Business Management SL
Finance and accounts — Unit 4
- 1.
A retail company reports the following for the year: gross profit $180,000, revenue $600,000, net profit $60,000. (a) Calculate the gross profit margin. (b) Calculate the net profit margin. (c) Suggest one reason the gap between the two margins might be considered large, referring to what lies between the two figures.
[4 marks] - 2.
Marking analysis: A learner attempts the following task: “A retail company reports the following for the year: gross profit $180,000, revenue $600,000, net profit $60,000. (a) Calculate the gross profit margin. (b) Calculate the net profit margin. (c) Suggest one reason the gap between the two margins might be considered large, referring to what lies between the two figures.” Their response addresses only this point: “Calculates gross profit margin = 180,000/600,000 × 100 = 30%.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 3.
A small workshop makes handmade candles. Each candle sells for $12 and has variable costs of $7 per unit. The workshop's total fixed costs are $2,500 per month. (a) Calculate the contribution per unit. (b) Calculate the break-even quantity per month. (c) Calculate the profit if 600 candles are sold in a month. (d) State the margin of safety in units if 600 candles are sold.
[5 marks] - 4.
Marking analysis: A learner attempts the following task: “A small workshop makes handmade candles. Each candle sells for $12 and has variable costs of $7 per unit. The workshop's total fixed costs are $2,500 per month. (a) Calculate the contribution per unit. (b) Calculate the break-even quantity per month. (c) Calculate the profit if 600 candles are sold in a month. (d) State the margin of safety in units if 600 candles are sold.” Their response addresses only this point: “Calculates contribution per unit = 12 − 7 = $5.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] - 5.
A start-up's cash-flow forecast shows an opening balance of $3,000 for March, total cash inflows of $8,000 and total cash outflows of $9,500 for the month. (a) Calculate the net cash flow for March. (b) Calculate the closing balance for March. (c) Explain one action the business could take if it foresees a negative closing balance in an upcoming month.
[4 marks] - 6.
Marking analysis: A learner attempts the following task: “A start-up's cash-flow forecast shows an opening balance of $3,000 for March, total cash inflows of $8,000 and total cash outflows of $9,500 for the month. (a) Calculate the net cash flow for March. (b) Calculate the closing balance for March. (c) Explain one action the business could take if it foresees a negative closing balance in an upcoming month.” Their response addresses only this point: “Calculates net cash flow = 8,000 − 9,500 = −$1,500.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 7.
A business needs finance for two different purposes: (i) covering a short-term, one-off gap in cash flow while waiting for a large customer invoice to be paid, and (ii) funding a major long-term expansion of its factory. (a) Distinguish between internal and external sources of finance, giving one example of each. (b) Suggest a suitable source of finance for purpose (i), and justify your choice. (c) Suggest a suitable source of finance for purpose (ii), and justify your choice.
[5 marks] · no calculator - 8.
Marking analysis: A learner attempts the following task: “A business needs finance for two different purposes: (i) covering a short-term, one-off gap in cash flow while waiting for a large customer invoice to be paid, and (ii) funding a major long-term expansion of its factory. (a) Distinguish between internal and external sources of finance, giving one example of each. (b) Suggest a suitable source of finance for purpose (i), and justify your choice. (c) Suggest a suitable source of finance for purpose (ii), and justify your choice.” Their response addresses only this point: “States that internal finance comes from within the business itself, such as retained profit or the sale of unused assets, while external finance comes from outside the business, such as a bank loan or share capital.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] · no calculator - 9.
A business reports a healthy net profit for the year on its income statement, yet its bank account is nearly empty and it is struggling to pay suppliers on time. (a) Explain how a business can be profitable on paper but still face a cash-flow crisis. (b) Suggest one specific reason, relating to how customers or inventory are managed, that could explain this business's situation.
[3 marks] · no calculator - 10.
Marking analysis: A learner attempts the following task: “A business reports a healthy net profit for the year on its income statement, yet its bank account is nearly empty and it is struggling to pay suppliers on time. (a) Explain how a business can be profitable on paper but still face a cash-flow crisis. (b) Suggest one specific reason, relating to how customers or inventory are managed, that could explain this business's situation.” Their response addresses only this point: “Explains that profit is an accounting measure of revenue earned minus expenses incurred over a period, while cash flow measures the actual timing of money moving in and out of the bank account, and the two do not always occur at the same time.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] · no calculator - 11.
A business reports current assets of $60,000 and current liabilities of $40,000 on its statement of financial position. (a) Calculate the business's working capital. (b) State what a negative value for working capital would indicate about a business's ability to meet its short-term obligations. (c) Suggest one action a business with negative working capital could take to improve it.
[3 marks] - 12.
Marking analysis: A learner attempts the following task: “A business reports current assets of $60,000 and current liabilities of $40,000 on its statement of financial position. (a) Calculate the business's working capital. (b) State what a negative value for working capital would indicate about a business's ability to meet its short-term obligations. (c) Suggest one action a business with negative working capital could take to improve it.” Their response addresses only this point: “Calculates working capital = current assets − current liabilities = 60,000 − 40,000 = $20,000.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] - 13.
A business has current assets of $60,000 and current liabilities of $40,000. (a) Calculate the business's current ratio. (b) State the range within which a current ratio is generally considered healthy. (c) State whether this business's current ratio suggests it is within, below, or above that generally healthy range.
[3 marks] - 14.
Marking analysis: A learner attempts the following task: “A business has current assets of $60,000 and current liabilities of $40,000. (a) Calculate the business's current ratio. (b) State the range within which a current ratio is generally considered healthy. (c) State whether this business's current ratio suggests it is within, below, or above that generally healthy range.” Their response addresses only this point: “Calculates the current ratio = current assets ÷ current liabilities = 60,000 ÷ 40,000 = 1.5 (or 1.5:1).” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] - 15.
The same business has current assets of $60,000, of which $20,000 is inventory, and current liabilities of $40,000. (a) Calculate the business's acid test (quick) ratio. (b) Explain why the acid test ratio is considered a more cautious measure of liquidity than the current ratio.
[3 marks] - 16.
Marking analysis: A learner attempts the following task: “The same business has current assets of $60,000, of which $20,000 is inventory, and current liabilities of $40,000. (a) Calculate the business's acid test (quick) ratio. (b) Explain why the acid test ratio is considered a more cautious measure of liquidity than the current ratio.” Their response addresses only this point: “Calculates quick assets = current assets − inventory = 60,000 − 20,000 = $40,000.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks] - 17.
A business has an operating profit of $50,000 for the year and capital employed (total equity plus non-current liabilities) of $250,000. (a) Calculate the business's return on capital employed (ROCE). (b) State what ROCE measures. (c) Suggest one reason this ROCE figure might be more meaningful when compared against the ROCE of similar businesses in the same industry, rather than viewed alone.
[4 marks] - 18.
Marking analysis: A learner attempts the following task: “A business has an operating profit of $50,000 for the year and capital employed (total equity plus non-current liabilities) of $250,000. (a) Calculate the business's return on capital employed (ROCE). (b) State what ROCE measures. (c) Suggest one reason this ROCE figure might be more meaningful when compared against the ROCE of similar businesses in the same industry, rather than viewed alone.” Their response addresses only this point: “Calculates ROCE = (operating profit ÷ capital employed) × 100 = (50,000 ÷ 250,000) × 100.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 19.
A business is considering an investment project costing $100,000. It forecasts net cash inflows of $30,000 in Year 1, $40,000 in Year 2, and $50,000 in Year 3. (a) Calculate the cumulative net cash flow at the end of each of the three years. (b) Calculate the payback period, giving your answer in years and months.
[5 marks] - 20.
Marking analysis: A learner attempts the following task: “A business is considering an investment project costing $100,000. It forecasts net cash inflows of $30,000 in Year 1, $40,000 in Year 2, and $50,000 in Year 3. (a) Calculate the cumulative net cash flow at the end of each of the three years. (b) Calculate the payback period, giving your answer in years and months.” Their response addresses only this point: “Calculates cumulative cash flow at end of Year 1 = $30,000.” Evaluate the response against the complete 5-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[5 marks] - 21.
A different investment project costs $150,000 and is expected to generate total net profit of $75,000 over its 5-year life. (a) Calculate the average annual profit generated by the project. (b) Calculate the average rate of return (ARR) for the project. (c) State one advantage of using ARR, rather than payback period, to evaluate this investment.
[4 marks] - 22.
Marking analysis: A learner attempts the following task: “A different investment project costs $150,000 and is expected to generate total net profit of $75,000 over its 5-year life. (a) Calculate the average annual profit generated by the project. (b) Calculate the average rate of return (ARR) for the project. (c) State one advantage of using ARR, rather than payback period, to evaluate this investment.” Their response addresses only this point: “Calculates average annual profit = total profit ÷ number of years = 75,000 ÷ 5 = $15,000.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 23.
A business buys a delivery vehicle for $40,000. It expects the vehicle to have a residual (resale) value of $5,000 after 5 years, and depreciates it using the straight-line method. (a) Calculate the annual depreciation charge. (b) Calculate the vehicle's book value after 2 years. (c) State one reason a business needs to account for depreciation on assets like this vehicle.
[4 marks] - 24.
Marking analysis: A learner attempts the following task: “A business buys a delivery vehicle for $40,000. It expects the vehicle to have a residual (resale) value of $5,000 after 5 years, and depreciates it using the straight-line method. (a) Calculate the annual depreciation charge. (b) Calculate the vehicle's book value after 2 years. (c) State one reason a business needs to account for depreciation on assets like this vehicle.” Their response addresses only this point: “Calculates annual depreciation = (cost − residual value) ÷ useful life = (40,000 − 5,000) ÷ 5.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 25.
A business budgeted for sales revenue of $200,000 this month but achieved actual sales revenue of $215,000. It also budgeted for raw material costs of $50,000 but actually spent $58,000. (a) Calculate the variance for sales revenue, and state whether it is favourable or adverse. (b) Calculate the variance for raw material costs, and state whether it is favourable or adverse.
[4 marks] - 26.
Marking analysis: A learner attempts the following task: “A business budgeted for sales revenue of $200,000 this month but achieved actual sales revenue of $215,000. It also budgeted for raw material costs of $50,000 but actually spent $58,000. (a) Calculate the variance for sales revenue, and state whether it is favourable or adverse. (b) Calculate the variance for raw material costs, and state whether it is favourable or adverse.” Their response addresses only this point: “Calculates the sales revenue variance = 215,000 − 200,000 = +$15,000.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 27.
A business begins the year with inventory (stock) valued at $10,000. During the year it purchases a further $60,000 of inventory, and ends the year with inventory valued at $15,000. Its sales revenue for the year is $90,000. (a) Calculate the cost of sales (cost of goods sold) for the year. (b) Calculate the business's gross profit for the year.
[4 marks] - 28.
Marking analysis: A learner attempts the following task: “A business begins the year with inventory (stock) valued at $10,000. During the year it purchases a further $60,000 of inventory, and ends the year with inventory valued at $15,000. Its sales revenue for the year is $90,000. (a) Calculate the cost of sales (cost of goods sold) for the year. (b) Calculate the business's gross profit for the year.” Their response addresses only this point: “Uses the formula: cost of sales = opening inventory + purchases − closing inventory.” Evaluate the response against the complete 4-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[4 marks] - 29.
A business's statement of financial position must always satisfy the accounting equation: Assets = Liabilities + Equity. At the end of the year, the business reports total assets of $500,000 and total liabilities of $180,000. (a) Calculate the business's total equity. (b) Explain, in one sentence, what the equity figure represents.
[3 marks] - 30.
Marking analysis: A learner attempts the following task: “A business's statement of financial position must always satisfy the accounting equation: Assets = Liabilities + Equity. At the end of the year, the business reports total assets of $500,000 and total liabilities of $180,000. (a) Calculate the business's total equity. (b) Explain, in one sentence, what the equity figure represents.” Their response addresses only this point: “Rearranges the accounting equation to: Equity = Assets − Liabilities.” Evaluate the response against the complete 3-mark task. Identify what earns credit and state every additional requirement needed for full marks.
[3 marks]