Business Studies · Oct / Nov 2023 · Paper 11 · Question 3

0450

As printed in the paper

The question as text

ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the 3 directors plan to analyse ACP’s financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow.

Read automatically from the paper; the printed page above is exact.

Show the answer and mark scheme

3(a)[2]
Identify two external users of accounts. Award 1 mark per external user of accounts identified (max 2). Points might include:
Banks/lenders
Suppliers
Government
Competitors
Other businesses e.g. insurance companies
Pressure groups
Investors/shareholders
Customers Other appropriate responses should also be credited. 2 Only award the first two responses given. Do not award examples of internal users of accounts e.g. employees. Do not award 'stakeholder' as this does not answer the question. Accept creditors alone as an alternative to lenders/bank/suppliers if no specific example is given of a creditor.
3(b)[2]
Identify two profitability ratios. Award 1 mark per profitability ratio (max 2). Two from:
Gross profit margin/ratio/percentage
Profit margin/ratio/percentage
Return on capital employed/ROCE Other appropriate responses should also be credited. 2 Only award the first two responses given. Allow correct formula e.g. Gross profit:sales revenue Notes
3(c)[4]
Outline two possible reasons why ACP imports its raw materials. Award 1 mark for each relevant reason (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
Lower prices/cost of materials [k] which could help the business manage its cash flow [app]
Access to a wider range of materials [k] to make its computers [app]
Limited resources available from own country [k] especially as trying to act in an ethical way [app]
Better quality (than available in own country) [k] which may be why the business already import 65% [app]
Purchasing from ethical supplier [k][app] Other appropriate responses should also be credited. 4 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
65%
Cash flow
Production/manufacture
(Manufacture) computers
(Act in an) ethical way
3000 (workers)
Factory
Profit is important Other appropriate examples can be credited. Notes
3(d)[6]
Explain one benefit and one limitation to ACP of being ethical. Award 1 mark for identification of each relevant benefit/limitation (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include: Benefits:
Good image/good reputation/customer loyalty [k] so customers more willing to pay high prices [an] for its computers [app]
High/higher demand/sales [k] which can help increase revenue [an]
Can help recruit/motivate/retain workers [k] reducing recruitment costs [an] as the business has 3000 employees [app]
Better supplier relations (as pay a fair price) [k] which can help ensure the necessary supply to maintain production [an]
Investors more likely to invest [k]
Less opposition from pressure groups [k] Limitations:
Limited/fewer sources of materials [k] which may lead to less output [an] as already imports 65% of its raw materials [app]
May have to pay more to suppliers [k] leading to higher variable costs/cost of goods sold [an]
Workers may have to be paid more [k] at the factory [app] increasing labour costs [an]
Higher costs [k] could lead to higher prices [an] Other appropriate responses should also be credited. 6 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
65%/import
Cash flow
Raw materials
Computers
3000 employees
Factory
Production/manufacture
Profit is important/profitability ratios Other appropriate examples can be credited. Some points can be awarded as [k] or [an] but do not award the same point twice. Notes
3(e)[6]
Do you think making a profit is more important for a business than managing its cash flow? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for a justified decision as to whether making a profit is more important for a business than managing its cash flow. Points might include: Profit:
It is a source of finance [k] may increase opportunity for growth [an]
Reward for risk-taking/allows dividend for owners [k] without it, owners will have less incentive to invest [an]
Reward for enterprise [k]
Indicator/measure of success [k]
Important for long-term survival [k] Cash flow:
Need cash to pay day-to-day costs/ensures liquidity/help avoid cash flow problems/pay debt [k] otherwise might have insufficient funds/working capital to continue production [an]
Sales may be on credit [k] therefore money received later [an]
Reduced need for overdraft [k] which would add to interest costs [an] Other appropriate responses should also be credited. Justification might include: Profit is a reward for risk-taking [k], without it owners will have less incentive to invest [an]. Cash flow is needed to pay day-to-day costs [k] to ensure sufficient inventory to continue production. [an] Managing cash flow is likely to be more important because a business can continue in the short term without making a profit, [eval] but without sufficient cash flow a business may be unable to operate and earn revenue [eval]. 6 This is a general question so there are no marks for application. Allow attracts investors/investment as a [k] or [an] once Do not allow ‘important for growth’ without the idea that it is a source of finance/or for reinvestment. Notes

Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.