Y2M is a bus operating company in the public sector. One of its objectives is to break even on every bus route. Most of its competitors are in the private sector. Y2M wants to increase the number of customers using its buses. The Finance Director has been looking at some cost data shown in Table1. This is because Y2M plans to review its pricing methods. She is worried other businesses pay workers a higher wage rate and some of its drivers may leave. She said: ‘To pay the same wage rate would increase variable cost to $2.20 per passenger per journey.’ Table 1: Cost and price data for one Y2M route Number of passengers per day $2.50 Price per passenger per journey $300 Fixed costs per week $2 Variable cost per passenger per journey What is meant by ‘break-even’? Calculate the revenue per day. Identify and explain two objectives Y2M might have if it was in the private sector. Objective 1: Explanation: Objective 2: Explanation: 1 1 Identify and explain two pricing methods Y2M could use. Pricing method 1: Explanation: Pricing method 2: Explanation: Do you think Y2M should pay its workers the same wage rate as its competitors? Justify your answer. [ 1 1

7115_s19_qp_11

THEORY

2019

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PLK is a social enterprise which offers training to young people who leave school with no qualifications. The young people are trained by PLK chefs to prepare food which is sold at local markets or sporting events. Choosing the right method of promotion is important. The manager of PLK thinks that to increase profit it is better to raise prices rather than use cheaper food ingredients. Table 1: Cost and sales information for PLK Number of meals sold per week $3 Price per meal $2 Variable cost per meal $300 Fixed costs per week What is meant by ‘social enterprise’? What is meant by ‘fixed costs’? Calculate PLK’s weekly profit. 1 1 Identify and explain two methods of promotion PLK might use to increase sales. Method 1: Explanation: Method 2: Explanation: Do you agree with PLK’s manager that to increase profit it is better to raise prices rather than use cheaper ingredients? Justify your answer. [ 1 1

7115_s19_qp_12

THEORY

2019

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FBM is a boat building business. It has 100 skilled employees. The Operations Director is concerned that FBM holds a high level of inventory. She is also concerned that the business is starting to experience diseconomies of scale. The Finance Director has been asked to analyse FBM’s cost and output data. An extract is shown in Table 1.1. Table 1.1 Extract from FBM’s cost and output data $5000 Variable costs per unit $600000 Fixed costs per year Number of boats made each year Define ‘diseconomies of scale’. Identify two ways a business can use cost data to help make decisions. Way 1: Way 2: Identify four fixed costs a business might have. Fixed cost 1: Fixed cost 2: Fixed cost 3: Fixed cost 4: 1 2 Explain one advantage and one disadvantage to FBM of holding a high level of inventory. Advantage: Explanation: Disadvantage: Explanation: Do you think customers have a more important role in the success of a business than its employees? Justify your answer. [ 1 2

7115_s24_qp_11

THEORY

2024

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Leo owns a garage in the centre of a town located in country A. The garage has a lot of stock of cars for sale. It also sells petrol and has a shop selling a wide range of food. ‘Petrol is a loss-leader for my garage’ said Leo. ‘Most of my profit comes from selling cars and I am looking for ways to increase the profits of the rest of my business.’ What is meant by a loss leader? Identify two overhead costs that you think Leo’s garage would have to pay. Overhead 1: Overhead 2: The Government in country A has raised interest rates. Explain the impact that this increase might have on the profits of Leo’s garage. Identify and explain three ways in which Leo could promote his business. Way 1: Explanation: Way 2: Explanation: Way 3: Explanation: Although Leo’s business is profitable it has a cash flow problem. Recommend two methods that Leo could use to help solve the problem. Justify your recommendations. Method 1: Method 2:

7115_w10_qp_11

THEORY

2010

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Mike is a sole trader. He owns a shop selling fruit and vegetables. ‘I am always looking for ways of increasing my profits’ he said, ‘but it is hard to compete against big supermarket shops. I have low profit margins on most of my goods so I cannot cut prices any more.’ The business also has an overdraft with the bank. Identify two variable costs of Mike’s business. Variable cost 1: Variable cost 2: What is meant by a ‘low profit margin’? Identify and explain two advantages to Mike of using a bank overdraft. Advantage 1: Explanation: Advantage 2: Explanation: Identify and explain three methods that Mike could use to compete against larger competitors. Method 1: Explanation: Method 2: Explanation: Method 3: Explanation: Do you think Mike should take on a business partner? Justify your answer.

7115_w10_qp_12

THEORY

2010

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Carlos was made redundant from his job in a factory. He used his redundancy money and some of his savings to start a new business. He bought a boat to give trips to tourists on a river near his home. The boat cost him $150 000. Table 1 shows the revenue and cost estimates that Carlos made. Table 1 Revenue per boat trip Variable cost per boat trip Average number of boat trips per week Weekly overhead costs [fixed costs] $80 $30 $500 Carlos wanted his business to give him job security and to give a return on his investment of at least 20% each year. He estimates that annual profits will be $37 500. What is meant by ‘made redundant’? Identify two examples of overhead costs that Carlos might incur. Example 1: Example 2: Using the information given in Table 1, draw a break-even chart for Carlos’ business. Number of boat trips per week Revenue & Costs $ Weekly Break-Even Chart Identify and explain three methods that Carlos could use to promote his new business. Method 1: Explanation: Method 2: Explanation: Method 3: Explanation: Carlos wanted his business to give him job security and a return on capital of at least 20%. Do you think that his business will help him achieve these objectives? Justify your answer.

7115_w11_qp_11

THEORY

2011

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Stilvan always wanted to run his own business. When he left school he borrowed money from his parents to start a gardening business. The business name is Stilvan Grass Cutters. Stilvan bought some equipment to cut grass and trees. Stilvan delivers leaflets to people’s homes to promote his business. Table 1 shows data for a typical week for Stilvan’s business. Table 1 Average price per customer Variable cost per job Weekly overheads Number of customers $15 $7 $320 Demand for his services is seasonal and this causes problems for Stilvan. Identify two objectives that Stilvan might have had when he set up his business. Objective 1: Objective 2: Identify two advantages of using leaflets as a method of promotion. Advantage 1: Advantage 2: Using the information given in Table 1, draw a break-even chart for Stilvan’s business. Revenue & Costs $ Number of customers per week Weekly Break-Even Chart Identify and explain three problems that seasonal demand can cause for Stilvan’s business. Problem 1: Explanation: Problem 2: Explanation: Problem 3: Explanation: Stilvan wants to make his business more profitable. Recommend ways in which this could be achieved. Justify your answer.

7115_w11_qp_12

THEORY

2011

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Muammar sells boxes of spices to markets. Workers in Muammar’s business are paid on a piece rate basis. Table 1 gives financial details of the business in 2012. Table 1 Fixed costs per month $10 000 Employee wages $2 per box Raw materials $3 per box Marketing costs $1 per box Selling price $8 per box Sales per month 9000 boxes Identify two examples of fixed costs for Muammar’s business. Example 1: Example 2: Identify two reasons why sales may vary from month to month. Reason 1: Reason 2: Calculate the annual profit that Muammar made in 2012. Identify and explain one advantage and one disadvantage to Muammar of using piece rate to pay his workers. Advantage: Explanation: Disadvantage: Explanation: Muammar is planning to change the selling price of the boxes to $7 each. Do you think this change would benefit the business? Justify your answer.

7115_w13_qp_11

THEORY

2013

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Harry owns a pizza restaurant in a large city. Table 2 gives financial data for the business in 2012. Table 2 Selling price per pizza $8 Variable costs per pizza $5 Weekly fixed costs $2700 Weekly sales 1500 pizzas What is meant by ‘variable costs’? Identify two examples of fixed costs for Harry’s business. Example 1: Example 2: Calculate how much profit Harry’s business makes in one week. Harry pays his workers piece rates. Identify and explain one advantage and one disadvantage to Harry of using this method of payment. Advantage: Explanation: Disadvantage: Explanation: Harry is planning to reduce the price of his pizzas to $7 in order to increase sales. Do you think that this change will benefit his business? Justify your answer.

7115_w13_qp_12

THEORY

2013

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Rakesh manages a car repair business in country Y. He buys cars that are damaged or have parts missing. Rakesh adds value by repairing these cars until they look like new ones. He employs 5 workers to do the repairs. The business holds a large stock of car parts and Rakesh always pays cash for these. However Rakesh’s sales are usually on credit. Table 1: Some information for a typical trading week Cars bought by Rakesh Average cost of each car $2000 Average cost of parts used per car $500 Weekly wages per employee $1000 Weekly fixed costs $4000 Average price per car sold $5000 Number of cars sold What is meant by ‘fixed costs’? What is meant by ‘Rakesh adds value’? Calculate the weekly net profit of the business. Identify and explain two reasons why the weekly net profit may not be the same as the weekly net cash flow for Rakesh’s business. Reason 1: Explanation: Reason 2: Explanation: Country Y’s economy is in a recession. Do you think that this will make Rakesh’s business less successful? Justify your answer.

7115_w14_qp_11

THEORY

2014

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