5. Finance and accounting (AS Level)
A section of Business Studies, 9609
Listing 10 of 99 questions
Gourmet Ices (GGI is a partnership owned by Tom and Amy Smith. The business makes and sells high- quality ice cream. At present the ice cream is only sold through businesses near to GI, but the owners would like to expand the business and sell ice cream throughout the country. The ice cream is handmade in small batches. GI employs five skilled workers who make the ice cream. Labour costs account for over half of the direct costs of the business. Tom believes that it will be necessary to use Computer Aided Manufacturing (CAM) to increase production and decrease costs so that GI can sell throughout the country (see Table 1). However, Amy is worried that the quality of the ice cream may decrease. Table 1: Estimated production costs and revenue data Without CAM With CAM Variable costs (per unit) $1.50 $1.00 Total fixed costs each month $5000 $15 000 Revenue (per unit) $2.50 $2.50 Estimated output each month 7500 units 25 000 units Tom and Amy would need to raise $50 000 of additional finance to expand GI. They have researched crowd funding and venture capital as possible sources of finance. Tom and Amy have decided that they would prefer to use venture capital. They are considering two offers from venture capitalists. Offer 1: Amit The offer is for $50 000 and Amit would want 51% ownership of the business. Amit owns a nationwide supermarket chain and would be willing to stock the ice cream in all of the supermarkets if his offer is accepted. He also has a lot of marketing experience. Offer 2: Rebecca The offer is for $50 000 and Rebecca would want 30% ownership of the business. Rebecca owns a clothes manufacturing factory and she has knowledge of using CAM. She is very experienced with operations and project management and she believes that she can further reduce the costs of the business and increase the profit margin. Define the term ‘partnership’ (line 1). Briefly explain the term ‘crowd funding’ (line 16). Refer to Table 1. Calculate the break-even level of production with CAM. Explain one benefit to GI of using break-even analysis. Analyse two possible disadvantages to GI of introducing CAM to produce ice cream. Recommend which one of the two venture capital offers Tom and Amy should accept. Justify your answer.
9609_m17_qp_22
THEORY
2017
Paper 2, Variant 2
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First Nature (FN) FN is a co-operative farm producing milk, beef and vegetables. Products are sold in its shop and at local farmers’ markets. FN’s mission statement is in . The sustainable production of food, to build strong relationships with members and customers and to contribute to the local community : FN’s mission statement The co-operative has 20 members who work on the farm, in the shop and at the markets. Over the past 10 years FN has built up a loyal customer base. Recently, a neighbouring farm has become available to purchase for $80 000. FN has limited capital but would like to expand by purchasing the neighbouring farm. FN is considering sources of finance for the capital needed to buy the land. Giuseppe is one of the original members of the co-operative and has accounting skills. He has prepared the cash flow forecast shown in Table 1.1 in the business plan for the neighbouring farm. Table 1.1: Cash flow forecast for the neighbouring farm Quarter 1 ($000) Quarter 2 ($000) Quarter 3 ($000) Quarter 4 ($000) Cash Inflows Revenue Total cash in Cash Outflows Set-up costs Equipment Training Total cash out Opening balance (130) (140) (100) Closing balance (130) (140) (100) X FN will use the neighbouring farm to develop educational programmes for local schools and for putting on community events. The 20 members of the co-operative already work very long hours. The members are discussing whether they should allow more members or become a public limited company and employ the extra workers required. To become a public limited company would require the agreement of all 20 members. Some members are in favour of the change to a public limited company as they would become quite wealthy through selling shares. However, other members feel that it would change the relationship with its customers. Define the term ‘mission statement’ (line 2). Explain the term ‘co-operative’ (line 1). Refer to Table 1.1. Calculate the value of X in quarter 4. Explain two benefits to FN of cash flow forecasting. Analyse two sources of finance, other than selling shares, FN could use to purchase the neighbouring farm. Evaluate the likely impacts on the local community if FN changes from a co-operative to a public limited company.
9609_s19_qp_23
THEORY
2019
Paper 2, Variant 3
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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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Paul’s Clothes (PC) PC is a sole trader business that is owned and managed by Paul. Paul financed the business using a mortgage on his home. PC has two retail clothes shops in neighbouring towns in country A. Both shops sell a range of suits, shirts, ties and footwear for men. PC has been trading for four years and Paul has been pleased with the profits made. Paul is now deciding on a new business objective. PC has a Unique Selling Point (USP) that focuses on quality. The range of clothes sells at high prices. Unemployment has started rising in the country and average incomes are falling. Paul has prepared an overall cash flow forecast for both shops, as shown below in Table 1. Paul is considering buying a computerised inventory management system. Table 1: Cash flow forecast for the next six months ($000s) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Cash in: Revenue X Cash out: New computerised inventory system Employee costs Purchases Marketing Opening Balance (1) Closing Balance (1) *Numbers in brackets indicate a negative figure. The purchase of a new computerised inventory management system will be an important innovation for PC. It will ensure that Paul can access sales information about products quickly and place orders with suppliers before items are sold out. Define the term ‘Unique Selling Point (USP)’ (line 6). Briefly explain the term ‘business objective’ (line 5). Refer to Table 1. Calculate the value of X. Explain two methods that PC could use to improve its cash flow. Analyse one advantage and one disadvantage to PC of purchasing the computerised inventory management system. Evaluate Paul’s decision to set up PC as a sole trader.
9609_m18_qp_22
THEORY
2018
Paper 2, Variant 2
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Wood’s Logs (WL) WL was set up by Robert Wood 50 years ago. It is a private limited company with all of the shares owned by the Wood family. Robert has managed the business since it began and he is well liked as the figurehead of the business. WL cuts down trees and processes them into logs. The logs are loaded onto trucks and trains for delivery to customers. All of WL’s logs are sold in industrial markets. WL is a labour intensive business which has over 100 employees. Demand for logs is seasonal. WL maintains a steady rate of production but the business cannot afford to hold high levels of inventory. Table 1.1 shows a cash flow forecast for the next three months. Table 1.1: Cash flow forecast for WL Month 1 ($000) Month 2 ($000) Month 3 ($000) Cash Inflows Revenue Total cash in Cash Outflows Labour Inventory storage Expenses Total cash out Opening balance Closing balance The workforce is currently demotivated. Employees receive a basic wage and a share of the profits. In the last four years, profits have been falling and the company is struggling to break even. The demand for logs is decreasing, as businesses use more recycled products. WL does not have any environmental targets and this has also reduced demand. Robert is now 70 years old and wants to stop managing WL. His grandson, Brad, is keen to become the new Managing Director. Brad went to university and studied Mintzberg’s management roles. He believes that he has all the skills needed to become the next Managing Director of WL. Define the term ‘break even’ (line 24). Explain the term ‘industrial markets’ (line 5). Refer to Table 1.1. Calculate the new closing balance for Month 3 if the inventory storage costs for each month increase by 20%. Explain one benefit for WL of holding inventory. Analyse two factors which may have affected the location of WL. Recommend which of Mintzberg’s management roles is likely to be the most important for the new Managing Director of WL. Justify your recommendation.
9609_s19_qp_21
THEORY
2019
Paper 2, Variant 1
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Questions Discovered
99