GCSE Applied Business

Transcription

1 GCSE Applied Business Business Finance Final Mark scheme 430 June 07 Version/Stage: v.0

2 Mark schemes are prepared by the Lead Writer and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation events which all associates participate in and is the scheme which was used by them in this examination. The standardisation process ensures that the mark scheme covers the students responses to questions and that every associate understands and applies it in the same correct way. As preparation for standardisation each associate analyses a number of students scripts. Alternative answers not already covered by the mark scheme are discussed and legislated for. If, after the standardisation process, associates encounter unusual answers which have not been raised they are required to refer these to the Lead Writer. It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of students reactions to a particular paper. Assumptions about future mark schemes on the basis of one year s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper. Further copies of this mark scheme are available from aqa.org.uk Copyright 07 AQA and its licensors. All rights reserved. AQA retains the copyright on all its publications. However, registered schools/colleges for AQA are permitted to copy material from this booklet for their own internal use, with the following important exception: AQA cannot give permission to schools/colleges to photocopy any material that is acknowledged to a third party even for internal use within the centre.

3 Total for this question: 0 marks (a) Complete the cash-flow forecast for The Local Gym by inserting your answers in the shaded areas below. [3 marks] Cash in The Local Gym Cash-flow forecast for the four months ending 3 July 06 April May June July Membership fees Total inflow Cash out Wages and salaries Purchase of new gym equipment Rent and other costs Total outflow Net monthly cash flow (3 780) Opening balance (3 780) ( 40) (0 700) Closing balance (3 780) ( 40) (0 700) (9 60) Page 3 of

4 (b) The cash-flow forecast shows a negative closing balance in April. Using Item A and the cash-flow forecast in question (a), explain two actions that Alya could take to solve this problem. [8 marks] Answers can include: Knowledge Timing of cash inflows/outflows lease rather than buy arrange a loan Timing of cash inflows/outflows credit Timing of cash inflows/outflows deposits/money upfront Increase cash income Decrease costs Increase price of subscriptions Application Leasing/loan would spread the cost over a longer period. For example if the equipment needed for the gym could be leased it would mean that most of the cost to equip the gym could be spread over time so that the business would not be overdrawn. Arrange 30 days (trade) credit when purchasing the gym equipment. This would mean that the gym will not be overdrawn in the first month. Persuade customer to take out annual memberships paying up front with a discount as an incentive, e.g. twelve months for 00. For example, if 80 existing members bought the annual subscriptions this would bring in extra in January meaning that The Local Gym would not be overdrawn beyond the limit in that month. Example calculation: (80 x 00 = 6 000) (80 x 0 = 600) = Alya could use the cash-flow forecast to show that the size of the overdraft would only be temporary to agree a bigger overdraft facility. Examples from the cash flow e.g. closing balance in July to support the argument. Reducing labour hours would go some way to solving the problem, but as these costs are 4 80 in the first month it would not completely solve the problem. This also might mean that The Local Gym would not be able to stay open for as long and lose custom. Finding much cheaper gym equipment e.g. second hand; but this would need to be of suitable quality. Could help cash flow if members are prepared to pay the extra. 3 Uses Item A and question (a) to explain two actions Alya could take to solve the problem of a negative closing balance in July. Uses Item A and question (a) to explain one action Alya could take to solve the problem of a negative closing balance in July. 8-6 AO 5-3 AO States action(s) to respond to a negative closing balance. - AO 0 No valid response. 0 Page 4 of

5 (c) Alya wants to increase The Local Gym s profits as quickly as possible. As a growing business, which is more important: Answers can include: making profits or avoiding cash-flow problems? Use Item A and the cash-flow forecast in question (a) to justify your answer. [9 marks] Knowledge Application Analysis A business needs to make profits. Cash-flow problems can lead to business failure. The business is making a profit; it can take time for new businesses to make a profit. Expands on the cash-flow problem in April July. The costs for the new gym equipment may need to be paid for before cash is generated from it. Brings together the two knowledge/ application areas, e.g. the impact of extra profit, for example the new gym equipment will help to increase profits, however it causes cash-flow issues. Could use a numerical example. 3 Uses Item A and question (a) to analyse the impact of profit/cash impact on a growing business. Uses Item A and question (a) to identify relevant information for a growing business. Demonstrates understanding of profit/cash when making a business decision. 4-3 AO3 AO AO 0 No valid response. 0 Page 5 of

6 Note: AO3 also assesses students quality of written communication. When deciding on the AO3 level to be awarded, consider the degree to which the student orders and communicates his/her ideas. In addition, and separately, award marks for evaluation using the grid below. Offers judgement with supported justification. Ideas are communicated using a logical structure, with some appropriate use of technical terms. There are occasional errors in accepted conventions of written communication. Offers judgement with limited justification. Ideas are communicated with some structure evident with occasional use of technical terms. There are noticeable errors in accepted conventions of written communication. 5 3 AO3 and Quality of Written Communication 0 Offers both no judgement or an unsupported judgement and the quality of written communication is weak, i.e. there is no use of technical terms; it is very brief or difficult to understand. 0 Possible areas of judgement profitability, now or in the future cash-flow, now or in the future. Page 6 of

7 Total for this question: 0 marks (a) Complete the table below to identify for Alya whether the costs are fixed or variable. Place one tick ( ) in the appropriate column for each cost. [3 marks] Fixed cost Variable cost Salary paid to Alya for running The Local Gym Wages paid to fitness instructors for classes taught Insurance of the gym Page 7 of

8 (b) The fixed costs of The Local Gym will increase to 5040 per month. Using Item B, explain two appropriate actions that The Local Gym could take in response to this increase in costs. [8 marks] Answers can include: Knowledge Costs and break-even Increase prices Application Increase membership price to, e.g. 4. Increase membership price to e.g. 4 meaning that break-even would be 5 rather than 35. Costs and break-even Reduce prices Increase membership price but be careful not to put the price so high that customers will go to the other gym. Reduce the price of membership to increase revenue. Supported by a numerical example. Mention that this might make The Local Gym cheaper than the other gym. Costs and break-even Reduce costs Costs and break-even Do nothing Consideration of capacity. Argues for reduction of wages as part of the 4 variable costs. The Local Gym still makes a profit. The new break-even will only be 35 and profit is still being made. 3 Using Item B explains two appropriate actions that Alya could take in response to this increase in fixed costs. Using Item B explains one appropriate action that Alya could take in response to this increase in fixed costs. 8-6 AO 5-3 AO States action (s) to respond to an increase in fixed costs. - AO 0 No valid response. 0 Page 8 of

9 (c) Using Item B, recommend to Alya whether she should accept the local employer s offer of 60 per month for his 0 staff to use The Local Gym? Give reasons for your recommendation. [9 marks] Knowledge Application Analysis Interpreting break-even The revenue is less. The Local Gym is already breaking even. Guaranteed income/profit. Uses data to compare the options, e.g. currently 0 per membership - this is 6 so potential loss of profit in comparison. Break-even has been reached so this is extra profit. Profit calculations ( = 0) Membership is currently 35. This contract would bring The Local Gym to 36 members - only 8 from capacity. 3 Uses Item B to analyse whether Alya should accept the local employers offer. Uses Item B to identify whether Alya should accept the local employers offer. Demonstrates understanding of break-even when making a business decision. 4-3 AO3 AO AO 0 No valid response. 0 Note: AO3 also assesses students quality of written communication. When deciding on the AO3 level to be awarded, consider the degree to which the student orders and communicates his/her ideas. In addition, and separately, award marks for evaluation using the grid below. Level Descriptor Makes recommendation with supported justification. Ideas are communicated with some structure and use of technical terms. There are occasional errors in accepted conventions. Makes recommendation with limited justification. Ideas are communicated in a simplistic way with limited use of technical terms. Errors in accepted conventions are noticeable. Marks 5 3 AO3 and Quality of Written Communication Possible areas of judgement: regular income v possible profit issues. possibility of working with other businesses in this way Page 9 of

10 arguments based on capacity. 3 Total for this question: 0 marks 3 (a) Complete the income statement (profit and loss account) for The Local Gym for the year ended 3 May 07 by filling in the shaded boxes below. [3 marks] The Local Gym Income statement (profit and loss account) for the year ended 3 May 07 Revenue (sales) Less cost of sales Gross profit 74 7 Expenses Wages Insurance Other expenses Net profit 7 9 Page 0 of

11 3 (b) Using Item C and your answer to question 3(a), explain how Yasmeen could use The Local Gym's income statement (profit and loss account) and statement of financial position (balance sheet) to decide if she should invest in the business. [8 marks] Answers can include: Knowledge Application Income statement shows profit Profit 7 9 Relevant ratios (own figures) Explains the importance of the profit figure, e.g. as a return on investment SOFP shows assets/liabilities Fixed assets Current assets 9 30 Current liabilities 3 00 Net current assets 6 0 relevant ratios Explains the importance of the assets/liabilities, e.g. use as collateral/determines the book value. 3 Using Item C and question 3(a) explains how the income statement and statement of financial position would help Yasmeen to decide if she should invest in The Local Gym. Using Item C and question 3(a) explains how the income statement or statement of financial position would help Yasmeen to decide if she should invest in The Local Gym AO States value of the income statement and/or statement of financial position in helping to make an investment decision. AO 0 No valid response. 0 Page of

12 3 (c) Using Item C and your answers to questions 3(a) and 3(b), recommend to Alya whether she should accept Yasmeen's offer. Give reasons for your recommendation. [9 marks] Answers can include: Knowledge Application Analysis The SOFP shows the value of the business. She can gain finance and expertise from Yasmeen. The Income Statement shows the profit the business makes. The business is worth 3 0 so Yasmeen's investment takes the value to 5 0. Yasmeen brings expertise from a complementary business. She is making profit ( 7 9) so could continue on her own. Yasmeen has put less than 50% of the capital into the business but wants 50% share. Alya could be giving up control with no guarantee of success. Arguments based on doing nothing. 3 Uses Item C and questions 3(a) and 3(b) to analyse whether Alya should accept Yasmeen s offer or not. Uses Item C and questions 3(a) and 3(b) to explain whether Alya should accept Yasmeen s offer or not. Demonstrates understanding of financial information when making a business decision. 4-3 AO3 AO AO 0 No valid response. 0 Note: AO3 also assesses students quality of written communication. When deciding on the AO3 level to be awarded, consider the degree to which the student orders and communicates his/her ideas. In addition, and separately, award marks for evaluation using the grid below. Makes recommendation with supported justification. Ideas are communicated with some structure and use of technical terms. Occasional errors in accepted conventions. Makes recommendation with limited justification. Ideas are communicated in a simplistic way with limited use of technical terms. Errors in accepted conventions are noticeable. 5 3 AO3 and Quality of Written Communication Possible areas of judgement: control v risks comparison of the offers. Page of