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UK GCSE JUNE 2006 : Unit 3 Business Finance

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Centre Number 71 Candidate Number General Certificate of Secondary Education 2006 Unit 3: Business Finance GDB31 Applied Business Double Award [GDB31] THURSDAY 15 JUNE, AFTERNOON 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. Answer all seven questions. 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. For Examiner s use only Question Number INFORMATION FOR CANDIDATES 1 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. 2 3 4 5 6 7 Total Marks GDB3S6 888 Marks BLANK PAGE GDB3S6 888 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. Beauty is in the eye of the beholder Hannah McGuinness qualified from the National College of Art and Design in Craft Design with first-class honours. She took up a position as a teacher in a Dublin school and in her spare time she designed pieces of jewellery for exhibition. She also undertook commission work for the Crafts Council of Ireland. Following a family bereavement, she took a career break and returned to her home in Glenties in south west Donegal. After a year she resigned from her teaching job and decided to develop her hobby of making jewellery into a small business. Her parents own a property on the main street in which they run a caf and they agreed to provide her with a room on the first floor for a studio. She enrolled on a Startup Business Course, received a grant, bought the necessary equipment, e.g. a bench, a rolling mill, an ultrasonic cleaner, a polishing machine, some pliers and set up her business. She designs and makes rings, chains, bracelets, ear-rings, and bridal wear, e.g. tiaras. Her pieces are sold across the country and internationally. She won an Enterprise design award in 2000. Hannah draws influences from fashion and architecture. She uses a broad mix of hands-on techniques and materials, and her pieces range from simple works in sculpted perspex with gold or silver, to more colourful and intricate creations in woven wire. She also designs work to commission. She made a special piece for Moya Doherty of Riverdance fame. Source: Start a Business. Invest N.I. Business Hotline Publications 2003 GDB3S6 888 3 [Turn over 1 When Hannah attended the Start-up Business course she was introduced to two types of costs start-up costs and running costs. (a) Briefly explain start-up costs. _________________________________________________________ ______________________________________________________ [1] (b) Give two examples of start-up costs for Hannah. _________________________________________________________ ______________________________________________________ [2] (c) Briefly explain running costs. _________________________________________________________ ______________________________________________________ [1] (d) Give two examples of running costs for Hannah. _________________________________________________________ ______________________________________________________ [2] (e) Select and calculate the total start-up costs for the business from the information given below. Ultrasonic cleaner Rates Electricity Polishing machine Rolling mill Telephone Advertising for 6 months Stationery Bench 500 400 280 600 700 450 360 135 900 ______________________________________________________ [2] GDB3S6 888 4 Examiner Only Marks Remark (f ) Why is it important for Hannah to know the costs of the business? Give two reasons. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (g) Explain how, in the future, the use of ICT could help Hannah to reduce her costs. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S6 888 5 [Turn over 2 Hannah uses different payment methods for the business expenses. Suggest a suitable method of payment for each of the following and give a reason for your answer. (Each method should only be used once.) (a) Telephone bill Method _______________________________________________ [1] Reason __________________________________________________ ______________________________________________________ [2] (b) Money owing to the supplier of raw materials, e.g. silver Method _______________________________________________ [1] Reason __________________________________________________ ______________________________________________________ [2] (c) Purchase of stationery Method _______________________________________________ [1] Reason __________________________________________________ ______________________________________________________ [2] (d) Insurance of premises Method _______________________________________________ [1] Reason __________________________________________________ ______________________________________________________ [2] GDB3S6 888 6 Examiner Only Marks Remark 3 Hannah makes silver bracelets. Each item costs 90. Variable costs in the manufacture of the bracelets include: Examiner Only Marks Remark 40 labour 15 materials 5 other costs Fixed costs 2100 (a) Calculate the number of bracelets Hannah needs to sell to break even. Show your working. [3] (b) Hannah hopes to make a profit of 9 000. How many bracelets would she have to sell to achieve this? Show your working. [3] GDB3S6 888 7 [Turn over (c) How might Hannah make the same level of profit by selling fewer bracelets? _________________________________________________________ ______________________________________________________ [1] (d) Explain to Hannah two problems she might face by doing this. _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (e) The cost of the materials used to make the jewellery increases by 15%. What effect would this have on Hannah s break-even level of sales? _________________________________________________________ ______________________________________________________ [1] (f ) Explain two benefits to Hannah of using break-even analysis. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (g) What would be the advantage to Hannah of using a computer spreadsheet for break-even calculations? _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S6 888 8 Examiner Only Marks Remark 4 Hannah is aware of the importance of planning and she knows that despite careful planning, things can go wrong. She has set targets for income and costs of production for the year. Examiner Only Marks Remark (a) Name the two budgets she will draw up. (i) _____________________________________________________ (ii) __________________________________________________ [2] (b) Explain the purpose of each of the above. Budget 1 _________________________________________________ _________________________________________________________ ______________________________________________________ [1] Budget 2 _________________________________________________ _________________________________________________________ ______________________________________________________ [1] (c) Explain two benefits to Hannah of setting budgets. _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S6 888 9 [Turn over (d) Fig. 1 below shows part of Hannah s sales budget for 2005. Sales Budget Report 2005 JANUARY FEBRUARY MARCH Product Forecast Actual Variance Forecast Actual Variance Forecast Actual Variance Bracelets 500 200 300 600 300 300 Rings 200 300 +100 300 200 100 Ear-rings 100 200 +100 150 Chains 400 200 200 400 1200 900 1450 Total 600 100 300 200 100 +50 300 400 +100 400 500 700 +200 1100 350 1800 1900 +100 Fig. 1 Examiner Only (i) What is meant by a variance from budget? Marks _____________________________________________________ _____________________________________________________ __________________________________________________ [1] (ii) Complete the shaded boxes in Fig. 1 above. [3] (iii) Give reasons why the actual number of items sold in the period above might be different from the forecast figures. _____________________________________________________ _____________________________________________________ __________________________________________________ [2] (iv) Should Hannah be pleased with the sales levels in the budget? Explain your answer. _____________________________________________________ _____________________________________________________ _____________________________________________________ __________________________________________________ [2] GDB3S6 888 10 Remark (e) State two advantages to Hannah of using a spreadsheet to produce sales budgets in the future. Examiner Only Marks Remark Advantage 1 ______________________________________________ _________________________________________________________ Advantage 2 ______________________________________________ ______________________________________________________ [2] (f ) Describe two consequences of inaccurate forecasting for Hannah s business. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [4] GDB3S6 888 11 [Turn over 5 Hannah regularly attends international trade fairs in Paris where she buys quality stones for her jewellery. (a) What document does Hannah complete when ordering stones for her pieces? ______________________________________________________ [1] (b) Why must it be completed accurately? _________________________________________________________ ______________________________________________________ [1] (c) What document will Hannah receive which states what goods are being delivered? ______________________________________________________ [1] (d) What is the document sent by the supplier which tells Hannah how much is owed and when it has to be paid? ______________________________________________________ [1] (e) Sometimes mistakes are made by suppliers when sending out this document. Explain the effect of such mistakes for (i) the supplier _____________________________________________________ _____________________________________________________ __________________________________________________ [2] (ii) the customer, e.g. Hannah _____________________________________________________ _____________________________________________________ __________________________________________________ [2] GDB3S6 888 12 Examiner Only Marks Remark (f) What is meant by the term 30 days net which appears at the bottom of this document? Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ ______________________________________________________ [1] (g) Name the document sent to the supplier to inform him/her which invoices are being paid. ______________________________________________________ [1] (h) Hannah accepts payment from customers in a number of ways. (i) What is meant by a cash payment? __________________________________________________ [1] (ii) What is meant by a credit payment? __________________________________________________ [1] (i) Hannah wants to buy the latest machine for polishing silver. Decide whether internal or external sources of finance would be most suitable for this. Give two reasons for your answer. _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [4] GDB3S6 888 13 [Turn over 6 Hannah is aware that many small businesses like hers run into financial difficulties even when their goods are selling well. In order to prevent this from happening, she has been advised to draw up a cash-flow forecast. (a) What is a cash-flow forecast? _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (b) Who else, apart from Hannah, is likely to be interested in her cash-flow forecast? Give a reason for your answer. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (c) During her first few months of trading Hannah s business experienced a cash-flow problem . What is meant by a cash-flow problem ? _________________________________________________________ _________________________________________________________ ______________________________________________________ [1] (d) Hannah notices that her bank overdraft is increasing. Give two reasons which might explain this. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S6 888 14 Examiner Only Marks Remark 7 Hannah s jewellery may be purchased from her studio in Glenties and from a number of well known department stores and craft specialist outlets throughout the country. She leaves her products with the retailers and relies on them to pay her when the goods have been sold. She does not know the credit worthiness of her customers and a few of them have failed to pay their bills. This has caused cash-flow problems for her in the past. Discuss ways to help Hannah maintain a favourable cash-flow position. Examiner Only Marks Remark ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ _________________________________________________________ [9] GDB3S6 888 15 [Turn over Extra page if required 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________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ GDB3S6 888 17 [Turn over Extra page if required ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ GDB3S6 888 18 Examiner Only Marks Remark THIS IS THE END OF THE QUESTION PAPER GDB3S6 888 19 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 (CW/CGW) T20389/2

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