Business Studies · Oct / Nov 2019 · Paper 11 · Question 1
7115
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The question as text
BFF makes a range of computer screens that it sells to other manufacturers. The Managing Director has been looking at BFF’s income statement. She is worried about the effects of an increase in the cost of materials. She said: ‘Changes in technology have improved our production methods. BFF needs to remain competitive as imports of computer screens are increasing.’ The Managing Director has to decide whether BFF should increase its prices.
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1(a)[2]
What is meant by ‘income statement’? Clear understanding [2]: A financial document that records the revenue, costs and profit for a given period of time. Some understanding [1]: Shows revenue and costs / shows profit
1(b)[2]
Identify the effect of an increase in the cost of materials on each of the following:
Cost of sales: increase costs
Gross profit: decrease gross profit
Award 1 mark per effect identified.
1(c)[4]
Identify and explain two ways in which BFF’s managers could use information contained in the income statement. Knowledge [2 × 1] – award 1 mark for each way.
Application [2 × 1] – award 1 mark for each explanation in context. Points might include:
Able to calculate the profitability ratios [k] to see the effect of the increase in material costs [app]Helps assess efficiency [k] to see benefit from advances in technology [app]Able to compare performance with similar businesses [k]Able to compare performance between different time periods [k]Show shareholders / owners how business performed [k]It is used to measure business success / decide if the business should continue trading [k]Used to support an application for a loan [k]1(d)[6]
Identify and explain two ways changes in technology used in production could help BFF to remain competitive. Knowledge [2 × 1] – award 1 mark for each relevant way. Application [2 × 1] – award 1 mark if relevant reference made to this business.
Analysis [2 × 1] – award 1 mark for each relevant explanation. Points might include:
Machines replace labour [k] helping improve its income statement [app] so less wages need to be paid [an]Wider range of products [k] such as screens [app] to appeal to more customers or markets [an]Able to produce more / improved productivity / more efficient [k] so able to lower prices [an] and compete with imports [app]Technology improves flexibility [k] so the business can react to changes in demand [an] for computers [app]Reduces waste / less errors / consistent quality [k]1(e)[6]
Do you think BFF should increase its prices? Justify your answer.
Knowledge [1] – award 1 mark for identification of relevant point(s) Application [1] – award 1 mark for a relevant reference made to this business
Analysis [2] – award up to 2 marks for relevant development of point(s)
Evaluation [2] – justified decision made as to whether BFF should increase its prices.
Points might include:
Could increase revenue [k] so more money available to cover costs [an] such as increase in material costs [app]Could lead to fewer customers [k] as higher price could encourage customers to switch to competitors [an] so difficult to remain competitive [app]They need to increase prices to cover cost [k] because of the increase in material costs [app]Gives an impression of quality [k]Keeping prices low may increase market share [k] because it is a competitive market [app] as lower price attracts customers [an]
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