5. Finance and accounting (AS Level)
A section of Business Studies, 9609
Listing 10 of 99 questions
Auto Bike (AB) AB is a private limited company that repairs and maintains motorbikes. AB has nine garages in country J and employs eight highly qualified mechanics in each garage. Two of the most popular motorbike services that AB sells are the standard service and the advanced service. Table 2.1 contains price and cost information for these services. Table 2.1: Price and cost information Price Direct costs per service Allocated indirect costs per service Standard service $250 $50 $60 Advanced service $400 $60 $100 In April, AB sold 1000 standard services and 200 advanced services. The profit margin for an advanced service is higher than the standard service. The directors have decided to promote the advanced service to try and increase sales. Each garage has been given a budget to use for below the line promotion methods with an objective of increasing sales of advanced services in the next six months. The level of motivation of the mechanics is low. Many mechanics believe that they are not paid well and the conditions of work are dirty and noisy. AB uses a time-based payment method which rewards each mechanic at the same hourly rate. In a recent survey, many mechanics complained that the payment method was unfair. They believe it rewards ‘lazy workers’ as much as those who work hard. It also does not take into account the difficulties involved in some jobs and the simplicity of others. The Human Resources Director has been asked to investigate a new payment method. Define the term ‘objective’ (line 13). Explain the term ‘private limited company’ (line 1). Calculate the profit made from selling standard and advanced services in April. Explain one possible problem for AB of trying to allocate indirect costs. Analyse two below the line promotion methods that AB could use to increase the sales of advanced services. Recommend a new payment method for the mechanics at AB. Justify your recommendation.
9609_w21_qp_22
THEORY
2021
Paper 2, Variant 2
View
Bob’s Furniture (BF) Bob is a carpenter who uses job production to make furniture using premium materials. Each item of furniture is priced using cost-based pricing with a 50% mark-up. He is a sole trader. Due to poor economic activity in country X, Bob has fewer customers for his designs. To keep his cash flow positive he is considering two different options. Both options have an opportunity cost. Option 1: Make garden benches. Bob is thinking about making garden benches from lower quality materials. Customers will be able to customise some elements of the bench, such as colour. The bench would be delivered to their home. Promotion of the benches would take place at craft fairs and markets. Option 2: Make small wooden ornaments. Bob has noticed other businesses selling lots of low-priced small wooden ornaments. Bob could produce similar ornaments, using the premium wood left over after making his job-produced furniture. Table 1.1: Financial summary of the two options Option 1 Garden benches Option 2 Ornaments Cost of raw materials ($ per unit) Transportation costs ($ per unit) Cost of labour ($ per unit) Forecast sales (units per month) Whichever option Bob chooses, he will continue to use cost-based pricing and make premium furniture when customers demand it. Define the term ‘job production’ (line 1). Explain the term ‘opportunity cost’ (line 4). Refer to Table 1.1. Calculate the forecast profit margin for option 1. Explain one way in which Bob could increase the forecast profitability of option 1. Analyse two benefits to Bob of using cost-based pricing. Refer to Table 1.1 and any other relevant information. Recommend which of the two options Bob should choose. Justify your recommendation.
9609_m20_qp_22
THEORY
2020
Paper 2, Variant 2
View
Flora’s Fitness (FF) Flora is a self employed personal trainer and she trades as Flora’s Fitness (FF). She invested $10 000 as start‑up capital. She has seen reports showing that keeping fit is becoming a trend in country P. ABC is a national bank with a focus on corporate social responsibility (CSR). Flora thinks there is an opportunity to provide group fitness sessions to employees at ABC’s head office. These sessions could include exercises and stretching techniques. She could also offer yoga and other fitness related classes. These sessions would allow ABC to promote itself as a ‘healthy employer’. Flora is keen to show the benefits of fitness sessions to ABC. A survey has shown that many employees do not currently visit gyms or fitness centres. High prices and lack of time are given as the most important reasons. She has arranged a meeting with John, the Human Resource Director at ABC. He is interested in offering fitness sessions as a fringe benefit for employees. He has asked Flora to provide a business proposal for the meeting. She plans to provide one session before work and one session at lunchtime five days per week. Flora proposed two pricing strategies (see Table 1.1). Table 1.1 – Proposed pricing strategies Pricing strategy 1 Pricing strategy 2 Price per person $5 Total price per session $75 Maximum 20 people per session Maximum 20 people per session Define the term ‘corporate social responsibility (CSR)’ (line 4). Explain the term ‘start‑up capital’ (line 2). Refer to Table 1.1 and any other relevant information. Calculate the maximum weekly revenue for pricing strategy 1. Explain one advantage to FF of pricing strategy 2. Analyse two sources of secondary information Flora could use to find out more about trends in the fitness market. Evaluate the benefits to ABC of offering employees fitness sessions.
9609_m21_qp_22
THEORY
2021
Paper 2, Variant 2
View
Rehana Recycles (RR) Rehana is very environmentally aware. One year ago, Rehana identified a business opportunity to reuse waste products and set up Rehana Recycles (RR) as a sole trader. A local company sells bottled drinks and reuses the empty glass bottles that are returned by customers. It cannot reuse any damaged bottles, so they are dumped as waste. Rehana asked this company if she could have the damaged glass bottles. The company agreed she could have them at no cost. RR melts down the glass and makes unique vases and other glassware products. RR’s mission statement is ‘Make waste beautiful’. Rehana markets her products as ‘Lovely for the planet, lovely for you’. The business has a strong local brand image. Rehana has recently invested in marketing which focuses on her unique selling point of recycling waste. To help satisfy demand, Rehana recently employed two local artists who are also very environmentally aware. They are skilled in making handmade glass jewellery. RR currently makes handmade products using job production. Rehana has a democratic leadership style. Rehana has produced some financial data shown in Table 1.1. Table 1.1 Financial data $ $ Current assets Current liabilities Cash 2 000 Trade payables 3 000 Inventory 12 000 Overdraft 5 000 Total current assets 14 000 Total current liabilities 8 000 As demand has grown, Rehana needs to increase her output. Rehana has identified two ways of increasing output. She could either: • keep using job production and employ more artists to create unique glassware products using the RR brand, or • change to batch production and make a larger number of standardised glassware using the RR brand. Define the term ‘mission statement’ (line 7). Explain the term ‘democratic leadership style’ (line 13). Refer to Table 1.1. Calculate the acid test ratio for RR. Explain one method Rehana may use to improve liquidity. Analyse two benefits for RR of having a unique selling point (USP). Evaluate whether RR should change to batch production.
9609_m22_qp_22
THEORY
2022
Paper 2, Variant 2
View
Super Heroes (SH) SH is a leisure park aimed at 10–18 year olds. It is owned by two companies, X and Y, which started SH as a joint venture. Company X owns many leisure centres and swimming pools. Company Y owns many brands based on superheroes. SH employs 200 full-time workers and an extra 50 seasonal workers during the busiest times of the year. The park has 10 large rides which take up 2 km2 of land. There are also many smaller rides, restaurants, toilets and shops. The price of an entrance ticket is $11 per customer. Table 1.1 shows the costs for SH in 2019. Table 1.1: SH costs for 2019 Total fixed costs (per year) $12m Variable costs (per customer) $3 Total costs $42m One of the larger rides at SH is the Iron Blaster. The number of customers who use this ride has decreased each year for the last three years. This has led the management of SH to consider its options for internal growth. Option 1 – A new virtual reality (VR) ride This option would involve developing the Iron Blaster into a VR ride. Most of the structure of the Iron Blaster could be used but customers would be given a VR headset to wear during the ride. The cost of developing the VR ride would be $2m. The Iron Blaster ride would be closed for a three month period during the off-peak season for the development to be carried out. No employees would be made redundant or dismissed. Option 2 – A new hotel SH does not currently have a hotel. It could demolish the Iron Blaster to provide the space to build one. Many of the competitors of SH have a hotel near or within their leisure parks. Hotel customers would pay a high price for a room but have free access to the leisure park’s facilities. Market research suggests that the average hotel customer would spend twice as long in the leisure park than a non-hotel customer. The cost of developing the hotel would be $15m and take a year to build. All of the employees currently working on the Iron Blaster ride would face redundancy or dismissal. Define the term ‘joint venture’ (line 2). Explain the difference between ‘redundancy’ and ‘dismissal’ (line 28). Refer to Table 1.1 and any other information. Calculate the total revenue from entrance tickets for SH in 2019. Explain one way in which SH could increase the sales of entrance tickets. Analyse two factors that may have determined the location of SH. Recommend which one of the two options SH should choose for internal growth. Justify your recommendation.
9609_s20_qp_23
THEORY
2020
Paper 2, Variant 3
View
Lakeland Oysters (LO) Lakeland Oysters (LO) is a private limited company in country G that was started by the Dar family in 2010. LO farms oysters in a lake that is owned by the business. Oysters are a type of shellfish. The business employs six people from the local town. LO has two markets for its oysters (see Table 2.1). Table 2.1: Market and financial data for LO, 2020 Market Description Sales Revenue Profit margin Industrial Restaurants ordering from LO’s website 80 000 oysters $100 000 15% Consumer Customers visiting the farm 50 000 oysters $150 000 25% LO believes that corporate social responsibility and its triple bottom line are important. There has been a recent news article on the internet about oyster farming (see ). Oyster farming can be good for the environment Oyster farming can have a beneficial impact on the water by removing harmful pollutants. Oyster farms also benefit the local community by turning lakes into pleasant areas for the public. The government is considering giving grants to encourage oyster farming in country G. : Extract from a recent news article about oyster farming The directors of LO would like to expand the business by purchasing a second location. The business has two options (see Table 2.2). Table 2.2: Data about a potential second location for LO Location A Location B Current use An oyster farm A fishing lake Distance from LO’s current location 100 km 5 km Potential output per year 100 000 oysters 150 000 oysters Purchase price $250 000 $300 000 Start-up costs $20 000 $100 000 Operating costs $150 000 per year $200 000 per year Define the term ‘market’ (line 6). Explain the term ‘profit margin’ (line 6). Refer to Table 2.1. Calculate the total profit made from selling oysters in 2020. Explain two possible reasons why the profit margin for the consumer market is higher than the profit margin for the industrial market. Analyse why two of the elements of the triple bottom line are important to LO. Refer to Table 2.2 and any other relevant information. Recommend which location LO should choose. Justify your recommendation.
9609_s21_qp_22
THEORY
2021
Paper 2, Variant 2
View
Farm Produce (FP) FP is a primary sector co-operative made up of six farms in country G. Each farm grows a range of fruit and vegetables. FP employs 26 workers across the farms and distribution centre. Each farm transports its fruit and vegetables to the distribution centre where they are packaged and sent to customers’ homes. Table 1.1 contains data about the farming industry in country G. Table 1.1: Data about the farming industry in country G • Farms producing fruit and vegetables are given an annual government grant. • Most farms are labour intensive. • The government promotes the importance of eating fresh fruit and vegetables. • Most farms are small family businesses. • Minimum wage for farm workers will increase by 10% next year. FP’s customers pay for a box of seasonal fruit and vegetables that is delivered each week. Data about the different box sizes sold by FP is shown in Table 1.2. Table 1.2: FP’s cost and price data Box size Variable cost per box ($) Allocated monthly fixed costs ($) Price per box ($) Sales in April Small Medium Large FP is concerned about the profitability of the small box size. It believes it should stop selling this product. Define the term ‘labour intensive’ (line 8). Explain the term ‘co-operative’ (line 1). Refer to Table 1.2. Calculate the profit made by FP in April 2022. Explain one problem FP may have when deciding how to allocate fixed costs to each box size. Analyse how two stakeholders of FP might be affected by a decision to stop selling the small box size. Evaluate the most important factor affecting the supply of FP’s boxes of fruit and vegetables to customers. Please ensure text is fully justified throughout.
9609_s22_qp_22
THEORY
2022
Paper 2, Variant 2
View
Questions Discovered
99