OCR GCSE Business Studies
Topic questions Microeconomics Revenues, costs & profits
17 questions · 131 marks · about 2.5 hours
Last year a building firm sold six houses at an average price of £300 000 per house. The costs for the business were:
• variable costs = £32 000 per house
• fixed costs = £130 000 per calendar month.
Last year the building firm made a profit of:
A £48 000
B £138 000
C £208 000
D £1 478 000
Sales figures for a sole trader for the last three years are shown below.
| Year | 2022 | 2023 | 2024 |
| Quantity of units sold | 13 000 | 12 000 | 16 000 |
| Selling price | £1.00 | £1.50 | £2.00 |
The sole trader is completing an application form for a bank loan. The form asks for the business’ average revenue over the last three years.
What figure should the sole trader put on the form?
A £13 667
B £21 000
C £21 750
D £42 000
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.
In 2023 a business sold 22 million items at an average price of £0.75 per item. Its total costs for the year were £13.5 million.
The business made a net profit of:
A £3 million
B £16.5 million
C £1636.5 million
D £1650 million
The table below shows a company’s total costs over the last four years.
| 2020 | 2021 | 2022 | 2023 | |
| Operating costs | £200 000 | £170 000 | £280 000 | £320 000 |
| Other costs | £40 000 | £30 000 | £30 000 | £40 000 |
The percentage change in the company’s total costs from 2020 to 2023 was:
A 33%
B 37.5%
C 50%
D 60%
Text 1
Unilever plc
Unilever plc is a multinational company that makes and sells a wide range of quality products including food, cleaning agents and beauty products across 190 countries.
Unilever plc has benefitted from operating in a global marketplace and the majority of its products are international brands. Some of its branded products include Lynx Body Spray, Dove Soap, Hellmann’s Mayonnaise, Ben & Jerry’s ice cream and Persil washing machine detergent. All of these products are made in factories all around the globe, some using flow production and others using batch production.
Unilever plc’s average revenue has grown over the last five years. However, the economic climate is becoming more difficult and Unilever plc’s directors are having to adapt to these challenges.
Fig. 1 Unilever plc worldwide revenue from 2018 to 2022
Identify two characteristics of flow production.
Analyse one way the marketing function impacts on the operations function of Unilever plc.
Calculate Unilever plc’s average revenue from 2019 to 2022.
Explain one way revenue affects a business’ decision making.
Explain how operating in a difficult economic climate might affect a business.
State what is meant by international branding.
Evaluate the benefits of international branding to Unilever plc.
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.
Financial data for Pilti plc in 2022 is shown below.
• Revenue £44 million
• Expenses £12 million
• Net profit £14 million
Pilti plc’s gross profit in 2022 was:
A £18 million
B £26 million
C £32 million
D £58 million
Riley runs his own cleaning business. He wishes to keep supply costs as low as possible. The table below shows the price of cleaning fluid at four possible suppliers.
| Supplier 1 | Supplier 2 | Supplier 3 | Supplier 4 | |
| Quantity | 100 litre barrels | 200 litre barrels | 1000 litre barrels | 2000 litre barrels |
| Price | £80 | £100 | £600 | £800 |
The lowest cost that Riley can obtain 1200 litres of cleaning fluid from one supplier is:
A £480
B £600
C £700
D £800
Amir runs a market stall that sells bread. His most popular product, the Farmhouse Loaf, is currently priced at £2.00.
Amir is considering changing the price he charges for the Farmhouse Loaf.
The table below shows Amir’s expected weekly sales of the Farmhouse Loaf at various prices.
| Farmhouse Loaf | |
| Price | Expected weekly sales |
| £1.50 | 350 |
| £1.75 | 250 |
| £2.00 | 150 |
| £2.25 | 50 |
This data is useful to Amir when making this pricing decision because it shows that:
A changing the price charged for each loaf will have little effect on total revenue
B charging a relatively high price for each loaf is likely to increase total revenue
C reducing the price charged for each loaf is likely to increase total revenue
D the current price should not be changed because it maximises total revenue
Text 1 Zara
Zara is a global fashion brand based in Spain. Zara is best known for the speed and frequency it can get its new clothing ranges into its online shop and 2270 stores. Approximately 50% of Zara’s clothes are manufactured in Spain; the rest come from other European countries, or from Asia and Africa. Like most firms in 2020, Zara experienced a fall in sales. Zara’s global sales revenues in 2019 were €19 954 million, but in 2020 these fell to €14 129 million. However, during this period Zara’s online sales increased by approximately 75%, as consumer buying habits changed in favour of e-commerce.
Zara can get new clothing designed, manufactured and delivered to its stores within 15 days. It does this by buying fabric in large quantities from suppliers in Europe, which helps keep its variable costs low. This means that it is delivered quickly to its factory in Spain, where it can then be made up into the new designs.
Zara’s highly responsive supply chain is central to its business success. This means it can change its clothing designs on average every two weeks, while competitors change their designs every two or three months.
Explain one production process a business may use when making its products.
Explain one method that a business could use to ensure the quality of its products.
Analyse one reason why keeping variable costs low may reward Zara’s owners.
Calculate the percentage decrease in Zara’s sales revenue between 2019 and 2020.
Show your workings
Answer........
Explain one possible advantage to a business of selling its products via e-commerce.
Identify two roles of the procurement function in a business.
Evaluate the importance to Zara of having reliable suppliers in the supply chain for its clothing.
A drum kit manufacturer plans to make 500 drum kits this year. Estimated costs are as follows:
• raw materials £40 per drum kit
• rent £600 per month
• heating and lighting £900 per quarter
• other expenses £56 000 per annum
The manufacturer’s estimated total cost for the year is:
A £66 840
B £77 500
C £85 900
D £86 800
Kareem is an entrepreneur. He makes hand-made shoes for newborn babies. Data for his first four years of trading is shown below.
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Number of pairs sold | 104 | 1040 | 820 | 1860 |
| Revenue | £2080 | £20 800 | £16 400 | £46 500 |
| Profit | –£24 000 | £2000 | –£1800 | £26 000 |
According to the data, which of the following is true?
A Costs have been greater than revenue in all four years
B In Year 2, Kareem reduced the average selling price of the shoes
C In Year 4, Kareem increased the average selling price of the shoes
D Revenue has increased year on year
Identify two possible advantages to a business of being environmentally friendly.
Explain one way climate change might affect business activity.
Analyse how BP’s finance function may influence its ability to meet BP’s objectives.
Calculate the percentage change in BP’s revenue between 2017 and 2019.
Show your workings
Answer........ %
Identify two factors that can affect a company’s revenue.
Identify two reasons why a UK business might choose to locate in another country.
Evaluate how globalisation has influenced where BP locates its businesses.
Shanco plc has managed to reduce its transport costs from £0.7 million in 2019 to £0.6 million in 2020.
What percentage reduction in transport costs has Shanco plc achieved?
A 6%
B 7%
C 14.3%
D 16.7%
To support Padre Stores Ltd’s decision making, quarterly revenue data in 2020 has been calculated for each of the company’s three stores.
| Revenue in 2020: | Store A | Store B | Store C |
| Q1: Jan–Mar | £42 000 | £58 000 | £65 000 |
| Q2: Apr–Jun | £48 000 | £60 000 | £50 000 |
| Q3: Jul–Sep | £52 000 | £58 000 | £40 000 |
| Q4: Oct–Dec | £60 000 | £60 000 | £60 000 |
The data shows that:
A average revenue per store in Q2: Apr–Jun was £39 500
B store A had an average revenue of £50 500 per quarter
C store C took more revenue in 2020 than either of the other two stores
D total revenue in Q1: Jan–Mar was better than in any other quarter
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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