OCR GCSE Business Studies
An extract from a shop’s cash flow forecast for July is shown below.
| July | |
| £ | |
| Total inflow | 188 000 |
| Total outflow | 193 500 |
| Opening balance | – 2 300 |
| Closing balance |
The shop’s closing balance for July is expected to be:
A –£7800
B –£3200
C £3200
D £7800
State one reason why customer service is important to a business.
State two advantages to a business of having an overdraft.
Explain why cash is important to a business.
Calculate the average rate of return (ARR) for the new coffee machine.
Show your workings.
........ %
Analyse the change in the cost of the pizza dough between 2022 and 2024.
State two factors that influence where to locate a business.
Discuss whether Riley should relocate to a restaurant or continue to operate from the caravan.
The bank statement for an established firm shows that it ended 2023 close to its overdraft limit with an overdrawn balance of £5000. The firm’s accounts show a profit of £44 000 for the year ending 31 December 2023.
These figures show that:
A an accounting error has been made because the firm is not profitable
B at least £49 000 must have been stolen from the firm’s bank account
C despite being profitable, the firm may be unable to pay its short-term debts
D the firm is unlikely to experience cash shortages and is highly profitable
Text 2
The Sea View Hotel
The Sea View Hotel is a profitable hotel located near the coast. Anika and Charlie own the hotel in a business partnership. They are now considering opening a second hotel in a town further along the coast. It would cost them £1.5 million to buy the property and £0.5 million for redecoration.
To fund the £2 million expansion, the partners are considering getting a bank loan or accepting a new partner into the business. The partnership already has one bank loan but has worked out it can afford a second loan as long as the cost of borrowing does not rise too much.
If Anika and Charlie decide to take on a new partner, they would like to ask Finley, a friend of Anika’s who has just returned to the UK from travelling around the world. Finley is currently unemployed but is a keen photographer and environmental campaigner.
Anika has forecasted the following revenues and costs for the proposed 25-room hotel:
• selling price: £100 a day per room
• fixed costs: £6300 per week
• variable costs: £40 a day per room.
Identify one reason, other than expansion, why a business needs finance.
Explain why profit is important to a business’ future.
Calculate the daily break-even quantity for the proposed hotel.
Analyse one disadvantage to the partnership if the proposed hotel’s fixed costs were 10% higher than expected.
Identify two uses of a cash flow forecast to a business.
Analyse one advantage to the partnership of taking on Finley as a new partner to fund the proposed hotel.
Analyse one disadvantage to the partnership of taking on Finley as a new partner to fund the proposed hotel.
Recommend whether the partnership should take on Finley as a new partner or use a bank loan to fund the proposed hotel.
Emma and Henry are in a partnership that runs a small building firm. Despite being profitable, the business is having difficulty paying all its expenses.
Which of the following would help Emma and Henry deal with this problem?
A Holding larger stocks of raw materials
B Increasing the labourers’ wages
C Issuing shares
D Taking on a new partner
An extract from Yoshi’s Sweet Shop’s cash flow forecast for November is shown below.
| November | |
| £ | |
| Total inflow | 28 000 |
| Total outflow | 18 500 |
| Net cash flow | 9 500 |
| Opening balance | –4 700 |
Yoshi’s Sweet Shop’s opening balance for December is expected to be:
A £4700
B £4800
C £14 200
D £14 300
A cash flow forecast can help a business:
A calculate net profit
B identify changes in the market
C predict liquidity problems
D understand the concept of break-even
Text 3
Glorious Kitchens Ltd
Glorious Kitchens (GK) is a private limited company based in Brighton. The company makes and fits high-quality, luxury wooden kitchens throughout the south-east of England. Its most popular range is the Deluxe.
The average price of a Deluxe kitchen is £15 000 including fitting. GK calculates its fixed costs for the year to be £250 000 and its variable costs for the Deluxe to be £6380, which means they need to sell 29 kitchens to break even.
GK is concerned about the future economic climate and its possible impact on the company’s sales. It is predicted that there will be a fall in consumer incomes in the south-east of England until 2025. Unemployment in the south-east of England is forecast to follow the trend shown in Table 1.
Financial data for GK at the end of 2022 is shown in Table 2.
State one reason why cash is important to a business.
Analyse how GK can use the break-even level of output for its Deluxe range.
Analyse one limitation to GK of using break-even when making decisions about its Deluxe range.
Analyse one impact on GK of the predicted fall in consumer incomes.
Analyse one impact on GK of the forecast change in the unemployment rate shown in Table 1.
Recommend whether the predicted fall in consumer incomes or the forecast change in the unemployment rate will have the greatest impact on GK.
* Evaluate how useful the financial data in Table 2 is to GK’s stakeholders.
Text 2 Quality Textiles (QT)
Quality Textiles Ltd (QT) is a medium-sized, established business that manufactures clothes from its factory in Birmingham. Its clothes are sold to retail shops around the country. A summary of its profitability is shown in Table 1.
QT wants to expand the business by using a bank loan to buy a large van to help with deliveries. It will use average rate of return (ARR) to assess which model of van it will buy. Further information is provided in Table 2, below. The new van will mean employing a driver, in addition to the five drivers already working for the business.
QT’s cash flow forecast suggests it may struggle to pay the monthly van loan repayment. QT’s closing bank balance for the last five months is shown in Fig. 1.
QT had problems earlier in the year. It found its way into the local newspaper as part of an investigation into ethical practices in its business activities and supply chain.
Identify one method of selling products to customers.
Identify two ethical considerations for a business.
Explain one reason why a business should act ethically.
Calculate the average rate of return (ARR) for the Standard Van by using the information in Table 2.
Show your workings
Answer........ %
Analyse one reason why QT should buy the Standard Van. Refer to Table 2 in your answer.
Analyse QT’s cash position considering its current expansion plans.
Analyse QT’s profit position considering its current expansion plans.
Recommend whether QT’s cash position or profit position will have the biggest impact on its expansion plans.
An extract from Pia’s Diner’s cash flow forecast for July is shown below.
| July | |
| £ | |
| Total inflow | ? |
| Total outflow | 13500 |
| Net cash flow | –1900 |
| Opening balance | –2300 |
| Closing balance | –4200 |
Pia’s Diner’s total inflow for July is expected to be:
A £7000
B £9300
C £11 200
D £11 600
Text 2
Ricardo Costumes and Props (RCP)
Alessia and Natalia own Ricardo Costumes and Props (RCP). The business operates as a partnership. RCP makes a range of costumes and props that it sells to UK and EU theatres, schools and amateur dramatics groups.
Last year, RCP’s costumes and props were used in two very successful films. RCP’s reputation grew rapidly and its revenue increased from £1 600 000 in 2019 to £2 000 000 in 2020. More financial data for RCP in 2020 is shown in Table 1, below.
Despite being profitable, RCP’s bank overdraft is getting bigger every month. Alessia and Natalia realise that they need to carefully consider RCP’s cash flow position.
Alessia and Natalia need to update the laser cutter and 3D printer they use to make some of the props. The total cost of these machines is likely to be over £100 000. Alessia and Natalia are unsure how to finance the purchase of the new machinery. Natalia has suggested they try and sell the old machines and use the money to buy new ones. Alessia thinks it might be better to gain extra capital by finding a new partner to join the business.
State one reason why cash is important to a business.
Explain one use of a cash flow forecast in a business.
Identify two variable costs which a business may incur.
Calculate RCP’s net profit for 2020.
Show your workings.
Answer £........
Analyse one way Alessia and Natalia could use the data shown in Table 1 to improve their net profit margin.
Analyse one advantage to RCP of selling its old machines to finance the purchase of the new machinery.
Analyse one disadvantage to RCP of selling its old machines to finance the purchase of the new machinery.
Recommend whether RCP should finance the purchase of the new machinery by selling its old machines or by taking on a new partner.
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