Solution paper

Mark scheme November 2018 Business management Standard level

Paper 2
Define the term capital expenditure. [2] Capital expenditure refers to the
purchase by a business of long-term assets (assets that have a useful life longer
than one year).

Using Table 1, calculate for PI: (i) gross profit (X); Gross profit is $10 000 000.
Candidate is not required to show workings
Gross profit = Sales revenue – cost of goods sold = 25000000- 15000000=
1000000

Net profit after interest and tax 3440000 – Net profit before tax= 43000000
Calculate Tax = 86000

Using Table 1 and your calculations in (b)(i) and (ii), construct a profit and loss
account for PI. [2] All figures in 000s Sales rev

nt for PI. [2] All figures in 000s

Sales revenue 25 000

Cost of goods sold 15 000

Gross profit 10 000 X

Expenses 4700 Net profit before interest and taxes 5300

Interest 1000

Net profit before tax 4300

Tax 860 Y

Net profit after interest and tax 3440

Using Table 2, calculate the net cash flow (Z) for PI for 2019 (show all your working). [2]

Net cash flow is $1 500 000 calculated as follows:

$24 000 000 total receipts - $22 500 000 total payments $1 500 000 net cash flow

(e) Explain the difference between profit and cash flow. [2]

Profit is typically calculated on an accrual basis (when revenue or expense

actually accrues to the business) but does not reflect the actual movement of
funds. Cash flow reflects the actual movement of funds – when a business
receives payment and makes a payment. Thus, a timing difference can exist
between the accrual of a revenue or an expense and the actual receipt of
funds

Define the term batch production. [2] Batch production involves making a
group of identical items together, and each stage of operation is performed
on the whole group before it moves on to the next stage.

Calculate the break-even level of output for PF for 2019 (show all your working). [2]

Fixed costs: €24 000 + €6000 + €11 000 + €40 000 + €18 000 = €99 000

Contribution: €100 – €50 – €5 = €45

€99 000 divided 45 = 2200 chairs must be sold to break-even.

Construct a fully labelled break-even chart, to scale, for PF for 2019. [4

Calculate the forecasted profit if PF sells 2400 chairs in 2019 (show all your working). [2]
2400 x €100 = Sales revenue €240 000 Less: Variable costs (€50 + €5) x 2400 Less:

Fixed costs Forecasted profit €9000 Another possible response is: (2400 – 2200)  45 =
9000
video on constructing a breakeven chart for business and management IB - Search (bing.com)

SECTION B:

Define the term multinational company (MNC) [2]

A multinational corporation is a company that operates in two or more
countries. A multinational company needs to have a base in those countries,
not just sell goods and services there.
Brand loyalty refers to the loyalty that customers attach to a particular brand,
whether for repeat purchases of the same product (jeans) or the purchase of
new products traded under the brand name(jeans jackets, for example). In
the case of JS, it has strong brand loyalty based upon on 100 years of
successful marketing. Many customers are loyal to JS even though they could
buy other jeans for less or buy jeans that have a certain trendiness now

B Calculate: (i) the net profit margins for DH for 2016 and 2017; [2]

1 . Net profit after I and T 1370 divide by SR 28000x100=4.89

2016= 1370 divide 28 000 = 4.89 %

2017 net profit after I and T = 1300 divide SR 29 000x100 = 4.48 % ===== =====

Award [1] for each correct answer. Showing working is not required. Accept 4.9 % (2016) and 4.5 %
(2017), but do not accept 5 % (2016) or 4 % or 5 % (2017). (ii) net current assets (working capital) for
DH for 2016 and 2017. [2] In 000s of dollars: 2016 2017 5000 – 3000 = $2000 5200 – 3500 = $1700
===== ===== Award [1] for each correct answer. Showing working is not required.

Net profit after interest and tax 1370 divided by sales revenue 28000 x100 = 4.89 year2016

Net profit after interest and tax 1300 divided by sales revenue 29000 x100 = 4.48 year2017

2.TOTAL CURRENT ASSETS – TOTAL CURRENT LIABILITIES= NET CURRENT ASSETS

net current assets (working capital) for DH for 2016 and 2017. [2] In 000s of dollars:

2016 = 5000 – 3000 = $2000 Total current assets (at year end)

5200- 3500= 1700 Total current liabilities (at year end) 2017

5200 Total current assets 3500 - total current liabilities = $1700 ===== =====