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Business Studies · May / June 2020 · Paper 21 · Question 4

0450

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  • 4(a)[8]

    Explain two reasons why profit is important to FJ. Award 1 mark for each relevant reason (maximum of 2). Relevant reasons might include:

    Return on investment
    Source of retained profit for investment
    Attracts business partners
    Enables Simon to pay a bonus to employees Award a maximum of 3 additional marks for each explanation of why profit is important to FJ – one of which must be applied to this context. For example: As a return on his investment (1)

    as Simon gave up his job and risked his own money in starting FJ (app). If no profit is made, then Simon could have put his money elsewhere and gained a return on it (1)

    and he may decide to close down FJ and start up another business. (1)

    8

  • 4(b)[12]

    Consider the two products outlined in Appendix 3. Which product should FJ produce? Justify your answer using relevant calculations. Level Description 3 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both products. Well-justified recommendation. Candidates discussing both products in detail, in context and with well-justified recommendation including why the alternative product was rejected should be rewarded with the top marks in the band. 9–12 2 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one product. Judgement with some justification/some evaluation of choice made. Candidates discussing both products in detail and applying it to the case should be rewarded with the top marks in the band. 5–8 1 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss each product with little/no explanation. Simple judgement with limited justification/limited evaluation of choice made. Candidates outlining both products in context should be rewarded with the top marks in the band. 1–4 0 No creditable response. 0 12 Relevant reasons might include: Drink A

    Selling price is $3.00 higher than Drink B
    Targeted at higher income consumers so may be willing to pay the higher price
    Revenue = $10 000
    Total cost = $8500
    Profit = $1500 per week
    Gross Profit $2000
    Gross profit per drink = $1.00
    GPM = 20%
    PM = 15%
    Average cost = $4.25
    Highest quality with more fruits in the drink
    More variety of drinks available as uses 6 different fruits Drink B
    Revenue = $10 000 same as Drink A
    Total cost = $5500
    Profit = $4500 per week
    Gross profit = $5000
    Gross profit per drink = $1.00
    GPM = 50%
    PM = 45%
    Average cost = $1.10
    Only two fruits in each drink will make the drink lower quality
    Highest sales - forecast demand is 3000 higher than Drink A
    Break-even = 500 same as break-even for Drink A = 500 Recommendation Justification might include:
    Choose Drink A as although Drink B will give the highest profit of the two drinks it is the lowest quality of drink with only two fruits. As incomes increase customers may prefer the higher quality drinks and so drink A may become more popular and drink B lose sales. The sales figures are only predictions anyway and may be different.
    Drink B may be best to choose as it has the highest gross and profit margins and also makes the highest profit per week. Even though incomes are rising, and it targets lower income customers, they may still have high sales as customers may just buy more of these drinks. Also, more likely to have higher sales than Drink A which will make it easier to expand and sell the drinks after opening more fruit drink market stalls.
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