10.4. Finance and accounting strategy
A subsection of Business Studies, 9609, through 10. Finance and accounting (A Level)
Listing 7 of 7 questions
Veg Cans (VC) VC is a public limited company which produces canned vegetables. VC is supplied with fresh vegetables by 20 farms. VC processes and packages the vegetables in cans. These are then sold to food retailers. VC sells over 50 varieties of canned vegetables. Each year the Board of Directors analyses sales figures and decides where each variety is on the product life cycle. The directors then base their marketing decisions on this information. VC has recently published its statement of financial position (Table 3). Table 3: Extract from VC’s statement of financial position $m Non-current assets Current assets Current liabilities Non-current liabilities Equity The Board of Directors of VC want to use retained earnings to pay for a new factory that can package and freeze vegetables. These frozen vegetables will be sold through the same channel of distribution as VC’s current products. Market research has suggested that VC’s customers want a range of frozen vegetables that are convenient for consumers to use at home. The new factory will require a manager. A job advertisement has been created (see Fig. 1). Fig. 1: Job advertisement for manager of the new factory Manager required An experienced manager is required for a new factory producing frozen vegetables. The successful applicant will have: • a good degree from a university in a business subject • the ability to motivate employees • the ability to manage inventory • finance and accounting skills. Define the term ‘retained earnings’ (line 15). Briefly explain the term ‘public limited company’ (line 1). Calculate VC’s working capital. Explain two ways in which VC could increase its working capital. Analyse two methods of selection VC could use when choosing a new manager for the factory. Evaluate the usefulness of the product life cycle to VC when making marketing decisions.
9609_s18_qp_21
THEORY
2018
Paper 2, Variant 1
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Occasion Cards (OC) OC is a private limited company that sells greeting cards designed using mass customisation. Customers order their cards on the Internet and can add their own design and personal message to each card. OC allows customers to download a simple Computer Aided Design (CAD) system that customers use on their home computers. OC is owned by four sisters who are also the directors of the company. OC’s employees benefit from the business being owned by a family. However, family ownership has limited the capital available for expansion. OC has increased its sales over the past few years using the Internet. Social media and viral marketing have been the basis for most of OC’s promotion. This has worked well, but the directors are aware that future sales growth may require a different approach and an increase in capital. The current owners have decided to change the legal structure of OC to a public limited company. In preparation for this change, the directors have prepared some accounting information for OC (see Table 1). Table 1: Accounting information for OC ($m) ($m) Revenue Profit margin 10% 15% Non-current assets Current assets Non-current liabilities Current liabilities Define the term ‘Computer Aided Design’ (line 4). Briefly explain the term ‘mass customisation’ (lines 1–2). Refer to Table 1. Calculate the current ratio for 2016. Explain one way in which the information in Table 1 might be useful to a potential investor. Analyse one advantage and one disadvantage to OC of using the Internet to promote the business. Evaluate the owners’ decision to change the legal structure of OC to a public limited company.
9609_w17_qp_22
THEORY
2017
Paper 2, Variant 2
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Budding Gardens (BG) BG is a partnership owned and managed by Barry and Michael. BG is in the tertiary sector. BG is a landscape gardening business. Its revenue comes from two main services that it provides to customers: Landscaping – BG redesigns customers’ gardens, for example by adding new features such as water fountains or seating areas Basic gardening services such as digging and grass cutting. Barry and Michael work well together. Barry deals with marketing and agrees contracts and prices with customers. He also manages the finances. Michael focuses on the technical side of the business such as garden design. He also has responsibility for the four full-time employees. Michael has come to Barry with a problem. One of the large lawnmowers used to cut grass has broken down and needs replacing. The cost of the new lawnmower machine will be $10 000. Michael has asked Barry if there is finance available for capital expenditure. Barry needs to determine the best source of finance to use for the new lawnmower. BG has a low level of working capital. Barry has been looking at the latest financial accounts (see Table 3). Table 3: Extract from the income statement for the year ended 31 May 2017 $000s Revenue Cost of sales Expenses Profit for the year One of BG’s competitors, LawnsRus, has recently been in trouble. A customer made a serious complaint about damage that an employee caused whilst mowing her lawn. The business had to pay a large amount in compensation to the customer. Barry believes that this may increase demand for BG’s services in the local market. Define the term ‘demand’ (line 26). Briefly explain the term ‘tertiary sector’ (line 1). Refer to Table 3. Calculate the gross profit margin. Explain one way that BG could improve its profit margin. Analyse two possible sources of finance that BG could use for the new lawnmower. Discuss the advantages and disadvantages to Barry and Michael of the business being a partnership.
9609_s17_qp_23
THEORY
2017
Paper 2, Variant 3
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Questions Discovered
7