Fig. 1 shows how FrameForge Studio records information from a weekend film workshop. The studio gives customers an invoice when a booking is made. It then u...
Question 1 Report
Fig. 1 shows how FrameForge Studio records information from a weekend film workshop. The studio gives customers an invoice when a booking is made. It then uses the documents to prepare its monthly profit loss account. The manager is considering whether to buy new editing software costing $3,000.
The supplier bills include camera-hire and tutor costs. Other monthly expenses are $5,900. The workshop is part of a competitive market, so the manager needs reliable information before changing prices.
(a) State what an invoice tells FrameForge Studio about a customer booking. [2]
(b) Calculate the gross profit from the workshop bookings shown in Fig. 1. [4]
(c) Analyse whether the studio should use the monthly profit loss account when deciding to buy the new editing software. [6]
Answer Details
(a) An invoice tells the business the amount the customer has been charged or owes and gives details of the goods or services supplied, such as the workshop booking. [2 marks]
(b) Gross profit is sales revenue minus cost of sales.
\[\text{Gross profit}=\$12,500-\$4,800=\$7,700\]
Sales revenue is $12,500 and the supplier bills of $4,800 are the cost of sales. Therefore gross profit is $7,700. [4 marks]
(c) A monthly profit and loss account is useful because it shows whether sales cover the business's costs and result in a profit. It includes supplier bills and other expenses, so it is more informative than looking at sales alone. The gross profit of $7,700 is reduced by other monthly expenses of $5,900:
\[\$7,700-\$5,900=\$1,800\]
This leaves only $1,800 profit before considering the proposed software. Since the software costs $3,000, buying it could put pressure on profit and cash. However, the software might improve video quality or enable future sales. The manager should therefore use the account, but also prepare forecasts of future demand and cash flow before deciding. [6 marks]
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