A craft seller has booked a stall at a three-day outdoor festival. Heavy rain may cause the organiser to cancel the event. The seller has already paid $900 ...
Question 1 Report
A craft seller has booked a stall at a three-day outdoor festival. Heavy rain may cause the organiser to cancel the event. The seller has already paid $900 for the stall and has bought products specifically for festival customers. She is considering cancellation insurance.
(a) State two costs that the seller could lose if the festival is cancelled. [2]
(b) Explain why cancellation insurance may be more useful than simply keeping the $900 in the business bank account. [3]
Answer Details
(a) The seller could lose the $900 stall fee and the cost of products bought specifically for festival customers, including products left unsold. [2]
(b) Cancellation insurance can provide a payment larger than the $900 held in the bank, depending on the cover and insured loss. It protects against the specific unexpected risk of cancellation and may give the seller funds to continue trading or pay suppliers after the event is cancelled. Keeping cash only protects up to the amount saved. [3]
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