5.4. Costs
A subsection of Business Studies, 9609, through 5. Finance and accounting (AS Level)
Listing 10 of 47 questions
Ontime Taxis (OT) OT is a taxi business. OT is owned by two brothers who set up the business as a private limited company to benefit from limited liability. The majority of OT’s customers are people travelling to and from the local airport. OT uses a competitive pricing strategy, charging customers $0.50 per kilometre travelled. OT has completed some market research to try and identify new market segments that the business could sell to (See Table 1). Table 1: Market research data on potential market segments Market segment Characteristics Shoppers travelling to and from the main shops • average journeys less than 3 kilometres • travelling between 09:00–17:00 • no brand loyalty • pick up customers on street Business people travelling to and from the train station • average journey 5 kilometres • travelling between 06:00–08:00 and 17:00–19:00 • high brand loyalty • customers will telephone to book a taxi in advance People travelling to and from restaurants and theatres • average journey more than 5 kilometres • travelling between 19:00–02:00 • some brand loyalty • pick up most customers on street. Some customers will book in advance OT owns four taxis. To be able to target a new market segment the business will need another vehicle. This would increase the number of journeys the business can make. OT has identified three possible options for the new taxi. Table 2 contains data about the three options. Table 2: Data for the new vehicle Vehicle X Vehicle Y Vehicle Z Variable costs (per kilometre) $0.25 $0.20 $0.30 Fixed costs (per month) $500 $660 $380 Break even (number of kilometres each month) X OT does not currently have the $30 000 needed to purchase the new vehicle outright. It will need to use external sources of finance. Define the term ‘limited liability’ (line 2). Briefly explain the term ‘competitive pricing strategy’ (line 3). Using Table 2 and any other relevant information, calculate the break even number of kilometres each month for vehicle Z. Explain one reason why break even analysis might not be useful to OT when choosing the new vehicle. Analyse two external sources of finance OT could use for the new taxi. Using Table 1 and any other relevant information, recommend the market segment OT should target. Justify your recommendation.
9609_w18_qp_23
THEORY
2018
Paper 2, Variant 3
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Braid Runner (BR) Lewis is a hairdresser. He rents a small shop which he uses as a hairdressers called Braid Runner (BR). Lewis is a sole trader and he set up BR 25 years ago. BR is the smallest of all the hairdressers in city Y. Lewis works on his own. He has repeat customers who have been using BR for many years. However, there are many large franchises in city Y which offer a much cheaper haircut than BR. Lewis is considering increasing the price of a haircut and he has outlined the costs and revenue of the business in Table 2.1. Table 2.1: Costs and revenue of BR Variable costs per customer $3.50 Fixed costs per week $675 Price $8 Lewis would like to employ another hairdresser so that he can work fewer hours in BR. The new employee would have to be able to work in BR on their own. They would be responsible for taking bookings, dealing with customers and some financial transactions. Lewis has drawn up a person specification (see ) that will be placed on a job website. Characteristic Essential Desirable Qualifications • Hairdressing qualification • A-Levels or high school standards in Mathematics and Business Physical • Must be between 18 and 30 years old • Female Experience • None required • Experience of dealing with customers/consumers • Experience of working alone Personal qualities • Able to work in a team • Good communication • Friendly : Person specification created by Lewis Define the term ‘price’ (line 6). Explain the term ‘franchises’ (line 5). Refer to Table 2.1. Calculate the break-even quantity of haircuts in a week. Explain one possible limitation for Lewis of using break-even analysis. Analyse one advantage and one disadvantage for Lewis of operating as a small business. Refer to Fig 2.1 and any other relevant information. Evaluate the usefulness of the person specification when recruiting another hairdresser.
9609_w20_qp_23
THEORY
2020
Paper 2, Variant 3
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Pop-up Movies (PM) PM is a private limited company that was set up five years ago. PM shows movies outdoors at night. The movies are projected onto a large screen and temporary seating is provided for the audience. PM hires a venue and then sells tickets. The screen is set up for three nights at each venue. It takes three employees one day to set up the screen and seating, and one day to take it down again. PM uses above the line promotion methods locally for six weeks before showing movies at each venue. Table 1.1 contains data about some of PM’s previous events. Table 1.1: Data about some of PM’s previous events Venue Number of customers Allocated fixed costs Variable costs (per customer) Revenue (per customer) A $2000 $4 $15 B $2000 $5 $19 C $2000 $4 $15 At each event, PM employs a team of 20 customer service workers to: • show customers to their seats • sell food and drink – PM sells drinks, popcorn and other snacks • assist with parking for those customers who arrive by car (valet parking). The Operations Director has suggested that PM should book larger venues. He thinks that PM would experience economies of scale by doing this. Define the term ‘revenue’ (line 10). Explain the term ‘above the line promotion’ (line 6). Refer to Table 1.1. Calculate the break-even number of customers for Venue B. Explain one way in which PM could use break-even data. Analyse two advantages to PM of training the team of customer service workers. Evaluate the economies of scale that PM might gain from booking larger venues.
9609_w22_qp_23
THEORY
2022
Paper 2, Variant 3
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Plasshape (PS) PS manufactures plastic packaging for industrial markets (B2B). Its customers include food manufacturers and cosmetics firms. PS has 500 employees in each of two countries with a similar factory in each country. Employee payment methods and non‑financial motivators vary in each factory. In country Z, PS uses time‑based payment methods, offers employee development and uses many non‑financial motivators. In country V, PS uses piece rate payment methods, but there are fewer opportunities for employee development and non‑financial motivators are not used. Some employees are demanding equal pay and opportunities for employee development in both PS factories. Technology is changing rapidly in the packaging industry. PS’s research and development (R&D) team has developed an environmentally friendly type of food packaging. However, this costs more to make and it will need investment in new machinery. This unique new packaging product is expected to increase added value. Table 1.1 shows a summary of PS’s financial data if it does not launch the new packaging product. Table 1.1 PS’s financial data if it does not launch the new packaging product $m Revenue Direct costs Indirect costs If PS launches the new packaging product, Isha, the Finance Manager, forecasts the following changes: • revenue increases by 30% • direct costs increase by $6m • indirect costs increase by $1m. Identify one non‑financial motivator. Explain the term piece rate (line 6). Refer to Table 1.1 and other information. Calculate the change in forecast profit if the new product is launched. Explain one way PS could use cost information to improve business performance. Analyse two elements of the marketing mix that PS should consider when launching the new packaging. Evaluate whether PS should use the same payment method and employee development in both factories.
9609_w23_qp_21
THEORY
2023
Paper 2, Variant 1
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Gold Theme Park (GT) Gold Park was a mine where gold was extracted until 2012. Although there was still some gold in the mine, the direct costs of extracting it became too high. The area around Gold Park has become a tourist destination. There has recently been development of hotels and other accommodation. A new marina complex has also been built which attracts boat owners to use the local lakes and rivers. Kayo is an entrepreneur who purchased the mine in 2015. She converted the mine into GT, a theme park where customers can learn about gold mining and have fun. GT now includes a museum, guided underground tours of the mine and a roller coaster ride around the park. There is also a restaurant and gift shop. Kayo employs some of the people who previously worked in the gold mine to work as tour guides in the theme park. She also employs some younger workers, who require training, as customer service representatives. Kayo believes that developing intrapreneurship is important to the ongoing success of GT. Table 1.1 shows some data about GT over the past three years. Table 1.1 Data about GT Revenue ($m) 3.4 3.2 2.8 Number of employees Profit ($m) 0.9 0.3 0.2 Number of visitors 0.8 0.8 0.65 GT’s Marketing Director has conducted some primary market research to find out why visitor numbers have fallen. The findings indicate that many potential customers think the park is not fun and the price of entry is too high. Kayo has now asked the Marketing Director to conduct some secondary market research to help improve GT. Identify one type of training. Explain the term direct costs (line 2). Refer to Table 1.1. Calculate the change in GT’s total costs between 2020 and 2022. Explain one way to measure the size of GT. Analyse two possible sources of secondary market research that the Marketing Director could use to help improve GT. Evaluate the importance to the ongoing success of GT of developing intrapreneurship.
9609_w23_qp_22
THEORY
2023
Paper 2, Variant 2
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Move Well (MW) MW is a business that organises the transportation of people’s possessions when they move from one house or apartment to another. One of MW’s corporate objectives is to achieve internal growth. MW has expanded rapidly from a local business to a national business. It now has locations in many major cities in country Q. Local success was built on customer recommendations. National success is a result of carefully targeted advertising and effective use of social media. The growth of the business has put pressure on MW’s cash flow. MW receives payment from customers one week after the house move is completed, which is, on average, one month after the house move was booked. MW’s costs include rent, vehicle maintenance, fuel, local taxes, wages and advertising. Following some successful years, there has been a large decline in MW’s sales. This is due mainly to fewer people moving home in country Q. Each city location made a loss last year. The Managing Director, John, has noticed that the housing market is growing in some other countries. He thinks there is an opportunity for a new location in country P. Table 2.1 shows the forecast costs and revenue for the new location in country P. Table 2.1: Forecast costs and revenue for the new location in country P in year one ($000) Revenue Direct costs Indirect costs Effie, the Operations Manager, would prefer to achieve cost savings rather than expand into another country. She thinks a lot of time is wasted due to uncoordinated information systems which are not kept up to date. MW currently keeps its customer records on paper. It also has three separate computer-based systems. Table 2.2 shows details of the computer systems. Table 2.2: MW’s computer systems Computer system Process A Tracks vehicles used on each home move B Records employee pay and other HR data C Produces accounts and other management information Define the term ‘corporate objectives’ (line 3). Explain the term ‘internal growth’ (line 3). Refer to Table 2.1. Calculate the forecast profit margin for year one. Explain one method MW could use to improve its cash flow. Analyse two benefits to MW of introducing process innovation to update its information systems. Evaluate the factors that John needs to consider before opening the new location in country P.
9609_w22_qp_21
THEORY
2022
Paper 2, Variant 1
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Jim’s Farm (JF) JF is a private limited company which owns a farm. It produces crops including maize and sunflower seeds. The crops are sold to manufacturers that produce cooking oils for supermarkets. Jim is worried as the price JF receives for its crops is falling. JF is only paid four times a year when the crops are ready, so cash flow is poor. Sam, Jim’s son, has recently completed a management degree at university. He is worried that the farm will not reach its break-even point if the price continues to fall. He has researched ways his father could increase the value added to the crops. Sam has identified that healthy eating is a growing trend. He has created a plan for the business which considers two options, shown in Table 1.1. Sam has identified that supermarkets would buy most of the new products and he could also sell them to independent retailers. Table 1.1: Options for the future of JF Option 1 Option 2 Product Healthy snacks Healthy cooking oil Market type Mass Niche Start-up capital ($000) Annual expenses ($000) Annual cost of goods sold ($000) Forecast annual market growth 10% 15% Forecast annual sales 300 000 units 100 000 units Proposed price per unit $0.50 $2.00 Figs. 1.1 and 1.2 show extracts from articles about the two options. Healthy eating campaigns in schools are changing the way that young people snack and the sales of ‘healthy snacks’ made from nuts and seeds are growing. Healthy eating is rapidly becoming an important social issue and for some consumers, quality is more important than price. : The rise of the healthy eating campaign Business analysts are excited about the potential profitability of premium cooking oils, which offer a healthy alternative to traditional products. High income consumers are prepared to pay high prices for healthy oils made by small independent producers. : Future demand for healthy cooking oil Define the term ‘break-even’ (line 6). Briefly explain the term ‘value added’ (line 7). Calculate JF’s forecast gross profit margin for Option 1. Explain one reason why JF might aim for a high gross profit margin. Recommend which option Jim should choose using the information in the case study. Justify your view. Analyse two suitable sources of finance JF could use for the option you have chosen in 1.
9609_m19_qp_22
THEORY
2019
Paper 2, Variant 2
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Questions Discovered
47