Making Financial Decisions (Edexcel GCSE Business)

Exam Questions

1 hour26 questions
1
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2 marks

Case Study

Mind Candy Ltd produces games and apps for computers and mobile devices. Its most successful game was Moshi Monsters. The game was aimed at young teenagers and was a global hit, with 80 million users in 2012.

In 2013, Mind Candy made large losses as sales revenue fell due to the falling popularity of its games. This was blamed on the short product life cycle of Moshi Monsters and increased competition in its market. As a result of these losses, Mind Candy reduced its workforce of software developers.

Mind Candy now needed to raise £1.2 million of extra finance. It required this finance to pay existing costs and fund the development of new apps such as Petlandia. Mind Candy believes Petlandia will allow it to return to organic growth. The app is free to download and allows players to design a virtual version of their own pet. This virtual pet can go on an adventure within the app. The adventure is then turned into a personalised storybook which can be purchased for £19.99.

Table 2 contains information about Mind Candy’s performance in 2013.

Sales revenue

£30 560 692

Gross profit

£22 190 385

Other operating expenses and interest

£25 044 332

(Source: adapted from https://beta.companieshouse.gov.uk/company/05119483/filing-history)

Table 2

Using the information in Table 2, calculate Mind Candy’s cost of sales. You are advised to show your workings.







£ ..............................................................

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2
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1 mark

Case Study

Mind Candy Ltd produces games and apps for computers and mobile devices. Its most successful game was Moshi Monsters. The game was aimed at young teenagers and was a global hit, with 80 million users in 2012.

In 2013, Mind Candy made large losses as sales revenue fell due to the falling popularity of its games. This was blamed on the short product life cycle of Moshi Monsters and increased competition in its market. As a result of these losses, Mind Candy reduced its workforce of software developers.

Mind Candy now needed to raise £1.2 million of extra finance. It required this finance to pay existing costs and fund the development of new apps such as Petlandia. Mind Candy believes Petlandia will allow it to return to organic growth. The app is free to download and allows players to design a virtual version of their own pet. This virtual pet can go on an adventure within the app. The adventure is then turned into a personalised storybook which can be purchased for £19.99.

Figure 2 shows the market share of UK supermarkets in 2017.

fig-2-paper2-june2019-edexcel-gcse-business

Figure 2

(Source: https://www.kantarworldpanel.com/en/grocery-market-share/great-britain)

Using the information in Figure 2, identify the UK supermarket with a larger market share than Sainsbury’s.

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32 marks

Which two of the following are external sources of finance

Select two answers.

  • Loan capital

  • Retained profit

  • Sales revenue

  •  Selling assets

  • Share capital

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4
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2 marks

Table 1 contains financial information about the performance of a business.

Sales revenue

£625 000

Cost of sales

£145 000

Other operating expenses and interest

£200 000

Table 1

Using the information in Table 1, calculate the gross profit made by the business.
You are advised to show your workings.







£.............................................................

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51 mark

Case Study

Iceland is a supermarket that sells frozen food. Although the grocery industry is very competitive, Iceland enjoyed a successful 2017. Sales revenue increased by 2.0% allowing profits to increase by £9.5 million to £160 million.

Iceland believes this success has been due to improved marketing. It has introduced new products using the Slimming World and Millie’s Cookies brand names. It also launched a new advertising campaign called ‘The Power of Frozen’. In addition it has developed a new store format called ‘The Food Warehouse’. These stores are much larger than a normal Iceland store which allows them to stock more luxury products. Iceland hopes that The Food Warehouse will help it to appeal to high-income customers and it plans to open more stores.

In 2018, Iceland received positive publicity from its decision to ban all plastic packaging on its own-brand products by 2023. It intends to replace plastic with recycled paper, as shown in Figure 3. A survey of 5,000 of its customers showed that 80% of them agreed with the change. Pressure groups, such as Friends of the Earth, have welcomed Iceland’s decision. Plastic waste has caused pollution of the world’s oceans and has killed marine life. Pressure groups hope that Iceland’s decision will be repeated by other supermarkets in the UK.

Figure 4 shows information about the change in Iceland’s sales revenue between 2013 and 2017.

Percentage change in sales revenue 2013 to 2017

fig-4-paper2-nov2020-edexcel-gcse-business

Figure 4

(Source: http://about.iceland.co.uk/wp-content/uploads/2017/12/Iceland-Topco-Ltd-2017-results.pdf)

Using the information in Figure 4, identify the year with the smallest percentage change in Iceland’s sales revenue.

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62 marks

Table 1 contains financial information about a business.

Sales revenue

£800 000

Cost of sales

£225 000

Gross profit

£575 000

Other operating expenses and interest

£200 000

Table 1

Using the information in Table 1, calculate the net profit of the business.

£........................................................

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7
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2 marks

Figure 2 shows the market share of each business in a market.

fig-2-paper2-nov2021-edexcel-gcse-business

Figure 2

Using the information in Figure 2, calculate the market share of Business E. You are advised to show your workings.

............................................................................................. %

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81 mark

Case Study

ASOS plc is an online fashion retailer which targets customers in their 20s. The company started in 2000 and since then it has grown significantly. One of the main reasons for its growth is what Chief Executive Nick Beighton calls, the ‘ASOS Experience’.

The company focuses on high quality logistics to distribute its products and increased use of warehouse technology. This has resulted in a warehouse and distribution system which is almost fully automated (Figure 4). This allows ASOS to deliver customer orders the next day, so long as the order is placed online before midnight. Automation has also given ASOS the ability to increase the range of clothes it can sell on its website.

However, the market for clothes in the UK is becoming increasingly competitive. Despite a significant growth in sales, ASOS’s profits have fallen. This has caused the company’s share price to fall. ASOS has responded by focusing on viral advertising. Its latest campaign is to get customers to use the hashtag #AsSeenOnMe (Figure 5) when they are showing off their latest ASOS outfit on social media. In return, ASOS gives customers the opportunity to be featured on the ASOS Instagram feed which has 7.1 million followers.

Figure 6 shows the ASOS share price over time.

fig-6-paper2-nov2021-edexcel-gcse-business

Figure 6

(Source: adapted from https://www.asosplc.com/
investors/share-price/share-price-chart)

Using the information in Figure 6, identify the year when the ASOS share price was higher than £70.

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92 marks

Which two of the following are ways to increase profit?

Select two answers.

  • Increase owner's capital

  • Reduce costs

  • Increase capital investment

  • Increase revenue

  • Reduce trade credit offered to customers

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101 mark

Which one of the following statements related to net profit is not correct?

  • Net profit is also known as the bottom line

  • Net profit is gross profit minus expenses

  • Net profit is sales revenue minus cost of sales

  • Net profit does not include tax expenses

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111 mark

State one source of financial data that may be used to make decisions.

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12
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2 marks

In 2022 Mascalls Ltd achieved net profit of £2.72m. It incurred expenses of £85,200 and its cost of sales were £1.43m.

Calculate Mascalls Ltd's revenue in 2022.

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1
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2 marks

Table 1 contains information about a new piece of machinery that a business wants to purchase.

Average annual profit

£100 000

Cost of new machine

£400 000

Table 1

Using the information in Table 1, calculate the average rate of return. You are advised to show your workings.







.............................................................. %

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2
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2 marks

Figure 1 shows the sales revenue of a business over three years.

fig-1-paper2-june2019-edexcel-gcse-business

Figure 1

Using the information in Figure 1, calculate the percentage increase in sales revenue from 2015 to 2016. You are advised to show your workings.








.............................................................. %

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3
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2 marks

Case Study

Mind Candy Ltd produces games and apps for computers and mobile devices. Its most successful game was Moshi Monsters. The game was aimed at young teenagers and was a global hit, with 80 million users in 2012.

In 2013, Mind Candy made large losses as sales revenue fell due to the falling popularity of its games. This was blamed on the short product life cycle of Moshi Monsters and increased competition in its market. As a result of these losses, Mind Candy reduced its workforce of software developers.

Mind Candy now needed to raise £1.2 million of extra finance. It required this finance to pay existing costs and fund the development of new apps such as Petlandia. Mind Candy believes Petlandia will allow it to return to organic growth. The app is free to download and allows players to design a virtual version of their own pet. This virtual pet can go on an adventure within the app. The adventure is then turned into a personalised storybook which can be purchased for £19.99.

Table 2 contains information about Mind Candy’s performance in 2013.

Sales revenue

£30 560 692

Gross profit

£22 190 385

Other operating expenses and interest

£25 044 332

(Source: adapted from https://beta.companieshouse.gov.uk/ company/05119483/filing-history)

Table 2

Using the information in Table 2, calculate, to 2 decimal places, Mind Candy’s gross profit margin. You are advised to show your workings.







.............................................................. %

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4
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2 marks

In 2018 a business sold three products, X, Y and Z. Figure 1 shows the sales revenue generated for each of these products.

fig-1-paper2-nov2020-edexcel-gcse-business

Figure 1

Using the information in Figure 1, calculate, to 2 decimal places, the percentage of total sales revenue made by product X in 2018. You are advised to show your workings.







.............................................................%.

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5
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2 marks

Case Study

Tesla is a public limited company based in California, USA. Its founder and main shareholder, Elon Musk, wanted to produce an electric car that is affordable to a large number of potential customers. This car is called the Tesla Model 3 (Figure 3).

Introduced in 2017, the basic version of the Model 3 was originally priced at $50 000 and the company wanted to reduce this price to $35 000 by 2019. However, this was difficult to achieve because Tesla’s California factory suffered from low levels of productivity. These problems resulted in Tesla making a $976 million loss in 2018.

Following the introduction of tariffs on US imports by the Chinese government in 2018, Tesla decided to invest $5 billion in the construction of a new car factory in Shanghai, China. This factory will use flow production. However, with only $2.4 billion of available capital, Tesla needs to raise external finance to fund it.

In 2019, Tesla decided to close most of its showrooms to reduce costs. The company believes customers will be happy to purchase electric cars using e-commerce.

Table 2 contains information about the price of a Tesla Model 3 car between 2017 and 2019.

Year

Price (in US$)

2017

50 000

2018

41 000

2019

35 000

Table 2

Using the information in Table 2, calculate the percentage reduction in the price of a Tesla Model 3 car between 2017 and 2019.

............................................................................................. %

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63 marks

Explain one way that a business could use historical sales revenue data.

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76 marks

Discuss the limitations of using financial data to make business decisions.

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8
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2 marks

Case Study

Mind Candy Ltd produces games and apps for computers and mobile devices. Its most successful game was Moshi Monsters. The game was aimed at young teenagers and was a global hit, with 80 million users in 2012.

In 2013, Mind Candy made large losses as sales revenue fell due to the falling popularity of its games. This was blamed on the short product life cycle of Moshi Monsters and increased competition in its market. As a result of these losses, Mind Candy reduced its workforce of software developers.

Mind Candy now needed to raise £1.2 million of extra finance. It required this finance to pay existing costs and fund the development of new apps such as Petlandia. Mind Candy believes Petlandia will allow it to return to organic growth. The app is free to download and allows players to design a virtual version of their own pet. This virtual pet can go on an adventure within the app. The adventure is then turned into a personalised storybook which can be purchased for £19.99.

Table 2 contains information about Mind Candy’s performance in 2012.

Sales revenue

£44 320 542

Gross profit

£21 450 974

Other operating expenses and interest

£18 084 104


(Source: adapted from https://beta.companieshouse.gov.uk/ company/05119483/filing-history)

Table 2

Using the information in Table 2, calculate, to 2 decimal places, Mind Candy’s net profit margin. You are advised to show your workings.







.............................................................. %

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96 marks

Discuss the ways a business could increase its gross profit margin.

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106 marks

Case Study

Mind Candy Ltd produces games and apps for computers and mobile devices. Its most successful game was Moshi Monsters. The game was aimed at young teenagers and was a global hit, with 80 million users in 2012.

In 2013, Mind Candy made large losses as sales revenue fell due to the falling popularity of its games. This was blamed on the short product life cycle of Moshi Monsters and increased competition in its market. As a result of these losses, Mind Candy reduced its workforce of software developers.

Mind Candy now needed to raise £1.2 million of extra finance. It required this finance to pay existing costs and fund the development of new apps such as Petlandia. Mind Candy believes Petlandia will allow it to return to organic growth. The app is free to download and allows players to design a virtual version of their own pet. This virtual pet can go on an adventure within the app. The adventure is then turned into a personalised storybook which can be purchased for £19.99.

Analyse the benefit to Mind Candy of calculating the Average Rate of Return (ARR) for the development of the new Petlandia app.

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113 marks

Explain one way a business could improve its net profit margin.

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126 marks

Case Study

Kentucky Fried Chicken (KFC) is a fast food chain that sells fried chicken. Amongst its most popular products are Popcorn Chicken, Boneless Chicken boxes and Zinger Tower burgers. These are freshly cooked in batches in each of its 900 restaurants across the UK.

In 2017, KFC changed the company it used to transport its supplies of chicken. It replaced Bidvest with DHL. Bidvest had three distribution centres across the UK, but DHL only had one. In February 2018, DHL started to have logistical problems causing many KFC restaurants to run out of chicken. This led to a temporary closure of many KFC branches due to poor supplier reliability.

As a result of these closures, KFC started losing market share to rival fast food restaurants such as Burger King. KFC used social media and a viral advertising campaign to apologise to customers. It also considered lowering the prices of its most popular food items to win back lost customers and recapture market share.

Analyse the likely impact on KFC's net profit of the supply issues faced in 2018.

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112 marks

Case Study

In August 2017, UK supermarket group Sainsbury’s decided to cut its costs by £500 million to remain competitive.

One of the changes Sainsbury’s made was to end its membership of Fairtrade. The Fairtrade scheme gives farmers in countries such as Kenya a higher price for their crops, such as tea. In return, Sainsbury’s can use the Fairtrade logo on its products. This makes its groceries, such as bananas, more attractive to ethically-minded customers.

Sainsbury’s has decided to replace Fairtrade with its own scheme called ‘Fairly Traded’. Critics of the change believe that it confuses customers. Protests about this change have already been held in London.

Sainsbury’s also decided to reduce its head office workforce by 1,000. This allowed the company to increase wages for its shop floor employees, including checkout operators and shelf stackers, by 4.4% to £8 per hour. This reduced the wage difference with Aldi, which pays £8.53 per hour. Sainsbury’s wants to retrain shop floor employees to improve the customer service in its stores.

Evaluate the impact on Sainsbury’s of reducing costs to remain competitive. You should use the information provided as well as your knowledge of business.

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29 marks

Case Study

Mind Candy Ltd produces games and apps for computers and mobile devices. Its most successful game was Moshi Monsters. The game was aimed at young teenagers and was a global hit, with 80 million users in 2012.

In 2013, Mind Candy made large losses as sales revenue fell due to the falling popularity of its games. This was blamed on the short product life cycle of Moshi Monsters and increased competition in its market. As a result of these losses, Mind Candy reduced its workforce of software developers.

Mind Candy now needed to raise £1.2 million of extra finance. It required this finance to pay existing costs and fund the development of new apps such as Petlandia. Mind Candy believes Petlandia will allow it to return to organic growth. The app is free to download and allows players to design a virtual version of their own pet. This virtual pet can go on an adventure within the app. The adventure is then turned into a personalised storybook which can be purchased for £19.99.

In order to increase its net profit margin Mind Candy is considering two options:

Option 1: developing and selling a range of Petlandia-themed children's toys

Option 2: requiring all staff to work remotely

Justify which one of these two options Mind Candy should choose.

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