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UK GCSE JUN 2008 : Unit 3 Business Finance

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Centre Number 71 Candidate Number General Certificate of Secondary Education 2008 Unit 3: Business Finance GDB31 Applied Business Double Award [GDB31] TUESDAY 10 JUNE, AFTERNOON TIME 1 hour 30 minutes. INSTRUCTIONS TO CANDIDATES Write your Centre Number and Candidate Number in the spaces provided at the top of this page. Write your answers in the spaces provided in this question paper. Answer all six questions. There should be enough space for your answers. If you do require more space, you may complete your answers on the extra lined pages at the back of this booklet. INFORMATION FOR CANDIDATES The total mark for this paper is 90. Figures in brackets printed down the right-hand side of pages indicate the marks awarded to each question or part question. For Examiner s use only Question Number 1 2 3 4 5 6 Total Marks GDB3S8 3275 Marks BLANK PAGE GDB3S8 3275 2 Background Information The questions in this paper are based on the following information. You should read this carefully before you start to answer the questions. Building up a niche to sew ever richer seams Source: Declan Doherty 5 10 15 20 The sound of the factory horn in Phil Coulter s hit song, The Town I Loved So Well has long since been silenced in Derry, the one time shirt manufacturing centre of the world. The shirt industry has been decimated as one company after another moved its operations to low cost economies. One such company was Coats Viyella, the largest supplier of shirts for Marks & Spencer plc. They employed approximately 600 at their Trench Road factory in Londonderry. Marks & Spencer switched to sourcing more products from low cost suppliers and this factory was faced with closure. Glenaden Shirts Ltd was created in 2000 when it was bought out by its current management from Coats Viyella. It was a huge risk but the alternative was to see an excellent factory and a great workforce go to waste and machines literally to be sold for scrap . Andrew Lowden, who led the buyout and is now the managing director of the new enterprise, believed that there was a niche market for premium, British made shirts. First he had to persuade would-be investors and 120 key employees of the merits of the business plan and the need for new work practices. All of the workers who stayed became shareholders in the new company . They had the machinery, the factory, the skilled workers and a decent order book. The company has enjoyed consistent growth over the past six years. It has an annual turnover of 3.5m making 300 000 shirts a year. This year it received a further boost when Amicus Capital Partners bought a controlling stake in the company. The company s shirts, which sell for between 55 and 90 can be found under the brand names 1 and Thread and Bone in such up market stores as Brown Thomas and House of Fraser. They also make shirts for Thomas Pink and they sell directly through their website www.glenaden.com. The shirts are designed in Ireland and the finest fabrics are imported from Italy to produce luxury formal and casual shirts for the premium quality end of the market. Adapted from: Quality first doesn't mean losing the shirt off your back by Douglas Dalby, The Sunday Times, 21 May 2006. GDB3S8 3275 3 [Turn over 1 (a) It was announced on 9th May 2006 that Amicus Capital acquired a controlling interest in Glenaden Shirts Ltd. Amicus Capital is a venture capital company. Why would a company like Amicus Capital want to invest in Glenaden Shirts Ltd? _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (b) Give two benefits to Glenaden Shirts Ltd of such an investment. Benefit 1. ________________________________________________ _________________________________________________________ ______________________________________________________ [2] Benefit 2. ________________________________________________ _________________________________________________________ ______________________________________________________ [2] (c) Identify two other sources of finance which may be available to fund the expansion plans for Glenaden Shirts Ltd. Source 1. _____________________________________________ [1] Source 2. _____________________________________________ [1] (d) Explain why a company like Glenaden Shirts Ltd may find it difficult to raise finance. _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S8 3275 Examiner Only Marks Remark (e) The factory premises at Trench Road are leased by Glenaden Shirts Ltd. Explain one advantage and one disadvantage to Glenaden Shirts Ltd of leasing the factory premises. Examiner Only Marks Remark 1. Advantage ____________________________________________ _________________________________________________________ ______________________________________________________ [2] 2. Disadvantage ___________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S8 3275 [Turn over 2 (a) Order No. 34556 from the Production Manager, Glenaden Shirts, Trench Road, Derry, BT47 2US to supplier, Albini, Milan, Italy and dated 30th April, 2006 requested the following materials: Product Description Quantity Unit Price 1503 8018 1002 pale mauve cotton cashew cotton burgundy cotton 200 metres 100 metres 300 metres Examiner Only Marks 5 per metre 6 per metre 5 per metre Complete the invoice below No. 01781 that would be received by the Finance Manager at Glenaden Shirts. VAT is to be charged at 17.5% Date as of today Terms 60 days INVOICE Albini Milan Italy Invoice To PRODUCT Invoice No. Date DESCRIPTION QUANTITY PRICE Goods Total VAT Total Terms 60 days [5] GDB3S8 3275 Remark (b) Explain the purpose of an invoice. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (c) Explain the meaning of Terms 0 days at the bottom of the invoice. _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (d) Glenaden Shirts will cross-check the invoice with two other documents before any payment is made. Name the two documents. Document 1. ______________________________________________ ______________________________________________________ [1] Document 2. ______________________________________________ ______________________________________________________ [1] (e) Explain why the information on all documents must be accurate. _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (f) Glenaden Shirts Ltd used ICT to automate the production of documents. Give two advantages of this to the business. Advantage 1. _____________________________________________ ______________________________________________________ [1] Advantage 2. _____________________________________________ ______________________________________________________ [1] GDB3S8 3275 7 [Turn over 3 (a) The Finance Manager of Glenaden Shirts is anxious to know how many of its own brand shirts need to be produced to break even. The following costs have been listed. Examiner Only Marks Classify each cost by placing a tick (3) under the correct heading in the table below. Fixed Costs Variable Costs Rates Labour Trimmings, e.g. buttons Shipping costs Material Selling costs, e.g. exhibitions Lease of premises [7] GDB3S8 3275 8 Remark (b) Calculate the break-even level of production for Glenaden own brand shirts using the following information: Examiner Only Marks Remark Material costs 5 per metre. It takes 1.8 metres to make a shirt Trimmings 2 per shirt Shipping costs 50p per shirt Selling costs 50p per shirt Other costs 3 per shirt Labour 10 per shirt Fixed costs 100,000 per annum The selling price of a Glenaden own brand shirt to the retailer is 30. Please show all calculations in the space below. [4] GDB3S8 3275 [Turn over (c) Calculate the level of profit if 50 000 shirts are produced. Please show all calculations in the space below. Examiner Only Marks [4] (d) What would be the effect for Glenaden Shirts Ltd of a reduction in the level of output at which it breaks even? ______________________________________________________ [1] (e) Give two benefits to the management of Glenaden Shirts Ltd of break-even analysis. 1. _______________________________________________________ ______________________________________________________ [1] 2. _______________________________________________________ ______________________________________________________ [1] GDB3S8 3275 10 Remark (f) Glenaden Shirts Ltd has invested heavily in ICT. Discuss the role played by ICT in helping to reduce the costs in a manufacturing business like Glenaden Shirts Ltd. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [4] (a) The accounts of Glenaden Shirts Ltd are audited annually by the Company auditors. A copy of the final accounts is sent to Companies House. Discuss why Amicus Capital would be interested in the final accounts. _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [4] GDB3S8 3275 11 [Turn over Details of the costs and revenues for Glenaden Shirts Ltd for the year ended 31st May, 2008 are given below: Opening stock Sales Closing stock Purchases Rent of premises Wages Marketing costs Heating and lighting Telephone Insurance 250 000 3 500 000 500 000 3 000 000 12 000 150 000 5 000 2 000 700 3 000 (b) Use the information above to complete the following Trading and Profit and Loss Account for the year ended 31st May, 2008. Sales Cost of Sales Gross Profit Expenses Total Expenses Net Profit [7] GDB3S8 3275 12 Examiner Only Marks Remark (c) The balance sheet is one of the documents forwarded to Companies House. Explain the purpose of a balance sheet for Glenaden Shirts Ltd. Examiner Only Marks Remark _________________________________________________________ _________________________________________________________ _________________________________________________________ _________________________________________________________ ______________________________________________________ [3] (d) (i) What figure in the balance sheet would be of particular interest to the suppliers to Glenaden Shirts Ltd? __________________________________________________ [1] (ii) Give a reason for your answer. _____________________________________________________ _____________________________________________________ __________________________________________________ [2] (e) Who are the debtors of Glenaden Shirts Ltd? ______________________________________________________ [1] (f) Explain why Glenaden Shirts Ltd might have a large figure of 500 000 for stock in their Balance Sheet. _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S8 3275 13 [Turn over (a) Explain why each of the following might find the information in the balance sheet of Glenaden Shirts Ltd useful. 1. The Managers _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] 2. The Shareholders _________________________________________________________ _________________________________________________________ ______________________________________________________ [2] (b) Glenaden Shirts Ltd has credit terms of 60 days with suppliers and they allow their customers 50 days in which to pay for the shirts. This could cause a cash flow problem for them. Identify two problems that poor cash flow can cause for Glenaden Shirts Ltd. Problem 1. _______________________________________________ ______________________________________________________ [1] Problem 2. _______________________________________________ ______________________________________________________ [1] (c) Discuss two methods that Glenaden Shirts Ltd might use to reduce a cash flow problem. Method 1. ________________________________________________ _________________________________________________________ ______________________________________________________ [2] Method 2. ________________________________________________ _________________________________________________________ ______________________________________________________ [2] GDB3S8 3275 1 Examiner Only Marks Remark Discuss why the production budget for Glenaden Shirts Ltd might have an adverse variance at a given time. Examiner Only Marks Remark Your answer should demonstrate an understanding of: a production budget a variance and an adverse variance with particular reference to Glenaden Shirts Ltd. ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ ____________________________________________________________ _________________________________________________________ [9] GDB3S8 3275 1 [Turn over Extra page if required ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ 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________________________________________________________________ ________________________________________________________________ GDB3S8 3275 1 Examiner Only Marks Remark Extra page if required Examiner Only Marks Remark ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ GDB3S8 3275 17 [Turn over Extra page if required ________________________________________________________________ ________________________________________________________________ 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________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ GDB3S8 3275 18 Examiner Only Marks Remark THIS IS THE END OF THE QUESTION PAPER GDB3S8 3275 1 Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright holders may have been unsuccessful and CCEA will be happy to rectify any omissions of acknowledgement in future if notified. SP (NF/CGW) T43097/3

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