3.3 EFFECTIVE FINANCIAL MANAGEMENT – REVISION QUESTIONS Q1.

Shiftyjelly is currently designing a new weather app for tablet computers such as Apple's iPad. The company wants to sell the app for £2. The estimated costs of developing the app are:

Fixed costs = £2 000

Variable costs = 40p per app

Below is a break-even chart for the new weather app.

What is meant by the term break-even point?

(2) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q2.

Shiftyjelly is a business which designs applications or 'apps' for smart phones and tablet computers. It currently employs two full-time and three part-time app developers. Each member of staff is paid a salary for their work.

(Source: adapted from http://shiftyjelly.com)

Shiftyjelly is currently designing a new weather app for tablet computers such as Apple's iPad. The company wants to sell the app for £2. The estimated costs of developing the app are:

Fixed costs = £2 000

Variable costs = 40p per app

Below is a break-even chart for the new weather app.

(i) Using the break-even chart, state the number of apps Shiftyjelly must sell in order to break-even. (1)

.............................................................................................................................................. ..............................................................................................................................................

(ii) Shiftyjelly is expecting to sell 3000 copies of its weather app. Calculate the margin of safety for this product. Show your workings.

(2)

Q3.

Shiftyjelly is a business which designs applications or 'apps' for smart phones and tablet computers. It currently employs two full-time and three part-time app developers. Each member of staff is paid a salary for their work.

(Source: adapted from http://shiftyjelly.com)

Shiftyjelly is currently designing a new weather app for tablet computers such as Apple's iPad. The company wants to sell the app for £2. The estimated costs of developing the app are:

Fixed costs = £2 000

Variable costs = 40p per app

Below is a break-even chart for the new weather app.

* Assess the extent to which break-even analysis is a valuable tool in allowing Shiftyjelly to plan the successful launch of its new weather app.

(8) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................

Q4.

(a) What is meant by the term export subsidy? (2)

.............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................

The Thai government also uses import protection to limit the amount of foreign made computers, such as Apple Macs, which are imported into Thailand.

(b) Describe the effects of import protection on computer manufacturers based in Thailand. (4)

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In 2011 Dell increased the price of its range of laptop and notebook computers.

* (c) Assess the impacts of this price increase on Dell's ability to improve its profits. (8)

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(Total for Question = 14 marks)

Q5.

Mulberry plc produces high-quality designer leather goods such as bags and belts. In the 1990s the company was facing collapse, but since then it has become one of British fashion's biggest success stories. Mulberry's successful turnaround was due to the appointment of Nicolas Knightly as design director. His bag designs became instant hits with high-profile celebrities such as Kirsten Dunst. Nicholas' most recent bag design is known as the 'Alexa'– so called because the company gave one in every size and colour to MTV presenter and model Alexa Chung (pictured above). Giving celebrities free bags has always been an essential part of Mulberry's marketing. It provides Mulberry with free publicity in fashion magazines and helps make the brand and its bags appear cool. The success of Mulberry's bag designs has led to large increases in demand. To cope with this the company has used internal sources of finance to fund improvements to its factory and has opened up new stores in places such as China and Singapore. Mulberry has decided to expand cautiously since its experience in the 1990s showed how easy it was for its designs to go out of fashion and lose customer appeal. At the time this led to large losses for the business.

(Source: adapted from http://fashion.telegraph.co.uk/columns/belinda-white/TMG8191538/How-have-Mulberry-achieved-their-epic-turnaround-of-fortunes.html)

* Discuss the benefits to Mulberry of using internal sources of finance to fund its expansion. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................

(Total for Question = 6 marks)

Q6.

The Range is a national chain of discount stores in the UK which has expanded rapidly. It sells a variety of products from furniture to stationery. From October of each year a quarter of each store's floor space is used to stock Christmas products such as Christmas trees, lights and decorations. To do this The Range de-stocks its summer products, such as garden furniture and barbecues. This involves selling off its summer products at lower prices.

(i) Identify one internal source of finance which The Range might use to expand its business.

(1) ..............................................................................................................................................

(ii) Explain one benefit to The Range of using internal sources of finance for growth.

(3) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q7.

Shiftyjelly is a business which designs applications or 'apps' for smart phones and tablet computers. It currently employs two full-time and three part-time app developers. Each member of staff is paid a salary for their work.

(Source: adapted from http://shiftyjelly.com)

One of Shiftyjelly's most popular apps is Pocket Casts, an app which allows you to organise and download podcasts faster. It is sold online through Apple's App Store and is priced at £1. Apple is often slow to pay Shiftyjelly its share of the revenue when a sale is made. This has damaged Shiftyjelly's cash flow.

What is meant by the term cash flow?

(2) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................

Q8.

Shiftyjelly is a business which designs applications or 'apps' for smart phones and tablet computers. It currently employs two full-time and three part-time app developers. Each member of staff is paid a salary for their work.

(Source: adapted from http://shiftyjelly.com)

One of Shiftyjelly's most popular apps is Pocket Casts, an app which allows you to organise and download podcasts faster. It is sold online through Apple's App Store and is priced at £1. Apple is often slow to pay Shiftyjelly its share of the revenue when a sale is made. This has damaged Shiftyjelly's cash flow.

Identify two cash outflows for a business such as Shiftyjelly.

(2) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q9.

Shiftyjelly is a business which designs applications or 'apps' for smart phones and tablet computers. It currently employs two full-time and three part-time app developers. Each member of staff is paid a salary for their work.

(Source: adapted from http://shiftyjelly.com)

One of Shiftyjelly's most popular apps is Pocket Casts, an app which allows you to organise and download podcasts faster. It is sold online through Apple's App Store and is priced at £1. Apple is often slow to pay Shiftyjelly its share of the revenue when a sale is made. This has damaged Shiftyjelly's cash flow.

Outline one method Shiftyjelly could use to improve its cash flow. (2)

.............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. Q10.

The Range is a national chain of discount stores in the UK which has expanded rapidly. It sells a variety of products from furniture to stationery. From October of each year a quarter of each store's floor space is used to stock Christmas products such as Christmas trees, lights and decorations. To do this The Range de-stocks its summer products, such as garden furniture and barbecues. This involves selling off its summer products at lower prices.

Which of the following is a cash inflow? (1)

Select one answer.

A Payments to suppliers.

B Purchasing assets.

C Longer credit terms for customers.

D Taking out a bank loan. Q11.

The Range is a national chain of discount stores in the UK which has expanded rapidly. It sells a variety of products from furniture to stationery. From October of each year a quarter of each store's floor space is used to stock Christmas products such as Christmas trees, lights and decorations. To do this The Range de-stocks its summer products, such as garden furniture and barbecues. This involves selling off its summer products at lower prices.

Text for Q11 and 12

Identify two reasons why The Range might want to establish more favourable credit terms with suppliers. (2)

.............................................................................................................................................. .............................................................................................................................................. Q12.

Explain one advantage to The Range of de-stocking its summer products. (3)

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Q13.

In 2011 budget airline Easyjet announced it was ordering 15 new aircraft. The new planes were faster and improved the company's productivity. Easyjet hoped to make a profit of £2 million per year from each of the new planes it had ordered.

(Source: adapted from http://www.guardian.co.uk)

Which of the following is most likely to increase Easyjet's profits? Select one answer. (1) Easyjet should increase:

A revenue by more than costs

B fixed costs

C variable costs by more than fixed costs

D ticket prices Q14.

Shiftyjelly is a business which designs applications or 'apps' for smart phones and tablet computers. It currently employs two full-time and three part-time app developers. Each member of staff is paid a salary for their work.

(Source: adapted from http://shiftyjelly.com)

Shiftyjelly is currently designing a new weather app for tablet computers such as Apple's iPad. The company wants to sell the app for £2. The estimated costs of developing the app are:

Fixed costs = £2 000

Variable costs = 40p per app

Below is a break-even chart for the new weather app.

Calculate Shiftyjelly's profit/loss if it manages to sell 3000 copies of its weather app. Show your workings and the formula used.

(3)

Q15.

Marks and Spencer sells clothes, furniture and food. It is recognised by customers as having very good levels of customer service.

In 2009 Marks and Spencer faced falling sales. It wanted to maintain its profits and looked at either cutting prices or increasing advertising.

Which of these two methods do you think would be more effective in allowing Marks and Spencer to maintain its profits and why?

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The Saltash Toy Box is a small, independent toy retailer located in Cornwall. It cannot compete on price with larger toy retailers such as Toys R Us, but instead focused on customer service and allowing children to play with toys, in store, before parents buy them. In December 2009, the 'must-have' Christmas toy was the Go-Go Hamster. A Go-Go Hamster is a small motorised hamster which squeaks when it bumps into items of furniture. The Saltash Toy Box hoped that it would sell large quantities of this toy. Despite its efforts to compete, however, sales at the store remained low. The owner decided to change the focus of the business. In 2010, the Saltash Toy Box closed its only retail store and instead decided to focus on catalogues and its website as a way of making sales. It believed this would boost the company's profits and increase the productivity of its two staff.

(i) What is meant by the term 'profit'?

(2) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................

(ii) Identify one method the Saltash Toy Box could use to increase profit.

(1) .............................................................................................................................................. Q17.

(a) Which one of the following is the most likely reason for the increase in Ryanair's profits?

(1) Select one answer.

A Fewer passengers

B Higher fuel costs

C Increasing ticket sales

D Falling productivity

(b) State two external sources of finance that Ryanair could use to fund its expansion plans.

(2) .............................................................................................................................................. ..............................................................................................................................................

(c) Explain one impact that Ryanair's expansion plans might have on the environment.

(3) .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. .............................................................................................................................................. ..............................................................................................................................................

'plane stupid' is a pressure group which campaigns against airport and airline expansion.

(d) Describe the possible effects that a pressure group such as 'plane stupid' could have on Ryanair.

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(Total for Question = 10 marks)