Business Studies · Oct / Nov 2016 · Paper 22 · Question 2
7115
As printed in the paper
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2(a)(i)[4]
Calculate the break-even level of output for the house cleaning service using the information in Appendix 1. [4]
Application [4 × 1] – award four marks for correct calculation. Cleaning () () ( ) $30 1 $150 ( 1) $15 1 − = 10 houses per week (4)
(If just correct answer given with no working shown award 4 marks) 1 mark for correct formula if the rest of the answer is incorrect = Fixed costs/Contribution
2(a)(ii)[4]
Calculate the weekly profit for the house cleaning service using the information in Appendix 1. [4]
Application [4 × 1] – award four marks for correct calculation. Cleaning 30 cleaners × 20 hours a week x $10 price per hour = $6 000 TR (1)
30 cleaners × 20 hours a week x $5 wages per hour = $3 000 TVC (1)
$6 000 – ($150 (1)
+ $3 000) = $2 850 per week (4)
(If just correct answer with no calculations shown given award 4 marks) 1 mark for correct formula if rest of the answer is incorrect TR – TC (FC + VC) = profit
2(b)[12]
Consider why the following financial information is important to a bank manager when deciding whether to give Ghaziz and Jasmin a loan to launch the new service. Which do you think is the most important information to the bank manager? Justify your answer. [12]
Relevant points might include: Break-even level of output
knowing how many customers are needed to cover all costshow high is the margin of safety Profitability of the businessthe surplus left over after all the costs have been paid and provides a return on the investment of the partnersability to repay the loan Liquidity of the businessEnsures there is sufficient cash available to pay short-term debts otherwise the business might have to close/not able to repay the loan. Knowledge/Analysis/Evaluation – award up to 10 marks using the levels-based mark scheme below. Knowledge/Analysis/ Evaluation Level 3 At least 2 × Level 2 + 9–10 marks for well justified conclusion as to which piece of financial information is most important and why it is more important than the other information. 7–8 marks for some limited judgement shown in the conclusion as to which piece of financial information is most important. Level 2 4–6 marks Detailed discussion of why each piece of financial information is important to the bank manager. Level 1 1–3 marks Outline of why each piece of financial information is important to the bank manager. Level 1 – 1 mark for each L1 statement (max of 3 marks) e.g. Knowing how many customers are needed to cover all the costs to break-even. Level 2 – 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Knowing how many customers are needed to cover all the costs to break-even. This will allow the bank manager to look at the margin of safety and assess how much profit the business is likely to make. They can see if the business will be able to repay the loan. (L2) However, break-even is only an estimate and the sales might not take place at the price they are planning to charge.(L2)(5 marks for good L2 answer) Level 3 – For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion as to which piece of financial information is most important. Award up to 2 additional marks for relevant application. Possible application marks: gardening services;house cleaning services;
partnership set up 5 years ago;
their cash flow is positive and finances managed well;
50 part-time workers;
income in country X is increasing;
employment in country X is increasing;
elderly people;
old people;
adult children;
cleaners wages;
gardeners wages;
information from the graph in Appendix 3. There may be other examples in context which have not been included here.
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