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UK GCSE JAN 2008 : Unit 3 Business Finance

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Centre Number 71 Candidate Number General Certificate of Secondary Education 2008 Unit 3: Business Finance GDB31 Applied Business Double Award [GDB31] WEDNESDAY 16 JANUARY, MORNING TIME 1 hour 30 minutes. INSTRUCTIONS TO CANDIDATES Write your Centre Number and Candidate Number in the spaces provided at the top of this page. Write your answers in the spaces provided in this question paper. There should be enough space for your answers. If you do require more space, you may complete your answers on the extra lined pages at the back of this booklet. Answer all six questions. INFORMATION FOR CANDIDATES The total mark for this paper is 90. Figures in brackets printed down the right-hand side of pages indicate the marks awarded to each question or part question. For Examiner s use only Question Number 1 2 3 4 5 6 Total Marks GDB3W8 2918 Marks BLANK PAGE GDB3W8 2918 2 Background Information The questions in this paper are based on the following information. You should read this carefully before you start to answer the questions. Bringing nails up to scratch 5 Brothers Seamus and Tiernan Lynch have obtained a contract with Debenhams to open at least 50 nail bars in its stores across the UK by the end of 2007. They have already opened 12 New York City Nails hand treatment bars in Debenhams this year, including one at Foyleside in Londonderry. Upon completion of the contract they will provide employment for around 250 staff. They intend to invest approximately 2m in the venture and are aiming for a turnover of 12m for the business in the next two years. The brothers expect 50% of their turnover to come from the sales of US brand products, which include a large range of nail polishes. 10 15 The Lynch brothers have opened a New York City Nails salon (separate from the Debenhams venture) on the Lisburn Road in Belfast. This was opened at a cost of 80 000. They intend to follow this up with a similar salon at Belfast International Airport. Turnover of 500 000 has already been recorded by New York City Nails to date this year. They are aiming to reach a figure of 750 000 by the end of their first year in business and they expect 150 000 of this to be from the Lisburn Road business. This store welcomes women and men alike. Seamus says, Our business is a concept from New York where there is a nail salon on every corner. Here they are usually found in a beauty salon but we want to bring the American concept for dedicated nail bars to Belfast . The two men are confident that their new stores will be a success and they will achieve the financial targets which they have set for themselves. Source: Adapted from The Belfast Telegraph, November, 2005 GDB3W8 2918 3 [Turn over 1 New York City Nails is a limited company. They will invest around 2m in the deal with Debenhams. (a) Identify the most likely source of finance for this venture. ______________________________________________________ [1] (b) Give one advantage and one disadvantage to the owners of this source. Advantage _______________________________________________ _________________________________________________________ ______________________________________________________ [1] Disadvantage _____________________________________________ _________________________________________________________ ______________________________________________________ [1] (c) It will cost approximately 50 000 to open a nail bar at the airport. Are they likely to have difficulty in getting this sum? Explain your answer. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (d) They are aiming for a turnover of 12m in the next two years. Explain the term turnover. _________________________________________________________ ______________________________________________________ [1] (e) The brothers expect 50% of their turnover to come from the sales of US brand products and the remainder from treatments. They aim to reach a target of 150 000 by the end of the first year in their business on the Lisburn Road. How much of this will come from treatments? ______________________________________________________ [1] GDB3W8 2918 4 Examiner Only Marks Remark (f) Explain why it is important that New York City Nails makes a profit. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3W8 2918 5 [Turn over 2 The New York City Nails bars sell US brand products, e.g. nail polishes and they provide nail treatments. (a) State two methods of payment that customers might use to pay for the above. 1. ____________________________________________________ [1] 2. ____________________________________________________ [1] (b) Give one advantage and one disadvantage to the business of each method. Method 1 Advantage _______________________________________________ _________________________________________________________ ______________________________________________________ [1] Disadvantage _____________________________________________ _________________________________________________________ ______________________________________________________ [1] Method 2 Advantage _______________________________________________ _________________________________________________________ ______________________________________________________ [1] Disadvantage _____________________________________________ _________________________________________________________ ______________________________________________________ [1] GDB3W8 2918 6 Examiner Only Marks Remark 3 The following is a list of some of the costs of the New York City Nails salon on the Lisburn Road. Examiner Only Marks Remark (a) Classify them into start-up costs and running costs by ticking the appropriate box below. Cost Start-up Cost Running Cost Design cost of nail bar Heating and lighting Computer Promotion material Broadband monthly charge [5] (b) Explain the difference between a start-up cost and a running cost. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (c) Identify the most appropriate source of finance to cover the running costs of the business. Give a reason for your answer. Source of finance ______________________________________________________ [1] Reason _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3W8 2918 7 [Turn over 4 (a) Draw up a cash-flow forecast for one of the New York City Nails bars for the six months January June 2008 based on the following information and using the format provided on the opposite page. Name of business: New York City Nails Receipts turnover for the six months is forecast at 36 000 50% is expected to come from US brand products and the remainder from nail treatments there is not expected to be any difference in the monthly receipt figures Payments Wages 3 000 per month Telephone 40 per month Insurance is fixed at 2 400 per annum Printing cards and promotional material 50 per month Other expenses 50 per month Debenhams are to be paid 20% of the takings every month (this is the charge for the rent) Opening balance is 1 000 GDB3W8 2918 8 Examiner Only Marks Remark Cash-flow Forecast for New York City Nails January June 2008 Examiner Only Marks January February March April May Remark June Receipts US brand products Nail treatments Total receipts Payments Wages Telephone Insurance Printing and promotion Other expenses Rent Total payments Opening bank balance Add Receipts Less Payments Balance at the end of the month [10] GDB3W8 2918 9 [Turn over (b) Suggest three ways in which a cash-flow forecast might be of help to the manager of the New York City Nails bar. 1. _______________________________________________________ ______________________________________________________ [1] 2. _______________________________________________________ ______________________________________________________ [1] 3. _______________________________________________________ ______________________________________________________ [1] (c) Who else, apart from the owners, is likely to be interested in the cashflow forecast of the New York City Nails bar? Explain your answer. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (d) Should the owners be concerned about the future of the nail bar? Using the information in the cash-flow forecast, give two reasons for your answer. Reason 1 _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] Reason 2 _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3W8 2918 10 Examiner Only Marks Remark (e) As manager, what would you do with the cash balance for June as in the cash-flow forecast on page 9? Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (f) Give two advantages of using a computer to set out a cash-flow forecast. Advantage 1 _________________________________________________________ ______________________________________________________ [1] Advantage 2 _________________________________________________________ ______________________________________________________ [1] GDB3W8 2918 11 [Turn over The manager of one of the New York City Nails bars has been given her sales targets. She wants to see how many treatments she has to do to reach her turnover target. (g) The table below shows the expected costs and revenues. Complete the blank spaces in the table. Number of Total sales treatments revenue ( ) Fixed Costs ( ) Variable Costs ( ) Total Costs Profit/Loss ( ) ( ) 200 2 000 1 500 1 200 2 700 500 5 000 1 500 3 000 4 500 500 1 000 10 000 6 000 7 500 2 500 2 000 20 000 1 500 5 000 50 000 1 500 12 000 6 500 31 500 18 500 [4] (h) Use the information in the table above to draw a break-even graph for the New York City Nails bar. Label the fixed costs, total costs, total revenue lines and indicate the break-even point. Use the grid provided on the page opposite. [4] (i) How many treatments have to be provided if the New York City Nails bar is to break even? ______________________________________________________ [1] ( j) Explain two possible uses of break-even graphs to the manager of the New York City Nails bar. Use 1 _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] Use 2 _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3W8 2918 12 Examiner Only Marks Remark Examiner Only Marks Remark 10 000 9500 9000 8500 8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 100 200 300 400 500 600 700 800 900 1000 Number of treatments GDB3W8 2918 13 [Turn over (k) If the manager discovered that she was not reaching her target for turnover, discuss two options open to her. Option 1 _________________________________________________________ _________________________________________________________ Option 2 _________________________________________________________ ______________________________________________________ [2] (l) The New York City Nails bars use a SAGE computer package to prepare their accounts. Discuss two advantages of using a computer to construct a break-even graph. Advantage 1 _________________________________________________________ ______________________________________________________ [1] Advantage 2 _________________________________________________________ ______________________________________________________ [1] (m) What would be the effect on the break-even point of an increase in the rental fee charged by Debenhams? ______________________________________________________ [1] (n) Explain the difference between a fixed cost and a variable cost. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3W8 2918 14 Examiner Only Marks Remark 5 All of the New York City Nails bars stand alone the manager receives targets from head office but she is responsible for the running of the business. She has to cover all costs. Figures go to head office where a trading, profit and loss account and a balance sheet is drawn up for the business. Examiner Only Marks Remark (a) Explain how a balance sheet differs from a trading, profit and loss account. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (b) Give one advantage to the business of using a computer spreadsheet for a trading, profit and loss account. _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (c) You are the manager of the New York City Nails salon on the Lisburn Road, Belfast. You can access the supplier s website on line. List two advantages of this to the business. Advantage 1 _________________________________________________________ ______________________________________________________ [1] Advantage 2 _________________________________________________________ ______________________________________________________ [1] GDB3W8 2918 15 [Turn over (d) All US brand products are supplied by Lena White Limited (Ltd). What is the name of the document that comes with the products that have been ordered? ______________________________________________________ [1] (e) What is the purpose of this document? _________________________________________________________ ______________________________________________________ [1] (f) How does it differ from an invoice? _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (g) At the end of the month, the manager will receive a statement of account. Explain the purpose of this document. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (h) Why must Lena White Ltd (the supplier) ensure that the statements of account sent to New York City Nails are accurate? _________________________________________________________ ______________________________________________________ [1] GDB3W8 2918 16 Examiner Only Marks Remark 6 The Lynch brothers are planning to expand their business over the next two years. Using the information in the scenario and your own knowledge, discuss the importance of financial planning to them if their sales figures are to be achieved. Extra pages are available overleaf if required. Examiner Only Marks Remark ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ _________________________________________________________ [9] GDB3W8 2918 17 [Turn over Extra page if required Examiner Only Marks ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 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________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ GDB3W8 2918 19 Remark Extra page if required Examiner Only Marks ________________________________________________________________ ________________________________________________________________ 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________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ THIS IS THE END OF THE QUESTION PAPER Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright holders may have been unsuccessful and CCEA will be happy to rectify any omissions of acknowledgement in future if notified. SP (NF/CGW) T34582/5 20 Remark

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