GCSE Applied Business Jan 2006 paper

For this paper you must have: ! a calculator ! a ruler ! a pencil General Certificate of Secondary Education January 2006 APPLIED BUSINESS (DOUBLE AWARD) 3830/3 Unit 3 Business Finance Tuesday 17 January 2006 9.00 am to 10.30am Time allowed: 1 hour 30 minutes Instructions ! Use blue or black ink or ball-point pen. ! Fill in the boxes at the top of this page. ! Answer all questions. ! Answer the questions in the spaces provided. ! Do all rough work in this book. Cross through any work you do not want marked. ! If you need additional space, you should continue your answers at the end of this book, indicating clearly which questions you are answering. Information ! The maximum mark for this paper is 100. ! The marks for questions are shown in brackets. G/H150171/Jan06/3830/3 6/6/6/6 3830/3 Leave blank Surname Other Names Centre Number Candidate Number Candidate Signature For Examiner’s Use Number Mark Number Mark 1 3 2 4 Total (Column 1) Total (Column 2) TOTAL Examiner’s Initials2 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 Answer all questions in the spaces provided. 1 Read Item A and then answer the questions that follow. (a) Using Item A, complete the shaded areas below by identifying which financial document would be used in each of the following situations. (5 marks) Item A Anne has always wanted to run her own business and has discovered that there are an increasing number of people who have less time for housework and would consider using a home cleaning service. Anne has decided to start a home cleaning business, to be called Anne’s Angels. She will employ a team of cleaners. Customers can pay by giving cash to the cleaners or by direct debit. Anne has decided to buy all her cleaning material supplies from Cleaning Supplies Ltd. She must use the following financial documents when buying supplies: A Invoice B Remittance advice C Statement of account D Delivery note E Goods received note.Turn over ! 3 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (b) Anne needs to complete the purchase order below. Fill in the missing figures in the shaded boxes. (4 marks) Question 1 continues on the next page4 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (c) Anne’s Angels is a start-up business. Explain two reasons why it is important for Anne to keep accurate financial documents. Reason 1 .............................................................................................................................. ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ (3 marks) Reason 2 .............................................................................................................................. ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ (3 marks)Turn over ! 5 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (d) Anne has identified two methods by which her customers can pay her: ! cash ! direct debit. Advise Anne which of these methods might be better for her business. Explain why you have chosen this method. Method................................................................................................................................ Explanation......................................................................................................................... ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ (6 marks) Turn over for the next question ____ 216 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 2 Read Item B and then answer the questions that follow. (a) (i) Using Item B, identify one start-up cost for Anne’s Angels. Explain why the cost you have identified is a start-up cost. Start-up cost ............................................................................................................... Explanation ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks) (ii) Using Item B, identify one running cost for Anne’s Angels. Explain why the cost you have identified is a running cost. Running cost .............................................................................................................. Explanation ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks) Item B Anne has started her business and she: ! conducted market research before starting the business ! buys supplies of window wash each month ! employs cleaners who are paid by the hour ! has taken out insurance policies for the business ! employs a full-time assistant to help her run the business ! leases a photocopier. Anne’s market research shows that she faces a lot of competition from other businesses. There is high unemployment in the area and she has found it easy to employ cleaners.Turn over ! 7 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (b) Some of Anne’s Angels’ costs are fixed and some are variable. Complete the table below to identify for Anne whether the costs are fixed costs or variable costs. Place one tick in the appropriate column for each cost. (4 marks) (c) Anne’s Angels will have: ! fixed costs of £20 000 per year ! variable costs of £20 for each house cleaned ! a selling price of £30 for each house cleaned. Using the formula below, calculate how many houses Anne’s Angels will need to clean each year to break even. Use the space below to show your working. Break-even point = ..................................... houses (3 marks) Question 2 continues on the next page (selling price per unit fixe les d costs Break-even p s variable cost per oin u t = nit) Costs Fixed Costs Variable Costs Lease of a photocopier Payments to cleaners Insurance of the business Costs of materials used for cleaning (selling price per unit less variable cost per unit)8 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (d) (i) Explain the possible effects on the break-even point for Anne’s Angels if the fixed costs for the house cleaning service rose to £25 000. ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks) (ii) The fixed costs for Anne’s Angels have increased to £25 000. Anne has identified two actions, to raise prices or to reduce variable costs, that she could take in response to this problem. Explain the possible effects of each action. Raise prices ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks) Reduce variable costs................................................................................................. ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks)Turn over ! 9 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (iii) Anne is trying to decide which course of action would be better for her business. Do you recommend that she should raise prices or reduce variable costs? Justify your answer. Recommendation........................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (5 marks) Turn over for the next question ____ 2710 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 3 Read Item C and then answer the questions that follow. (a) Complete the cash-flow forecast for Top Tents Ltd by inserting your answers in the shaded boxes below. (4 marks) Top Tents Ltd Cash-flow forecast for the four months ended 30 April 2006 January February March April £ £ £ £ CASH IN Credit sales 12 000 25 000 40 000 50 000 Total inflow 12 000 25 000 40 000 50 000 CASH OUT Payments for materials 17 500 17 500 20 000 20 000 Wages 10 000 10 000 10 000 10 000 Purchase of new equipment 15 000 Other costs 1 600 1 700 1 800 1 900 Total outflow 44 100 29 200 31 800 Net monthly cash flow (32 100) (4 200) 18 100 Opening balance 16 000 (16 100) (20 300) Closing balance (20 300) (12 100) 6 000 Item C Top Tents Ltd manufactures tents which it sells to camping shops. Top Tents Ltd is a profitable business. However, cash-flow problems occur each year as production increases to meet the demand from shops before the summer season. Dipak, the financial director of Top Tents Ltd, has produced a cash-flow forecast for the four months ended 30 April 2006. The forecast takes into account that the business: ! buys essential equipment in January to replace machinery that has broken and cannot be repaired ! gives camping shops two months to pay ! pays for materials to make the tents one month after receiving the goods from suppliers.Turn over ! 11 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (b) (i) Identify and explain two possible causes of cash-flow problems that Top Tents Ltd expects to face during the four months ended 30 April 2006. Use Item C and your completed cash-flow forecast in question (a) opposite to support your answer. Cause 1....................................................................................................................... Explanation ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks) Cause 2....................................................................................................................... Explanation ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (3 marks) Question 3 continues on the next page12 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (ii) Identify and explain two suitable actions that Top Tents Ltd could take to improve its cash-flow position. Action 1...................................................................................................................... Explanation ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (5 marks) Action 2...................................................................................................................... Explanation ................................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (5 marks)Turn over ! 13 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (c) Dipak is considering using a computer spreadsheet to produce the cash-flow forecasts of Top Tents Ltd. Explain how a computer spreadsheet could help with the financial planning of Top Tents Ltd. ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ (5 marks) Turn over for the next question ____ 2514 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 4 Read Item D and then answer the questions that follow. (a) (i) Complete the Profit and Loss Account for the year ended 31 December 2005 by filling in the shaded boxes in the table below. (3 marks) Top Tents Ltd Profit and Loss Account for the four months ended 31 December 2005 £ £ Sales revenue 450 000 Cost of sales 200 000 Gross profit Expenses Wages 120 000 Advertising 210 000 Other costs 220 000 Total expenses NET PROFIT Item D Top Tents Ltd wants to expand into the European market. The expansion into Europe will cost £60 000 per year for two years. One way to finance this expansion would be to obtain a loan from a bank. The bank has asked Top Tents Ltd to provide a Profit and Loss Account for the year ended 31 December 2005 and a Balance Sheet as at that date.Turn over ! 15 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (ii) Explain how the Profit and Loss Account in question (a)(i) opposite might be used by the bank in deciding whether or not to give a loan to Top Tents Ltd. ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (4 marks) Question 4 continues on the next page16 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (b) (i) Complete the Balance Sheet as at 31 December 2005 for Top Tents Ltd by filling in the shaded boxes in the table below. (3 marks) Top Tents Ltd Balance Sheet as at 31 December 2005 £ £ Fixed assets Premises 300 000 Equipment 200 000 Current assets Stock 75 000 Debtors 45 000 Bank 22 000 Total current assets Less current liabilities Creditors 60 000 Net current assets Net total assets Financed by Shareholders’ funds 582 00017 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (ii) Explain how the Balance Sheet in question (b)(i) opposite might be used by the bank in deciding whether or not to give a loan to Top Tents Ltd. ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (4 marks) Question 4 continues on the next page Turn over !18 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (c) (i) In order to finance the expansion into Europe, the directors of Top Tents Ltd have identified two other sources of finance; these are owner’s funds and venture capital. Describe each source of finance and explain what advantages it would have in these circumstances. Owner’s funds ............................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (4 marks) Venture capital............................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (4 marks)Turn over ! 19 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 (ii) Which source of finance in question (c)(i) opposite would you recommend? Justify your answer. Recommendation........................................................................................................ ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... ................................................................................................................................... (5 marks) END OF QUESTIONS ____ 2720 LEAVE MARGIN BLANK G/H150171/Jan06/3830/3 ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Copyright © 2006 AQA and its licensors. 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