause losses during quiet periods
B1 identifies a reward: opportunity to reach new customers and increase total sales
B1 develops the reward, e.g. more sales could spread fixed costs and increase net profit, and the second shop might build brand presence
Answer: Risk: the extra 220 pounds per week in rent raises fixed costs, so if the new shop does not attract enough customers partners could see profits fall or make losses. Reward: a second shop can reach new customers and increase total sales, helping to spread fixed costs and potentially increasing overall profit and brand presence.

Question 8

Level 1 (1-3): Makes simple statements about risks or rewards with limited use of the figures, showing limited analysis and little balance.
Level 2 (4-6): Provides a balanced analysis that uses the forecast figures and considers both financial and non-financial factors, reaching a supported judgement on whether the reward justifies the risk.
Indicative content:
- Compare financial outcomes: giving up a 24,000 pounds salary for forecast net profit 18,000 pounds and non-financial value 3,000 pounds produces an effective net benefit of 21,000 pounds, which is 3,000 pounds less than the forgone salary in year one.
- Consider timing and uncertainty: forecast profit is uncertain in a first year; actual profit could be lower, so financial risk remains significant because income falls short of the salary she gave up.
- Consider non-financial rewards: independence, job satisfaction and control may be highly valued by Amelia and partially offset lower monetary income.
- Consider opportunity cost beyond money: job security, pension contributions, and benefits from the salaried job are also lost and may not be fully captured in the simple 3,000 pounds satisfaction figure.
- Consider other mitigations: if Amelia can reduce personal expenses, share some hours with the previous employer, or build a contingency fund, the risk could be reduced, making the choice easier to justify.
- Judgement might weigh the size and certainty of financial shortfall against personal priorities: if Amelia accepts some initial lower monetary income for greater independence and believes profits will grow, she may decide the reward justifies the risk; if she needs stable income and cannot absorb the shortfall, the risk may not be justified.

Question 9

B1 B cao
Answer: B

Question 10

B1 an example such as personal satisfaction, community recognition, or better work-life balance
Answer: Personal satisfaction from running a successful local business (or community recognition).

Question 11

B1 the forgone alternative such as using the money as a cash reserve to cover slow trading periods or to invest in marketing
Answer: The forgone cash reserve to cover slow trading periods (or the forgone opportunity to spend it on marketing).

Question 12

B1 a mitigation such as trialling pop-up stalls to test demand, securing a short-term lease, or negotiating rent-free weeks with the landlord
Answer: Examples: arrange a short-term lease or trial period, or negotiate rent-free weeks to test demand before committing long term.

Question 13

B1 B cao
Answer: B

Question 14

B1 identifies unlimited personal liability or the owner's personal assets being at risk
Answer: Unlimited personal liability, meaning Amelia's personal assets could be at risk if the business fails.

Question 15

B1 external factor such as a change in consumer tastes, new competitors, or new health regulations
Answer: A change in consumer tastes or spending (or new competitors or new health and safety regulations).

Question 16

B1 a benefit such as potential higher profit, faster growth, gaining market share, or learning and experience that comes from trying new ideas
Answer: Potential for higher profit or faster business growth by pursuing opportunities that a risk-averse approach would miss.

Risk and Reward in Business Enterprise - Worksheets, Questions and Revision