Commerce 4CM1 | Paper 1 Mock 01 | Written Paper 1
Question 1 Report
Fig. 1 shows a retailer offering a washing machine to customers. The customer pays a deposit, takes the goods home, and then makes fixed monthly payments. The retailer keeps legal ownership until the final payment has been made.
(a) Identify the type of consumer credit shown in Fig. 1. [1]
(b) State one reason why a consumer may use this type of credit to purchase the washing machine. [1]
(c) Give two features of this credit arrangement that the retailer should explain to the customer before the agreement is signed. [2]
(a) This consumer credit arrangement is hire purchase [1].
(b) The consumer can obtain and use the washing machine immediately without paying the full price at once [1].
(c) Before signing, the retailer should explain the deposit required [1] and the number or amount of monthly instalments [1]. The total amount repayable or interest, the fact that ownership passes only after the final payment, and consequences of missed payments are also important valid features.
Answer Details
(a) This consumer credit arrangement is hire purchase [1].
(b) The consumer can obtain and use the washing machine immediately without paying the full price at once [1].
(c) Before signing, the retailer should explain the deposit required [1] and the number or amount of monthly instalments [1]. The total amount repayable or interest, the fact that ownership passes only after the final payment, and consequences of missed payments are also important valid features.
Question 2 Report
Fig. 1 shows the following communication route used when a customer telephones Northline Furniture about a late sofa delivery. The delivery desk records the message before contacting the driver. This helps the business give customers an update.
(a) Identify the method of communication used by the customer. [1]
(b) State two reasons why the delivery desk records the telephone message. [2]
(c) Give three disadvantages to Northline Furniture if the driver does not receive the message. [3]
(a) The customer uses a telephone call, or telephone communication. [1]
(b) Recording the message creates a written record and reduces the risk that important details are forgotten or changed. It also means another employee can use the information and provides evidence if the customer complains. [2]
(c) If the driver does not receive the message, the delivery could be sent to the wrong address, the customer may receive no update, and the customer may cancel the order. This can also lead to a complaint, extra delivery costs, and damage to the firm’s goodwill or reputation. [3]
For communication questions, link the missing message to a practical operational problem and then to its effect on the customer or business.
Answer Details
(a) The customer uses a telephone call, or telephone communication. [1]
(b) Recording the message creates a written record and reduces the risk that important details are forgotten or changed. It also means another employee can use the information and provides evidence if the customer complains. [2]
(c) If the driver does not receive the message, the delivery could be sent to the wrong address, the customer may receive no update, and the customer may cancel the order. This can also lead to a complaint, extra delivery costs, and damage to the firm’s goodwill or reputation. [3]
For communication questions, link the missing message to a practical operational problem and then to its effect on the customer or business.
Question 3 Report
Which one of the following is the most suitable source of credit for Nadiya? She has a bank credit card with a credit limit of £2 000. She uses the card to buy train tickets for work and clears the full balance when her monthly statement arrives. Her card company also offers travel insurance.
(a) Which type of credit is Nadiya using for the train-ticket purchase? [2]
(b) State the meaning of a credit limit. [1]
(c) Give three reasons why the card company may offer credit cards to its customers. [3]
(a) Nadiya is using a credit card [1]. This is revolving credit: it can be used repeatedly up to an agreed limit [1], provided the account remains within that limit.
(b) A credit limit is the maximum amount a customer may owe on the card at one time [1].
(c) The card company may earn interest when customers do not clear balances [1], receive merchant charges from businesses accepting the card [1], and attract new customers [1]. Customer loyalty, linked services such as insurance, and annual or late-payment fees are also valid reasons.
Answer Details
(a) Nadiya is using a credit card [1]. This is revolving credit: it can be used repeatedly up to an agreed limit [1], provided the account remains within that limit.
(b) A credit limit is the maximum amount a customer may owe on the card at one time [1].
(c) The card company may earn interest when customers do not clear balances [1], receive merchant charges from businesses accepting the card [1], and attract new customers [1]. Customer loyalty, linked services such as insurance, and annual or late-payment fees are also valid reasons.
Question 4 Report
Table 1 shows three insurance options offered to a small electronics repair business. Each option covers tools worth up to $10,000. The business owner wants an option with a low premium but also wants to understand the excess before selecting an answer.
| Option | Annual premium ($) | Excess per claim ($) |
|---|---|---|
| A | 360 | 100 |
| B | 280 | 250 |
| C | 450 | 0 |
(a) Calculate the difference between the annual premiums for options A and B. [2]
(b) Identify the option with no excess. [2]
(c) Explain two reasons why option B may not be the best choice for this business. [4]
(a) Find the difference by subtracting the lower annual premium from the higher one:
\[\$360-\$280=\$80\]
The difference is \(\$80\) [2].
(b) The policy with a \(\$0\) excess is the one costing \(\$450\) per year [2]. An excess is the amount the business must pay towards each claim.
(c) The \(\$280\)-premium policy may not be best for two explained reasons:
- It has the highest excess, \(\$250\) [1]. The business must fund this amount for every claim, which could create cash-flow difficulty [1].
- For small or repeated losses, claiming may not be worthwhile [1], because the \(\$250\) excess reduces, or may remove, the insurer's payment [1].
Also, a low premium alone does not prove good protection: the business should check risks covered, exclusions and limits.
Answer Details
(a) Find the difference by subtracting the lower annual premium from the higher one:
\[\$360-\$280=\$80\]
The difference is \(\$80\) [2].
(b) The policy with a \(\$0\) excess is the one costing \(\$450\) per year [2]. An excess is the amount the business must pay towards each claim.
(c) The \(\$280\)-premium policy may not be best for two explained reasons:
- It has the highest excess, \(\$250\) [1]. The business must fund this amount for every claim, which could create cash-flow difficulty [1].
- For small or repeated losses, claiming may not be worthwhile [1], because the \(\$250\) excess reduces, or may remove, the insurer's payment [1].
Also, a low premium alone does not prove good protection: the business should check risks covered, exclusions and limits.
Question 5 Report
A secondary school lends tablets to students for home study. Several tablets have been cracked, and one was stolen from a bus. The school is considering an insurance policy that covers accidental damage and theft, but excludes loss when a tablet is left unattended in a public place.
(a) Complete the following statement. A cracked screen is likely to be classed as ________ damage. [2]
(b) State one situation in which the policy would not provide insurance cover. [1]
(c) Explain why the school should tell students and parents about the exclusion before lending tablets. [2]
(a) A cracked screen is likely to be accidental damage [2].
(b) Cover would not apply if a tablet is left unattended in a public place and is then lost or stolen [1]. This is a stated exclusion.
(c) Students and parents need to know this exclusion so they can take greater care with the tablets [1]. They also understand when the school or family may have to pay for a replacement [1], rather than assuming insurance will pay.
Answer Details
(a) A cracked screen is likely to be accidental damage [2].
(b) Cover would not apply if a tablet is left unattended in a public place and is then lost or stolen [1]. This is a stated exclusion.
(c) Students and parents need to know this exclusion so they can take greater care with the tablets [1]. They also understand when the school or family may have to pay for a replacement [1], rather than assuming insurance will pay.
Question 6 Report
Complete the following checklist by putting a cross in each box for the document that Fern Street Café should expect when its coffee-machine supplier delivers six new grinders. The café is the buyer in this home trade transaction. Use the information to answer the questions.
Order form [ ] Delivery note [ ] Credit note [ ]
(a) Which document should be sent with the goods? [1]
(b) Complete two reasons why the café manager should check the delivery note before signing it. [2]
(c) State two features that should appear on the delivery note. [2]
(a) The document sent with the grinders is a delivery note [1].
(b) The manager should check it to confirm that the correct goods have arrived [1] and that the quantity is six grinders [1]. Checking before signing also identifies damage or missing goods before acceptance.
(c) Two features are the description of the goods [1] and the quantity of goods [1]. The buyer's name/address, supplier name, delivery date and order reference are also acceptable. These details link the delivery to the order and provide a record of what was received.
Answer Details
(a) The document sent with the grinders is a delivery note [1].
(b) The manager should check it to confirm that the correct goods have arrived [1] and that the quantity is six grinders [1]. Checking before signing also identifies damage or missing goods before acceptance.
(c) Two features are the description of the goods [1] and the quantity of goods [1]. The buyer's name/address, supplier name, delivery date and order reference are also acceptable. These details link the delivery to the order and provide a record of what was received.
Question 7 Report
Riverside Cycles is a small retailer in England. The business has ordered replacement bicycle frames from a Danish company for resale to its customers. The supplier will not offer trade credit and has sent an invoice for 25 200 Danish krone (DKK). Riverside's bank gives the following exchange rate: £1 = DKK8.40. The manager is considering how changes in the exchange rate could affect the price of imported goods.
(a) Calculate the amount, in £, Riverside Cycles must pay for the frames. Show your working. [2]
(b) State two reasons why the retailer may use its bank to make this international payment. [2]
(c) Explain two possible effects on Riverside Cycles if the value of the pound falls against the DKK before payment is made. [4]
(a) The rate £1 = DKK8.40 means each pound buys DKK8.40. Convert DKK into pounds by dividing:
\[\text{DKK }25\,200\div8.40=\pounds3\,000\]
Riverside Cycles must pay £3 000 [2].
(b) Two valid reasons for using a bank are that it can transfer payment securely to the overseas supplier [1] and exchange pounds into DKK [1]. It may also provide proof of payment or advice on exchange rates and foreign trade.
(c) If the pound falls against the DKK, each pound buys fewer krone. Therefore Riverside needs more pounds to buy DKK25 200, so the frames cost more in pounds [1]. If its selling price stays unchanged, this higher cost reduces profit [1].
The retailer may instead raise the price charged to customers to cover the higher import cost [1]. However, higher prices may reduce demand or sales if customers choose cheaper alternatives [1]. These are two developed effects because each links the exchange-rate movement to a business consequence.
Answer Details
(a) The rate £1 = DKK8.40 means each pound buys DKK8.40. Convert DKK into pounds by dividing:
\[\text{DKK }25\,200\div8.40=\pounds3\,000\]
Riverside Cycles must pay £3 000 [2].
(b) Two valid reasons for using a bank are that it can transfer payment securely to the overseas supplier [1] and exchange pounds into DKK [1]. It may also provide proof of payment or advice on exchange rates and foreign trade.
(c) If the pound falls against the DKK, each pound buys fewer krone. Therefore Riverside needs more pounds to buy DKK25 200, so the frames cost more in pounds [1]. If its selling price stays unchanged, this higher cost reduces profit [1].
The retailer may instead raise the price charged to customers to cover the higher import cost [1]. However, higher prices may reduce demand or sales if customers choose cheaper alternatives [1]. These are two developed effects because each links the exchange-rate movement to a business consequence.
Question 8 Report
Ravi is a self-employed bicycle repairer. He receives small cash payments from customers but also needs to pay for spare parts by bank transfer. His bank offers a basic business account, a deposit account and a personal savings account.
(a) Identify the most suitable account for Ravi's repair business. [1]
(b) State two services Ravi could use with this account. [2]
(c) Give one reason why Ravi should keep business money separate from his personal money. [1]
(a) Ravi needs a basic business account, also called a business current account. It is designed for daily business receipts and payments. [1]
(b) He could receive bank transfers from customers and make bank transfers to spare-parts suppliers. Depositing cash, using a debit card, internet banking, and paying suppliers by direct debit are also acceptable services. [2]
(c) Keeping money separate makes the business records easier to check and helps Ravi calculate business profit and prepare tax records accurately. [1]
Answer Details
(a) Ravi needs a basic business account, also called a business current account. It is designed for daily business receipts and payments. [1]
(b) He could receive bank transfers from customers and make bank transfers to spare-parts suppliers. Depositing cash, using a debit card, internet banking, and paying suppliers by direct debit are also acceptable services. [2]
(c) Keeping money separate makes the business records easier to check and helps Ravi calculate business profit and prepare tax records accurately. [1]
Question 9 Report
Fig. 1 shows the checkout screen used by a small online retailer selling reusable water bottles. A customer has selected one bottle. The business wants its website to make it easy for customers to check the price before they pay.
(a) State two items of information from Fig. 1 that a customer can use before placing an order. [2]
(b) Calculate the amount the customer will pay for the goods and delivery after using the voucher. [2]
(c) Identify the button the customer should select to begin payment. [1]
(a) Two visible pieces of information are the bottle price, £24.50, and the standard delivery charge, £3.75. The £2.00 voucher discount is also acceptable. [2]
(b) Add the goods and delivery, then subtract the voucher:
\[£24.50+£3.75-£2.00=£26.25\]
The customer pays £26.25. [2]
(c) The customer selects CHECKOUT to begin payment. [1]
Answer Details
(a) Two visible pieces of information are the bottle price, £24.50, and the standard delivery charge, £3.75. The £2.00 voucher discount is also acceptable. [2]
(b) Add the goods and delivery, then subtract the voucher:
\[£24.50+£3.75-£2.00=£26.25\]
The customer pays £26.25. [2]
(c) The customer selects CHECKOUT to begin payment. [1]
Question 10 Report
A local development officer is preparing information about businesses in her country. She has a word box to complete the following sentences about sectors of industry.
Word box: primary secondary tertiary
(a) Complete the following sentence using one word from the box: A quarry extracting slate is in the __________ sector. [1]
(b) Complete the following sentence using one word from the box: A factory turning slate into roof tiles is in the __________ sector. [1]
(c) Define the tertiary sector, using the example of a delivery company. [2]
(a) A quarry extracting slate is in the primary sector [1], because it obtains a natural raw material from the land.
(b) A factory turning slate into roof tiles is in the secondary sector [1], because it manufactures a product from a raw material.
(c) The tertiary sector consists of businesses that provide services rather than extracting or making goods [1]. A delivery company is tertiary because it transports goods for customers [1].
Answer Details
(a) A quarry extracting slate is in the primary sector [1], because it obtains a natural raw material from the land.
(b) A factory turning slate into roof tiles is in the secondary sector [1], because it manufactures a product from a raw material.
(c) The tertiary sector consists of businesses that provide services rather than extracting or making goods [1]. A delivery company is tertiary because it transports goods for customers [1].
Question 11 Report
A neighbourhood bakery plans to replace an oven costing £18 000. The owner has retained profit from earlier sales, but is also considering a bank loan. The business wants to keep enough cash to buy ingredients and goods for its customers.
(a) State one internal source of finance the bakery could use. [1]
(b) Identify two advantages of using retained profit to buy the oven. [2]
(c) Give two costs that the bakery may face when it uses a bank loan. [2]
(a) Retained profit is an internal source of finance because it has been generated and kept by the business. [1]
(b) Using retained profit means no interest is charged and no loan instalments are required. It also avoids sharing ownership or control with new investors. [2]
(c) A bank loan may involve interest payments and a bank arrangement or administration fee. Costs of providing security may also arise. [2]
Exam reminder: Retained profit has no borrowing cost, but the bakery must still keep enough cash available for ingredients and other day-to-day trading needs.
Answer Details
(a) Retained profit is an internal source of finance because it has been generated and kept by the business. [1]
(b) Using retained profit means no interest is charged and no loan instalments are required. It also avoids sharing ownership or control with new investors. [2]
(c) A bank loan may involve interest payments and a bank arrangement or administration fee. Costs of providing security may also arise. [2]
Exam reminder: Retained profit has no borrowing cost, but the bakery must still keep enough cash available for ingredients and other day-to-day trading needs.
Question 12 Report
Hana's Bakery has grown from one market stall to three shops. Hana plans to form a private limited company. Four relatives will each buy 150 shares at £20 per share. The company will use the money for ovens, advertising and stock, but the shares will not be offered to the general public.
(a) Identify the legal form Hana plans to use. [1]
(b) Calculate the total share capital raised from the four relatives. Show your working. [2]
(c) State two features of a private limited company. [2]
(d) Explain one benefit to Hana of using share capital rather than taking the full amount as a bank loan. [2]
(e) Give two documents or records the company should keep to show how it is managed. [2]
(a) Hana plans to form a private limited company, or Ltd [1].
(b) The total number of shares is:
\[4\times150=600\text{ shares}\]
\[600\times\pounds20=\pounds12\,000\]
Total share capital is £12 000 [2].
(c) Two features are that a private limited company is owned by shareholders [1] and its shares are not offered to the general public [1]. Shareholders have limited liability and the company has separate legal identity.
(d) Share capital does not normally require fixed loan repayments or interest payments [1]. This means more cash can remain available for stock, wages and other business costs [1].
(e) Two suitable records are company accounts [1] and a register of shareholders [1]. A record of directors, minutes of meetings and an annual report are also acceptable.
Answer Details
(a) Hana plans to form a private limited company, or Ltd [1].
(b) The total number of shares is:
\[4\times150=600\text{ shares}\]
\[600\times\pounds20=\pounds12\,000\]
Total share capital is £12 000 [2].
(c) Two features are that a private limited company is owned by shareholders [1] and its shares are not offered to the general public [1]. Shareholders have limited liability and the company has separate legal identity.
(d) Share capital does not normally require fixed loan repayments or interest payments [1]. This means more cash can remain available for stock, wages and other business costs [1].
(e) Two suitable records are company accounts [1] and a register of shareholders [1]. A record of directors, minutes of meetings and an annual report are also acceptable.
Question 13 Report
A bicycle retailer lets customers test electric bicycles outside its shop. A customer falls during a test ride and says that the business should pay for medical treatment. The retailer is reviewing its risks before renewing insurance cover.
(a) Identify the person who could make a claim against the retailer in this situation. [1]
(b) State one type of cost the retailer may face if it has no suitable insurance. [1]
(c) Give two reasons why the retailer should keep records of each test ride. [2]
(a) The person who could claim against the retailer is the customer who was riding the bicycle. [1]
(b) Without suitable insurance, the retailer may have to pay compensation, legal costs or medical costs itself. [1]
(c) Test-ride records provide evidence of what happened and confirm the customer's identity. They can also record the bicycle's condition or that a safety briefing was given. This evidence is useful if liability is disputed. [2]
Answer Details
(a) The person who could claim against the retailer is the customer who was riding the bicycle. [1]
(b) Without suitable insurance, the retailer may have to pay compensation, legal costs or medical costs itself. [1]
(c) Test-ride records provide evidence of what happened and confirm the customer's identity. They can also record the bicycle's condition or that a safety briefing was given. This evidence is useful if liability is disputed. [2]
Question 14 Report
Read the information below about trade in a small island country.
The state wants to support local businesses that assemble rechargeable lanterns. It has issued licences allowing companies to bring in no more than 12 500 finished lanterns from overseas during the calendar year. By the end of October, importers had used licences for 10 800 lanterns. BrightHome, a retailer, plans to buy 2 400 more finished lanterns on credit from a foreign supplier.
(a) Calculate how many finished lanterns may still be imported before the limit is reached. Show your working. [2]
(b) Identify the trade restriction used by the state. [1]
(c) Explain two reasons why the state may use this restriction to help local lantern businesses. [4]
(a) Calculate the unused part of the annual limit:
\[12\,500-10\,800=1\,700\]
1,700 finished lanterns may still be imported [2].
(b) The restriction is an import quota, or import limit [1]. It sets a maximum quantity that may be imported.
(c) A quota limits competition from cheaper foreign finished lanterns. Local assemblers may therefore sell more lanterns [2]. It can also give local businesses time to grow and become more efficient [2]. Protecting local jobs, and reducing money paid to foreign suppliers to improve the balance of trade, are further valid explained reasons.
Answer Details
(a) Calculate the unused part of the annual limit:
\[12\,500-10\,800=1\,700\]
1,700 finished lanterns may still be imported [2].
(b) The restriction is an import quota, or import limit [1]. It sets a maximum quantity that may be imported.
(c) A quota limits competition from cheaper foreign finished lanterns. Local assemblers may therefore sell more lanterns [2]. It can also give local businesses time to grow and become more efficient [2]. Protecting local jobs, and reducing money paid to foreign suppliers to improve the balance of trade, are further valid explained reasons.
