Business

1. 1.

   A product sells for 25 per unit, variable cost is 10 per unit and fixed costs are 6000. Calculate break-even output and profit at 500 units sold.

   [3 marks]

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Work from contribution towards fixed costs before calculating the sales volume needed to break even.
   2. Contribution per unit = 25 - 10 = 15.
   3. Break-even output = 6000/15 = 400 units.
   4. Profit = 500(15) - 6000 = 1500.

   Marking points

   • Contribution per unit = 25 - 10 = 15.
   • Break-even output = 6000/15 = 400 units.
   • Profit = 500(15) - 6000 = 1500.

   Examiner tip: Use units consistently and distinguish sales revenue from contribution.

2. 2.

   A profitable business has negative operating cash flow. Explain how this can happen and suggest one response.

   [3 marks] · no calculator

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Profit records revenues and costs; cash flow records when money is actually received and paid. Link the difference to a specific cause.
   2. Profit and cash flow differ because revenues or expenses may be recognised before cash moves.
   3. Credit sales or inventory purchases can tie up cash despite reported profit.
   4. A suitable response is faster receivables collection or tighter inventory control, linked to the cause.

   Marking points

   • Profit and cash flow differ because revenues or expenses may be recognised before cash moves.
   • Credit sales or inventory purchases can tie up cash despite reported profit.
   • A suitable response is faster receivables collection or tighter inventory control, linked to the cause.

   Examiner tip: Suggest a remedy that matches the cause of the cash shortage, not just 'increase profit'.

3. 3.

   Evaluate whether a small manufacturer should adopt just-in-time inventory when its only supplier has unreliable delivery times.

   [4 marks] · no calculator

   Answer explanation

   Draft walkthroughs are based on marking guidance, not independently verified derivations.

   1. Evaluate the inventory saving against the cost of disrupted production in the stated single-supplier setting.
   2. JIT can reduce inventory holding costs and waste.
   3. Unreliable deliveries can cause stockouts and halt production.
   4. The single supplier increases exposure because there is no ready alternative.
   5. A supported judgement could favour a buffer stock or improving supplier reliability before adopting full JIT.

   Marking points

   • JIT can reduce inventory holding costs and waste.
   • Unreliable deliveries can cause stockouts and halt production.
   • The single supplier increases exposure because there is no ready alternative.
   • A supported judgement could favour a buffer stock or improving supplier reliability before adopting full JIT.

   Examiner tip: Your judgement should address supplier reliability rather than declaring JIT always good or always bad.

Original, unofficial practice questions from SubjectScout — not official past-paper questions.