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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]
(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]
(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]
Question 2 Report
The diagram shows the ownership structure of Rojaz Furniture Ltd, a small company making desks for home offices. Rojaz has received an order from a new market and needs to recruit two staff for production. The founder wants to keep most shares but is considering selling a small number to a former colleague. The company is not quoted on a stock exchange. Use Fig. 1 when selecting your answer about the type of organisation.
(a) What is meant by the word limited in the name Rojaz Furniture Ltd? [1]
(b) State three characteristics of a private limited company. [3]
(c) Analyse why Rojaz Furniture Ltd may be more suitable than a partnership for this expansion. [4]
(a) In the name Rojaz Furniture Ltd, limited means the owners’ liability for business debts is limited to their investment or the value of their shares [1 mark].
(b) A private limited company is owned by shareholders [1], has a separate legal identity [1], and cannot sell shares to the general public [1]. Shareholders have limited liability and the business uses Ltd in its name. [3 marks]
(c) Limited liability protects Maya’s personal assets if the new order fails or creates debts [1]. Selling shares to the colleague can raise finance for staff or materials without borrowing [1]. The company continues to exist if an owner leaves, which can give suppliers confidence [1]. However, Maya may lose some control and company reporting requirements add cost. It is most suitable if expansion needs finance and lower personal risk [1]. [4 marks]
(a) In the name Rojaz Furniture Ltd, limited means the owners’ liability for business debts is limited to their investment or the value of their shares [1 mark].
(b) A private limited company is owned by shareholders [1], has a separate legal identity [1], and cannot sell shares to the general public [1]. Shareholders have limited liability and the business uses Ltd in its name. [3 marks]
(c) Limited liability protects Maya’s personal assets if the new order fails or creates debts [1]. Selling shares to the colleague can raise finance for staff or materials without borrowing [1]. The company continues to exist if an owner leaves, which can give suppliers confidence [1]. However, Maya may lose some control and company reporting requirements add cost. It is most suitable if expansion needs finance and lower personal risk [1]. [4 marks]
Question 3 Report
A report for the national trade department examines a small company called PPS Games. The business designs board games in a studio and sells 40% of its output to shops in other countries. The government is considering reducing import tariffs on card, ink and electronic timers used by PPS Games. At the same time, it is considering export support to help small firms attend overseas trade fairs. The government wants economic growth and a stronger balance of payments, but it must decide how best to use limited public funds.
(a) Define a tariff. [1]
(b) State two ways export support could help PPS Games. [2]
(c) Analyse how lower import tariffs on materials could affect PPS Games' profit. [2]
(d) Assess whether export support is a better policy option than lower import tariffs for PPS Games. [3]
(a) A tariff is a tax on imported goods. [1]
(b) Export support could help PPS Games pay for attending overseas trade fairs. It could also raise awareness among overseas customers or help the business find foreign distributors and new markets. Any two valid ways are credited. [2]
(c) Lower import tariffs reduce the cost of imported card, ink and electronic timers. PPS Games could lower prices to compete more strongly, or keep prices unchanged and increase its profit margin. [2]
(d) Export support may directly increase overseas sales and foreign-currency earnings by helping PPS Games reach customers abroad. Lower import tariffs reduce production costs, benefiting games sold both abroad and in the domestic market. Export support is the better policy if lack of overseas awareness is the main barrier; lower tariffs are better if expensive materials are the main constraint on profit. [3]
(a) A tariff is a tax on imported goods. [1]
(b) Export support could help PPS Games pay for attending overseas trade fairs. It could also raise awareness among overseas customers or help the business find foreign distributors and new markets. Any two valid ways are credited. [2]
(c) Lower import tariffs reduce the cost of imported card, ink and electronic timers. PPS Games could lower prices to compete more strongly, or keep prices unchanged and increase its profit margin. [2]
(d) Export support may directly increase overseas sales and foreign-currency earnings by helping PPS Games reach customers abroad. Lower import tariffs reduce production costs, benefiting games sold both abroad and in the domestic market. Export support is the better policy if lack of overseas awareness is the main barrier; lower tariffs are better if expensive materials are the main constraint on profit. [3]
Question 4 Report
The diagram shows the proposed layout for a new HTL sportswear pop-up shop at a city-centre station. HTL sells running clothing and has limited space for four weeks. The manager wants commuters to notice the business, browse quickly and buy items before catching trains. The business must select how to use its selling space because rent is high. The public entrance is at the bottom of Fig. 1.
HTL has a small social-media budget and may also offer a 15% opening-week discount. Its managers want to improve sales but avoid reducing profit too far.
(a) Which area, C or D, is most suitable for a new product display? [1]
(b) State one reason why the position of C may help HTL sell new running shoes. [2]
(c) Define point-of-sale promotion. [2]
(d) Calculate the sale price of a $60 top after a 15% discount. Show your working. [3]
(e) Analyse one possible benefit to HTL of using the discount in opening week. [3]
(f) Discuss whether HTL should use the station pop-up shop rather than sell only through its website. [3]
(a) The area labelled as the new shoes display is most suitable for a new product display. [1]
(b) This display is close to the entrance, so commuters are likely to see the new running shoes as they enter the shop. [2]
(c) Point-of-sale promotion is promotion displayed where customers make a purchase, such as in a shop, to encourage an immediate purchase. [2]
(d) Calculate the discount first:
\[15\%\text{ of }\$60=0.15\times\$60=\$9\]
\[\$60-\$9=\$51\]
The sale price is $51. [3]
(e) The lower price can encourage commuters to try the products. This may increase sales during the short period that the pop-up is open, helping HTL cover high rent or build awareness. [3]
(f) A station pop-up allows customers to see, try on and buy clothing immediately. A website has lower premises costs and can reach customers beyond the station. HTL should use the pop-up only if the extra station sales are likely to cover rent and staffing costs. [3]
(a) The area labelled as the new shoes display is most suitable for a new product display. [1]
(b) This display is close to the entrance, so commuters are likely to see the new running shoes as they enter the shop. [2]
(c) Point-of-sale promotion is promotion displayed where customers make a purchase, such as in a shop, to encourage an immediate purchase. [2]
(d) Calculate the discount first:
\[15\%\text{ of }\$60=0.15\times\$60=\$9\]
\[\$60-\$9=\$51\]
The sale price is $51. [3]
(e) The lower price can encourage commuters to try the products. This may increase sales during the short period that the pop-up is open, helping HTL cover high rent or build awareness. [3]
(f) A station pop-up allows customers to see, try on and buy clothing immediately. A website has lower premises costs and can reach customers beyond the station. HTL should use the pop-up only if the extra station sales are likely to cover rent and staffing costs. [3]
Question 5 Report
Azeem owns a new business making refillable pens for local school and office markets. He currently produces 4 000 pens each month in a small workshop. An option to buy a faster moulding machine would allow the business to produce 12 000 pens each month. The machine costs $18 000, but Azeem expects that less plastic will be wasted and that each worker will make more pens per hour. He wants to increase profit without causing cash flow problems. Azeem has asked a business adviser whether the lower unit cost from expansion would be an economy of scale.
(a) Define economies of scale. [2]
(b) State one way that the faster moulding machine could reduce the average cost of making pens. [2]
(c) Calculate the percentage increase in monthly output if production rises from 4 000 to 12 000 pens. Show your working. [2]
(a) Economies of scale are a fall in average, or unit, cost as the output or size of a business increases. [2 marks]
(b) The faster machine could reduce average cost by spreading fixed costs over more pens, increasing worker productivity so labour cost per pen falls, or reducing plastic waste and therefore material cost per pen. Any one explained method is valid. [2 marks]
(c) Increase in output:
\[12,000-4,000=8,000\text{ pens}\]
\[\frac{8,000}{4,000}\times100=200\%\]
Monthly output increases by 200%. [2 marks]
(a) Economies of scale are a fall in average, or unit, cost as the output or size of a business increases. [2 marks]
(b) The faster machine could reduce average cost by spreading fixed costs over more pens, increasing worker productivity so labour cost per pen falls, or reducing plastic waste and therefore material cost per pen. Any one explained method is valid. [2 marks]
(c) Increase in output:
\[12,000-4,000=8,000\text{ pens}\]
\[\frac{8,000}{4,000}\times100=200\%\]
Monthly output increases by 200%. [2 marks]
Question 6 Report
Rojaz Home is an online furniture business. It plans to set up a new warehouse to serve customers in two countries. Managers are considering an option near a major port or an option close to the capital city. The port site has lower rent and is near imported materials. The capital site has more skilled employees, but wages and land prices are higher. Rojaz has used market research to estimate that 60% of its sales are delivered to customers in the capital region. The business needs to protect cash flow while increasing profit.
(a) Define the term location. [2]
(b) State two reasons why being near a port could help Rojaz Home. [2]
(c) Analyse whether Rojaz Home should locate its warehouse near the port. [6]
(a) Location is the geographical place or site where a business chooses to operate or set up its premises. [2]
(b) Being near a port can reduce transport costs for imported materials and allow imports to arrive more quickly. It can also make exporting easier and provide access to freight and logistics firms. Any two are credited. [2]
(c) A warehouse near the port could reduce inbound transport costs and delays for imported furniture materials. This may improve cash flow and profit margins. The lower rent also reduces fixed costs. However, 60% of sales go to customers in the capital region, so locating at the port may increase final delivery distances and costs. The capital site is nearer the largest market and has more skilled employees. Therefore, Rojaz should choose the port only if its savings on imports and rent exceed the extra delivery and recruitment costs. [6]
(a) Location is the geographical place or site where a business chooses to operate or set up its premises. [2]
(b) Being near a port can reduce transport costs for imported materials and allow imports to arrive more quickly. It can also make exporting easier and provide access to freight and logistics firms. Any two are credited. [2]
(c) A warehouse near the port could reduce inbound transport costs and delays for imported furniture materials. This may improve cash flow and profit margins. The lower rent also reduces fixed costs. However, 60% of sales go to customers in the capital region, so locating at the port may increase final delivery distances and costs. The capital site is nearer the largest market and has more skilled employees. Therefore, Rojaz should choose the port only if its savings on imports and rent exceed the extra delivery and recruitment costs. [6]
Question 7 Report
The table below shows selected financial information for NorthPier Kayaks, a small business that hires kayaks and sells safety equipment at a coastal market. The owner, Azeem, is considering two options: buying new kayaks or keeping more cash available for unexpected repairs. He wants the business to remain able to pay suppliers on time while protecting profit. All figures are for 31 December 2026.
| Item | Value (£) |
|---|---|
| Cash | 18 000 |
| Inventory of buoyancy aids and paddles | 27 000 |
| Trade receivables | 9 000 |
| Current liabilities | 36 000 |
(a) State what is meant by a current liability. [2]
(b) Calculate NorthPier Kayaks' current ratio. Show your working. [2]
(c) Analyse one reason why Azeem may select the option of retaining more cash rather than purchasing new kayaks. [3]
(d) Discuss whether a current ratio of 1.5:1 is likely to be suitable for this business. [3]
(a) A current liability is a debt or obligation owed by a business that must be paid within one year, or the next 12 months. [2 marks]
(b) Current assets:
\[\pounds18\,000+\pounds27\,000+\pounds9\,000=\pounds54\,000\]
Current ratio:
\[\frac{\pounds54\,000}{\pounds36\,000}=1.5:1\]
The current ratio is 1.5:1. [2 marks]
(c) Retaining cash gives NorthPier funds to pay suppliers, wages, or repair bills when they are due. Kayak hire is seasonal, so cash receipts may be lower outside the tourist period. Keeping cash reduces the risk of missed payments, penalties, and damaged supplier relationships. [3 marks]
(d) A ratio of 1.5:1 means current assets are greater than current liabilities, suggesting NorthPier should be able to pay short-term debts. However, £27,000 of its current assets are inventory, which may not be sold quickly or at the expected value. Actual liquidity may therefore be weaker than the ratio suggests. The ratio may be suitable if bookings and sales create regular cash inflows, but seasonal demand and the need for cash repairs must also be considered. [3 marks]
(a) A current liability is a debt or obligation owed by a business that must be paid within one year, or the next 12 months. [2 marks]
(b) Current assets:
\[\pounds18\,000+\pounds27\,000+\pounds9\,000=\pounds54\,000\]
Current ratio:
\[\frac{\pounds54\,000}{\pounds36\,000}=1.5:1\]
The current ratio is 1.5:1. [2 marks]
(c) Retaining cash gives NorthPier funds to pay suppliers, wages, or repair bills when they are due. Kayak hire is seasonal, so cash receipts may be lower outside the tourist period. Keeping cash reduces the risk of missed payments, penalties, and damaged supplier relationships. [3 marks]
(d) A ratio of 1.5:1 means current assets are greater than current liabilities, suggesting NorthPier should be able to pay short-term debts. However, £27,000 of its current assets are inventory, which may not be sold quickly or at the expected value. Actual liquidity may therefore be weaker than the ratio suggests. The ratio may be suitable if bookings and sales create regular cash inflows, but seasonal demand and the need for cash repairs must also be considered. [3 marks]
Question 8 Report
Table 1 shows economic data collected by the finance ministry over three years. Inflation has become a concern because a rise in the general price level can reduce the real value of household cash. The ministry is considering increasing interest rates. Roja's Furniture, a family business, has a bank loan for new machinery and sells sofas on credit. Its owner wants to know how this policy could affect sales, costs and profit.
(a) Define inflation. [2]
(b) Calculate the percentage increase in the inflation rate from 2023 to 2025. [3]
(c) State one likely effect of higher interest rates on Roja's Furniture and one likely effect on its customers. [3]
(d) Analyse whether increasing interest rates is likely to achieve the government's objective of lower inflation. [4]
(a) Inflation is a sustained, general increase in the prices of goods and services. It concerns the overall price level, not just a price rise for one product. [2]
(b) The inflation rate rises from 3.0% to 5.4%, an increase of 2.4 percentage points. Percentage increase is calculated from the original rate:
\[\frac{5.4-3.0}{3.0}\times100=80\%\]
The percentage increase is 80%. [3]
(c) Higher interest rates increase Roja's Furniture's loan repayments or interest costs. For customers, buying sofas on credit becomes more expensive, so some may delay purchasing. This can reduce the firm's demand and sales. [3]
(d) Higher interest rates make borrowing and credit spending less attractive. Consumers may save more and spend less, reducing total demand in the economy. With weaker demand, businesses find it harder to keep increasing prices. This reduces inflationary pressure, so the policy is likely to help achieve lower inflation. [4]
(a) Inflation is a sustained, general increase in the prices of goods and services. It concerns the overall price level, not just a price rise for one product. [2]
(b) The inflation rate rises from 3.0% to 5.4%, an increase of 2.4 percentage points. Percentage increase is calculated from the original rate:
\[\frac{5.4-3.0}{3.0}\times100=80\%\]
The percentage increase is 80%. [3]
(c) Higher interest rates increase Roja's Furniture's loan repayments or interest costs. For customers, buying sofas on credit becomes more expensive, so some may delay purchasing. This can reduce the firm's demand and sales. [3]
(d) Higher interest rates make borrowing and credit spending less attractive. Consumers may save more and spend less, reducing total demand in the economy. With weaker demand, businesses find it harder to keep increasing prices. This reduces inflationary pressure, so the policy is likely to help achieve lower inflation. [4]
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