5.4. Costs
A subsection of Business Studies, 9609, through 5. Finance and accounting (AS Level)
Listing 10 of 47 questions
Sadiq’s Social Restaurant (SSR) SSR is a small social enterprise located in a low-income inner city area. SSR employs young people who have not been successful at school. It aims to teach them valuable work skills and to help them gain qualifications, so that they have more chance of getting full-time employment elsewhere. SSR’s customers are very supportive of this social enterprise. They are willing to accept a slower service and a simpler menu in exchange for the chance to help disadvantaged young people gain qualifications. The current average price for a meal at his restaurant is $5.50, which is lower than local competitors. Sadiq, who manages SSR, wants to increase its size by opening a second restaurant so that he can help more young people. He relies on local schools and colleges to recommend young people for his enterprise. He has been told that there would be government grants available to pay for induction and training. Sadiq has identified two possible locations that he can rent for the second restaurant. Start-up capital would be from retained earnings and an overdraft facility from his bank. Table 2.1 shows forecast data about each of the locations. Table 2.1: Forecast data for each location City centre Edge of city Start-up capital costs $5000 $10 000 Monthly fixed costs $1000 $375 Average cost of ingredients (per meal) $1.50 $1.50 Other variable costs (per meal) $2.25 $1.30 Expected number of customers (per month) Table 2.2 shows additional information taken from Sadiq’s research. Table 2.2: Additional information for each location City centre Edge of city • Previously used as a restaurant • A range of other restaurants nearby • No parking facilities • Previously a non-food shop but has permission to convert to a restaurant • No other competition • Large car park Define the term ‘induction’ (line 12). Briefly explain the term ‘social enterprise’ (line 5). SSR uses cost-based pricing to add 60% to variable costs when pricing each meal. Refer to Table 2.1. Calculate the average price of each meal in the proposed city centre restaurant. Briefly explain one advantage to SSR of using cost-based pricing. Analyse two possible impacts on stakeholders of SSR if the second restaurant is successful. Recommend which location SSR should choose for its second restaurant. Justify your recommendation.
9609_m19_qp_22
THEORY
2019
Paper 2, Variant 2
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Wedding Gifts (WG) WG is owned by Tomas who is a sole trader. He used to own part of a large wedding business which failed and went into administration. Tomas started up WG two years ago using all his savings. WG is profitable but there are no retained profits. It has a positive cash flow and no debts. Tomas manufactures personalised gifts using the factors of production. WG’s target market is people who are getting married. Each gift can be personalised with the names of the married couple and their wedding date. These gifts are given to wedding guests by the married couple. The gifts are made to each customer’s specifications using a 3D printer owned by Tomas. Table 2.1 shows the data for a recent order enquiry from Jo who is getting married soon. Table 2.1 Jo’s order details Design Small star with personalisation Quantity Variable costs (per star) $1.20 Allocated fixed costs $150 Tomas prepared a quote to send to Jo. He used cost‑based pricing to add a 50% mark‑up to the cost of the order and sent the quote to Jo. Tomas received an email reply from Jo (see ). Hey Tomas Thanks for the quote. I am a social media influencer, and my wedding will be streamed on the internet for lots of people to see. I have 0.2m followers on social media and I know that they will love your products. I think you should give me the order for free! Thanks, Jo Email from Jo The demand for Tomas’ products is high, especially during the peak wedding season. He would like to purchase an additional 3D printing machine so that he can meet demand throughout the year. He has found the ideal machine which will cost $60 000. Tomas knows that there are many factors which will influence his choice of sources of finance for the new machine. Identify one factor of production. Explain the term sole trader. Refer to Table 2.1 and other information. Calculate the total price of Jo’s order. Explain one advantage for Tomas of using cost‑based pricing. Analyse one advantage and one disadvantage for Tomas of giving Jo the order for free. Evaluate the most important factor which may influence Tomas’ choice of sources of finance for the new 3D printing machine.
9609_m23_qp_22
THEORY
2023
Paper 2, Variant 2
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Designer Clothing (DC) DC is a medium sized private limited company. DC has three main shareholders. It has been trading for ten years. DC makes luxury dresses for women using job production methods. DC has an excellent reputation for quality. A DC designer has a meeting with every customer to design a dress that satisfies the customer’s individual needs, including choice of fabric and colour. Cost-based pricing is used with 50% added to the total costs. DC’s employees are highly skilled and paid hourly rates (a time based system). Ikram, one of the designers, has just had a meeting with a new customer, Lydia. She wants him to design and make a new dress for her. Ikram has worked out the following information for the dress. Table 1: Production data for the dress for Lydia Production time 20 hours Hourly rate (time based) $10 Material costs $250 Other costs such as packaging $50 Jenny, the Managing Director, wants to use DC’s excellent reputation and move into a new market. Jenny wants to create a new range of DC branded trousers for women. She has developed some elements of a marketing mix for the new trousers (see Table 2). Table 2: Elements of a marketing mix for the new trousers Product Quality trousers aimed at women aged 25-50 years Distribution channel Sold in large shops Promotion Branded with the DC logo Jenny is waiting for a market research report including feedback from a focus group. She thinks that the pricing strategy DC currently uses will not be appropriate for the new trousers. The new product range will be made using a batch production method. The Production Director, Khaleal, has identified the machinery needed for the new production method. Khaleal is worried about the problems that introducing the new production method will cause DC’s employees. Define the term ‘shareholders’ (line 1). Briefly explain the term ‘focus group’ (line 22). Refer to Table 1 and other information. Calculate the price of the dress for Lydia. Explain one payment method (other than time based) that DC could use to pay its employees. Analyse two human resource problems that DC might experience from the introduction of the new batch production method. Discuss a suitable pricing strategy that DC could use for the new range of trousers.
9609_s17_qp_23
THEORY
2017
Paper 2, Variant 3
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Jones Sticky Labels (JS) JS is a private limited company that produces sticky labels for the industrial market. JS was set up by Lucy Jones 15 years ago. The market for sticky labels is very specialised and there are no competitors within the home country because of low demand. However, the majority of JS’s customers are in other countries and the international market is much more competitive. JS owns one factory where all the sticky labels are manufactured. The business employs 300 workers on eight production lines. The sticky labels are designed using Computer Aided Design (CAD) and manufactured using batch production. When a customer wants sticky labels, JS will create a new design, send the design to the customer for approval and then order the materials required for production. Each design of sticky label is unique and will take different amounts of time and effort to produce. The typical lead time is four weeks. One of JS’s customers is a supermarket chain which puts sticky labels on many of its products. These range from promotional sticky labels that are put on products that need to be sold quickly through to small sticky labels that are put on fruit to identify their variety. JS has recently received an order from the supermarket chain for 50 000 sticky labels at a total price of $2750. The costs of producing these labels is shown in Table 1. Table 1: Cost data ($) Variable Costs: Cost of materials (per 1000 sticky labels) Cost of labour (per 1000 sticky labels) Fixed Costs: Administration cost Other allocated fixed costs The employees at JS are currently paid an hourly wage. Many employees object to this payment method because some jobs have worse working conditions than others and those who put more effort into their work are not rewarded. The employees have threatened to take action if a more suitable payment method is not introduced. Define the term ‘industrial market’ (line 1). Briefly explain the term ‘lead time’ (line 11). Refer to Table 1 and lines 16–17. Calculate the profit that JS would make on the supermarket order. Explain one possible problem of allocating fixed costs for JS. Analyse two advantages to JS of using Computer Aided Design. Evaluate suitable payment methods for the employees at JS.
9609_w17_qp_23
THEORY
2017
Paper 2, Variant 3
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Questions Discovered
47