5. Finance and accounting (AS Level)
A section of Business Studies, 9609
Listing 10 of 99 questions
Quality Fencing (QF) QF is owned by Seojun. Seojun is a sole trader who repairs and builds wooden fences. Most of his customers own houses with gardens in city X. Seojun is an entrepreneur who has an aim to be rich. He set up QF two years ago to fulfil his aim and he set himself the following objectives: • to make $1m profit within 5 years • to have a 20% market share in city X within 5 years. Seojun has made some progress towards his objectives (see Table 1.1). Table 1.1: Financial and market share data for QF Year 1 Year 2 Year 3 Total revenue $120 000 $240 000 $480 000 Direct costs $70 000 $110 000 $150 000 Indirect costs $20 000 $40 000 $80 000 Market share in city X 2% 4% 8% Seojun’s target market is house owners with medium to large gardens. Most houses in city X have a garden. Promotion is important to Seojun, because the market for fence building and repairs is very competitive in city X. Most customers book QF’s services by telephone, but there is a growing need for online bookings. The business is forecast to continue to grow. Seojun has decided to employ two new workers. He has written a job description (see Table 1.2). Table 1.2: Job description Job title: Fence builder Required: As soon as possible Salary: Based on age Qualifications: A-Levels are desirable but not essential A workman is required to build and repair fences for a growing local business called QF. Full training will be provided. Experience of building and repairing fences is essential. Must be fully physically fit and under the age of 25. Define the term ‘training’ (line 27). Explain the term ‘entrepreneur’ (line 3). Refer to Table 1.1. Calculate the percentage change in profit from Year 1 to Year 2. Explain one difficulty in measuring the market share of QF. Analyse two problems with the job description created by Seojun in Table 1.2. Recommend suitable promotion methods which would help Seojun to achieve his objectives.
9609_w19_qp_22
THEORY
2019
Paper 2, Variant 2
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Van Man (VM) Obi is a sole trader who operates a van service. He used to be employed by a similar business but realised that he likes to be in control. Obi used all of his savings to start his business so that he did not have to go into debt. He owns three vans which can carry furniture, packages and other large items. He has eight full-time employees who drive the vans and move items. Customers can hire a van with two employees to move these items from one place to another. The cost per day of providing a van with two employees is $170. The prices of the service are shown in Table 1.1. Table 1.1: Price of hiring one van (including two employees) Price for the first day’s hire Price for each additional day $250 10% discount on the price for the first day’s hire Demand for Obi’s service is growing fast. To supply this demand he needs a new van and he is investigating sources of finance. He has a choice of two vans. The details of the vans are in Table 1.2. Table 1.2: Van details Van A Van B Capital cost $30 000 $40 000 Estimated maintenance costs per year $600 $450 Insurance cost per year $500 $550 Expected life 7 years 9 years Van owner reviews • Easy to drive but not very fast • Boring but fuel efficient • Engine is very noisy, but reliable • Fast and great fun to drive • Looks great and the range of colours is fantastic • It broke down a few times, but the manufacturer repaired it quickly Define the term ‘sole trader’ (line 1). Explain the difference, for a business, between price and cost. Calculate the profit that Obi will make from a customer who hires two vans for three days. Explain one factor which may affect the demand for Obi’s services. Recommend whether Obi should purchase Van A or Van B. Justify your recommendation. Analyse two factors which may influence the source of finance that Obi chooses for the new van.
9609_w21_qp_23
THEORY
2021
Paper 2, Variant 3
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Benjamin’s Beds (BB) Benjamin’s Beds (BB) is a large manufacturer of beds and has a strong brand image for quality. Its main channel of distribution is through the producer market (B2B) to national hotel chains. Recently, BB has also entered the consumer market (B2C) by selling online direct to customers. BB uses flow production. BB’s existing machinery is old and cannot satisfy the increased demand. The directors of BB have decided its existing machinery needs replacing. Table 2.1 shows data for existing and proposed new machinery. Table 2.1 Data for existing and proposed new machinery Variable cost per unit ($) Output per year Existing machinery New machinery Fixed costs are $500 000 per year. Using new machinery would reduce this by 10%. BB sales data suggests that its market share is growing rapidly. The consumer market (B2C) is becoming more important to BB because online orders are increasing. However, online demand is for a wide range of bed styles. The consumer market requires a substantial marketing budget and some retraining of employees. Orders from national hotel chains in the producer market (B2B) are for a more limited range of bed styles. These orders remain constant with low marketing costs. However, BB is increasingly under pressure to reduce prices to hotels. BB uses non-financial motivators and until recently had a motivated workforce. Efficiency is falling due to employees having to work longer hours because of increased demand. This is decreasing staff morale and welfare. Define the term ‘market share’ (line 14). Explain the term ‘efficiency’ (line 21). Refer to Table 2.1 and other information. Calculate BB’s total annual cost if it uses the proposed new machinery. Explain one possible limitation to BB of using the proposed new machinery. Analyse two possible disadvantages to BB of decreased staff morale and welfare. Recommend whether BB should focus on the producer market (B2B) or the consumer market (B2C). Justify your recommendation.
9609_m22_qp_22
THEORY
2022
Paper 2, Variant 2
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Umpire Umbrellas (UU) UU is a private limited company that sells umbrellas with pictures it prints on them. All of the pictures on the umbrellas are printed using batch production. The umbrellas can be used to shelter from the rain or as a shade from the sun. The company has two main markets: consumer and business. UU sells individual umbrellas to consumers. These have pictures of famous people or places on them. They are mainly sold through UU’s website. UU produces 20 000 of each design. The business market for UU is made up of businesses that want their logo printed on a large number of umbrellas. UU guarantees all business orders are delivered within 10 days. Recently, UU received an order from a large bank for 10 000 umbrellas with the bank logo printed on them. The bank gave an umbrella to any customer who opened a new account. The fixed cost for the order was $2000 and the variable costs were $0.75 per unit. UU made $3000 profit on the order. UU’s Board of Directors has been considering two different options to grow the business. Option 1: UU would sell franchise opportunities to entrepreneurs who can print and sell UU branded umbrellas to the consumer market in the entrepreneur’s local area. These entrepreneurs would pay a fee to UU as well as 10% royalties on the profits. In return UU would provide the machinery needed to print the umbrellas. The franchisee would be required to purchase all of their inventory from UU. Option 2: UU would increase its product portfolio by selling other goods to the business market, such as pens, USB sticks and clothing. This would require external finance to purchase the machinery needed to be able to print on these products. The market for these is growing but is very competitive. Define the term ‘consumer’ (line 4). Briefly explain the term ‘variable costs’ (line 11). Calculate the total revenue of the order from the large bank (lines 7–12). Explain one reason why UU needs accurate cost data. Analyse two advantages to UU of using batch production. Recommend which of the two options for growth UU should use. Justify your answer.
9609_s18_qp_22
THEORY
2018
Paper 2, Variant 2
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Festival Wear (FW) FW is a partnership started by two friends, Maz and Jane. FW manufactures and sells high quality T-shirts at $40 each. The business can manufacture 35 000 T-shirts per month using mass customisation. The T-shirts are only sold at music festivals and concerts and are customised to each event. FW has never advertised the T-shirts, relying on a sales team to attend a festival or concert and personally sell the T-shirts. Current costs: • variable: $10 per T-shirt • fixed: $200 000 per month. Sales average 27 000 T-shirts per month. Currently the sales team is paid a monthly salary, but Maz is proposing a new payment method in order to increase sales volume. This will mean a lower monthly salary but a commission of $2 per T-shirt will be paid. Maz estimates that sales volume would increase to 30 000 per month. Costs if the new payment method is introduced: • variable: $12 per T-shirt • fixed: $182 000 per month. This proposal has been discussed with the sales team. Some members of the team are enthusiastic about the proposal, but others are not happy with what they see as a reduction in their pay. The business is expanding and considering moving to a bigger factory. This would require a $4 million investment in new machinery and staff training. Jane would also like to consider methods to increase sales volume. She has suggested that FW should expand its product portfolio to manufacture other items such as baseball caps. Identify one fixed cost. Explain the term mass customisation. Calculate FW’s break-even output per month if the new payment method is introduced. Explain one advantage to FW’s employees of the new payment method. Analyse two external sources of finance that FW could use to invest in new machinery. Evaluate whether FW should expand its product portfolio to increase its sales volume.
9609_s24_qp_23
THEORY
2024
Paper 2, Variant 3
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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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Questions Discovered
99