Business Activity

Business Organisation

Marketing

Production

People and Work

Business finance

Regulating and controlling BA

P1 1
 Business Activity

(c) Last week the management of company B stated that the company was
experiencing
difficulties and that it was going to stop trading immediately.

(ii) What money, if any, would the shareholders of company B lose when the company
ceases to trade?

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(ii) Do you think that companies should declare high dividends? Explain your answer.

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(a) Identify the main changes that have occurred since privatisation.

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(b) Are the changes that you have identified in

(a) what you would have expected? Explain your answer.

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P1 2
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(ii) If a company is wound up then assets will be disposed of as directed by the

administrators.
Secured creditors come first then the unsecured creditors.
If any funds remain these will be available to shareholders in proportion to their holdings.
Thus maximum loss is total value of investment in shares.
Limited liability ensures that no further loss can be incurred.

Knowledge of issues 2–1 [aware of who comes first in terms of payouts]

Understanding of issues 2–1
If answer just makes reference to limited liability issues then max 2 marks.

(ii) If high dividends are declared it means that the business is distributing most of its profits.
If the dividend declared were lower then more profit would be reinvested in the business.
So in the short run shareholders gain but in the long run the issue is less clear.

Understanding of the different implications 2–1.

Assessment of the implications 2–1 [consideration as to whether high dividends are
good for the company and or/the shareholders].

P1 3
(ii) Outline two possible reasons to explain the changes in the pattern of employment
between 1993 and 2002 in country A.

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(ii) Do you think that the government of country X should provide financial help to
failing companies? Explain your answer.
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At the last Annual General Meeting in 2004 some shareholders said they were unhappy
that
the share price of the company had been falling.

(e) Why might the share price of a company fall?

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(ii) Public Limited Companies have to publish their annual financial accounts. What
can be learned from the analysis of such accounts?
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(ii) Financial help is usually given to prevent the collapse of a major or strategically
significant business or activity.
This might be thought of in terms of employment orsignificance to the economy or region.
However financial help uses up scarce resources from the government finances and arguably
allows inefficiency to continue.

One sided answer acceptable.

Knowledge of issues [2–1]
Understanding of issues [2–1]
Reasoned assertion showing evaluative comments [2–1]

(e) Identification of reasons. [2]

Explanation/analysis of reasons. [2]

. Share price reflects current and prospective profitability along with futureprospects
generally.
Falling share price reflects market’s doubts about future health of the company.
Could be bear market.

P1 5
2. Business Organisations ( 10, 12)

(a) Identify and explain two differences in the way that these two companies are
organised.

Difference 1: .....................................................................................................................
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Difference 2: .....................................................................................................................
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(ii) Why does good internal communication help business efficiency?

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P1 6
3 (a) Main differences between the two structures –
functional structure/
geographical structure/
product structure.

Identification of two differences 2–1

Explanation of differences 2–1
Not acceptable to discuss span of control or delegation.

3 (a) Main differences between the two business structures are levels of hierarchy
/chain of command/
spans of control/
steep and flat.

Application [2–1] i.e. Identification of difference from the data [context] – must state which
business has a greater hierarchy etc.

Analysis [2–1] explaining what is meant by the difference identified, e.g. span of control much
greater in Company B. This means that C is directly responsible for employees D-L.

(ii) If internal communications don’t work this leads to confusion

/misunderstanding/
lack of direction/
omission or duplication of actions.
All these types of factors create inefficiency.
Efficiency implies effective use of the resources within a business.

Understanding of efficiency [2–1].

Application of communication to efficiency [2–1].

P1 7
3. Marketing ( 16-22)
3 Sudhir Yadav lives in a city in country Z. The city has a big Indian population. When
Sudhir
was looking for a business opportunity he identified a niche market in selling saris
and similar
clothes to Indian ladies. He imports the clothes from country X and sells them to
retailers in
his city.

(a) Explain the term ‘niche market’.

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(a) Calculate
(i) The value of sales of product x in 2007.
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P1 8
(ii) The market share of Aglahor Enterprises in 2007.
(ii) Public Limited Companies have to publish their annual financial accounts. What
can be learned from the analysis of such accounts?
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3 (a) Niche market is usually a small segment of the market.

In this case it is Indian females in a particular city.
It is a specialised segment of a market with specific needs or requirements.

Answers like small part of market gain 1 mark.

Application and Knowledge 2–1

5 (a) (i) $30m i.e. 20% of $150m (2) needed for 2 marks. $ not needed.
Marks are (1) for method and (1) for accuracy. Method marks available for 20% of
incorrect total.

(ii) 12.5% The sales of Aglahor in 2007 are $150m.

The total market sales are $1200m.
Market share is company sales/total market sales % (1). Thus market share is 1/8 or
12.5%.
Thus 1 mark for formula for calculating market share/1 mark for substituting in/1 mark for
accuracy.
Full 3 marks for correct answer even if no working. % needed for full marks.

P1 9
(c) Explain factors that the manufacturer should consider in deciding on the best
channel of distribution for its products.
(ii) Public Limited Companies have to publish their annual financial accounts. What
can be learned from the analysis of such accounts?
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2 Biograph is a business that manufactures cosmetics. Table 1 gives data concerning

its sales,
market share and advertising expenditure.

Table 1
Year Sales [$m] Market share [%] Advertising expenditure [$m]
2005 300 10 25
2006 350 8 35

(a) (i) Calculate the value of the total market sales for cosmetics in 2005.
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(ii) Explain why Biograph’s market share has fallen in 2006 even though the value of
P1 10
its sales has increased.
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(ii) Do you think that Biograph’s advertising expenditure was cost effective in 2006?
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(c) Some members of Biograph’s Board of Directors think that the business needs to
segment its market more effectively. Explain how market segmentation might help
increase sales for a business manufacturing cosmetics.
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(a) (i) Let x = total market sales

10% x = $300
Thus x = $300/0,1 [1]
x = $3000m [1], [2] marks for correct answer. If arithmetic error then 1 mark for method
is available. $ sign not needed for full marks but m is needed for 2 marks.

(ii) The reason must be that the market as a whole grew faster than sales of Biograph.
In fact in 2006 total market sales must have been $4375m.
Thus market growth is $1375m [45.8% growth] while Biograph’s growth is $50m. [16.6%]

Analysis of data [2–1]

Reason identified [1] Explained [1]

If answer says market as a whole grows fast [1]. If answer progresses to say market
grows faster than Biograph’s growth [2]

General answer about market share [2–1]. Specific context [4–3]. Using the data is a
means of showing context.

(ii) Probably not as effective as in 2005. In 2005 for every $ spent on marketing sales were
$12. In 2006 the figure was $10.
Conclusion supported by logic [2–1] e.g. yes because sales went up and hence it was
effective, [but no consideration of costs].
Discussion of cost effective alone [2–1]

P1 11
(c) Market segmentation implies break up of a market into subgroups which have common
characteristics. Clear identification of segments usually makes it easier to target marketing
expenditure more effectively.
Knowledge of segmentation [2–1], top end if applied
Application of link with sales [2–1]

2 Superbrek is a business that makes a range of breakfast cereals. 2006 had been a
good
year for the business with total sales value growing by 20% from the 2005 value of
$300 m.
Its best selling product is Crunchy Flakes which accounted for 25% of the total sales
of this
business in 2006.

(a) Calculate the value of the sales of Crunchy Flakes in 2006.

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(ii) Outline two reasons why market research data might not be useful to the
management of Superbrek.

Reason 1: .................................................................................................................
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P1 12
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Reason 2: .................................................................................................................
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(d) One of the Directors of Superbrek felt that the business was spending too much
money
on marketing. ‘Good products sell themselves’ he said.
To what extent do you agree with this statement?

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2 Superbrek

(a) Total Sales value in 2006 = $300m + 20% = $ 360m [1] Crunchy Flakes = 25% of this [1]
Sales therefore = $90m [1] $ sign not needed but m is for full marks.
If candidate gives 25% of $300m i.e. $75m then [2]
3 marks for correct answer.

(ii) Usefulness will be reduced if it is inaccurate/irrelevant/inappropriate. Thus if wrong

people are asked or the wrong information is gathered it will be of little value.
Similarly it might be biased or a misrepresentation of consumer attitudes.
Identification of reasons [2–1]

P1 13
Explanation of reasons [2–1]

(d) Marketing covers a range of activities so that a business learns more about customers and
competitors so that products that are produced are the right ones/
at the right price/
in the right place.
Thus it is not just advertising or cost based.
Good products do not simply sell themselves because they have to be promoted and
customers made aware of their existence and value.

Explains marketing [2–1]

Demonstrates understanding of role of marketing and how it operates [2–1]
Evaluative outcome [1]

P1 14
(a) (i) Calculate the price that Omar is charging for one carpet.
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(ii) Plot the new revenue line if Omar raises his price by $20.

[2]

(c) The government has recently introduced laws to protect consumers. Explain how
such
laws might affect Omar’s advertisements.
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4 Tara is a qualified lawyer. She is setting up a legal practice business in partnership

with
Gowri. They are looking for a suitable location for their business.

(a) Identify and explain three factors that they should take into account in making this
location decision.
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P1 15
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1 (a) (i) $200 [2] i.e. $1m/5000. [1][1k/1an]

(ii) Gradient of line greater [1] accurate plot [1] [2ap]. Answer is $1100000 at 5000
units [Selling price will be $220] OFR will apply.

(c) Understanding of impact and hence ability to draw evaluative conclusions from
analysis. [4]
Some analysis of laws. [3-2]
Some knowledge of laws. [1]
Content. Laws protect customers against misleading information/
Inaccurate statements
/false claims.
Thus will impact on what he says /how he says it /what information is needed.

4 (a) Identification of factors. [3]

Explanation/analysis of importance. [3]

market demand [centre of population]

/cost
/competition/
planning factors.

P1 16
(a) Calculate for 2005:

(i) The value of sales of computer games.

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(ii) The value of Playwell’s exports.

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(b) (i) Playwell’s Marketing Director believes that the market demand for the board
games
is price inelastic. Explain what is meant by ‘price inelastic demand’.
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(ii) Explain how Playwell’s pricing policy for board games might be influenced by the
demand being price inelastic.

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(c) Playwell’s Board of Directors feel that good distribution channels are very
important for
increasing company sales. How important do you think channels of distribution are for
increasing sales of Playwell’s products?

P1 17
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(d) Why might Playwell find it difficult to sell their games in other countries?
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1 (a) (i) Value of computer sales = 3/8 of $240 [1] Answer =$90m [2]

(ii) Value of exports = 10% of total value [1] Answer = $24m [2] In both cases correct
answer alone gets full marks.

(b) (i) L1 Demand not much affected by price [1]

L2 Change in demand less than change in price [2]
L3 % change in Q.D / % change in P less than 1 OR concept explained [3]

(ii) If demand is price inelastic then prices will probably rise because such a change would
increase turnover [sales revenue].
However other business objectives might be being pursued e.g. market share. If so then price
may be kept low.

Knowledge of link [1]

(c) A channel of distribution is the route taken by a product as it passes from the producer to
the customer.
Distribution is one element of the marketing mix.
Thus it is important as part of an overall strategy of generating sales.

Knowledge of channels of distribution [1-2]

(d) It is difficult for a company to sell products in new markets overseas for various reasons.
These might include reference to –
tastes may differ in different countries hence customers might not like the games
/ existing brands may be hard to dislodge /
Distribution network not well established /
lack of awareness of potential customers /
import taxes and other barriers to entry /
adverse changes in exchange rates.

(ii) Disadvantages of a short product life cycle are that cash inflows are brief/
New product innovation is constantly necessary/
if sales are not rapid break even may not be reached/
left with outdated stock

P1 18
1 (a) (i). 1 mark for method [for formula or figures] . 2 marks for correct answer.
unit selling price = revenue / volume ; 400000 / 500 [1] ; = $800 [2].

(ii). Mark allocation as above [1 for method : 2 for answer]

market share = total sales / individual sales ; $2m / $0.4m [1] ; = 20% [2]

(ii) Explain the disadvantages of a short product life cycle for Devine Computers.
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(a) Calculate for Classic Computers:

(i) the unit selling price,

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P1 19
(ii) its market share.
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Production ( 23-24, 6)
2 Sigrid has recently set up a house cleaning business. She employs maids to clean
customers’
houses. She charges customers $10 per hour and pays her maids $6 per hour. She
estimates
her weekly overheads to be $400.

(a) (i) Explain the term ‘weekly overheads’.

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P1 20
(iii) Use the chart to calculate how many hours of work per week have to be done for
the profits of the business to be $200.

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Explain why the unit cost rises when output is above 30 000 units per week.
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2 (a) (i) Weekly overheads refer to those costs that occur weekly as a result of the
business being in existence.
They are unrelated to the volume of trade carried out.

Examples might include office expenses, marketing costs, telephone costs.

Understanding of concept 2
Simple understanding 1 [e.g. fails to focus on link with output or volume of trade]
Simple statement plus correct example 2

(ii) Accurate plot of line (2). Total cost line starts at $400 and at 200 hours will be $1600.
Break even point is 100 hours work.
Some meaningful attempt (1) [drawn appropriately but scale errors occur and hence
accuracy marks are lost].
Correct starting point but wrong gradient (1)
Correct gradient but wrong starting point (1)

(iii) 150 hours work have to be carried out (2)

Some attempt to use chart to generate an answer (1)

(c) Probable explanation is diseconomies of scale.

Perhaps capacity limits being reached leading to increased breakdown of machinery
/overtime being worked etc

P1 21
(a) (i) Draw the sales revenue line on Fig. 1 above. [2]

P1 22
(ii) State the breakeven output shown on the chart.

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(iii) State the breakeven revenue earned by the business.

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(b) Outline three factors that Rose should consider when deciding where to locate her
new
restaurant.
Factor 1: ...........................................................................................................................
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Factor 2: ...........................................................................................................................
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2 (a) (i) Accurate plot of line (2) – both gradient and scales correct.
Price = $4 per customer. This determines the gradient of the revenue line. Therefore 250
customers generate $1000.
Some meaningful attempt (1). This is represented by revenue drawn from origin but
gradient inaccurate.

(ii) 200 (1) OFR allowed for answer consistent with graph drawn.

(iii) $800 (1) $ sign not needed. OFR allowed.

(b) A restaurant business is being set up so points must be appropriate for this kind of
business.
Likely points to include

proximity to competitors/
accessible to customers/
large potential
customer base/
costs of location e.g. overheads.

P1 23
 Non-contextual points will not be rewarded.
1 mark per point identified [max 3].
1 mark per point explained [max 3].
Explanation marks will be awarded for demonstration as to why these factors matter. These
marks will be awarded for contextual reference.

(a) (i) Identify one direct cost and one indirect cost from Table 1 above.
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(ii) Explain the difference between direct and indirect costs.

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(iii) What percentage of total cost is accounted for by labour costs?

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(b) What is meant by diseconomies of scale?

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(c) Explain the differences between the gross profit and net profit of a business.

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(d) A profit and loss account is one of the main financial statements that has to be
produced by a company. Identify one other major financial statement and explain
what
it shows about a company.
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P1 25
(c) (i) This is a cost unrelated to the level of output of a business but is
one that is incurred by the existence of the business.

(ii) Overheads in this case would be staff costs/

shops/
administration
/technology investment.
These costs are largely unrelated to sales volume.
They have to be covered if a profit is to be made.
High overheads implies high breakeven volume.

(c) (i) What is meant by an overhead cost?

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(ii) Explain why overheads might be a problem for a company such as Global Travel
Ltd.
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(i) Give an example of an overhead cost.

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(ii) As output increases, the unit labour cost falls and the unit material cost falls.
Explain possible reasons for this.
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(iii) The company uses a cost plus method to determine the price that it charges for
its
products. It works out the unit total cost and adds on 75%.
Calculate the unit selling price if 300 units are produced each week.

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P1 28
4 B.M.F. is a major electronics manufacturer. It has recently built a new factory in
country Y.
The factory employs a large number of workers and uses flow production methods to
assemble the products. All the workers were recruited locally. The management
believe that
it is very important for the workers to be motivated and for productivity to be high.

(a) Why do you think that B.M.F. uses ‘flow production methods’?
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( (c) Why is high productivity important to the management of B.M.F.?

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(a) Give an example of one of Gino’s:

(i) Direct costs

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(ii) Overhead costs

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P1 29
calculate:

(ii) How many pizzas Gino has to sell to break even.

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(iii) Gino’s annual profit when he sells 700 pizzas per week.
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(c) Gino invested $100000 in his business when he set it up.

Using your profit figure from (b)(iii) calculate the return on capital employed.
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(d) Gino’s business is currently profitable. He thought that this meant it would be
profitable
for the next few years as well. What do you think?
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P1 30
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4 (a) Flow production usually involves large scale production where each operation on a unit
is
performed continuously, one after the other, often on a production line. Thus companies
use the technique as a means of reducing unit costs when large volumes are being
produced.

(c) Productivity is a measure of the effective use of a resource measured in terms of the
output generated by that resource. It is important to the management of a business
because it has a direct impact on unit cost and hence on competitiveness and profitability.

3 (a) (i) Direct cost likely to be wages or stock [1]

(ii) Overheads might be things like rent/rates/insurance/electricity [1]

(b) (i) Marks [1] each for: label axis [both]; T.R. line; T.C. line.; scales; visual appeal

(ii) b/e = 600 [1] application

(iii) weekly profit = $300 [1] annual profit = $300 times 52 [1] = $15600 [3]
Full marks for $15600 and for $150000. OFR applies [max of 2 marks]

(c) 15.6% [2] Formula [1] OFR applies [can gain full marks]

(d) A business can be profitable for many reasons.

Basically it is because it produces a product that satisfies customer demand at a price that is
thought to acceptable which more than covers the costs incurred.

This situation can thus change for a variety of reasons –

new businesses prove better at satisfying customer wants /
customer needs
change /
costs rise and hence surplus no longer generated

P1 31
(c) Abioli gathered data concerning the productivity of his workforce. Use Table 3 to
help
answer the questions that follow.

Table 3

Year Total labour-hours Output per week[units] Output per employee per
week [units]
worked per week

2005 80 000 240 000 ?

2006 100 000 270 000 108

The factory employees each worked 40 hours per week in both years. Calculate:

(i) The number of employees in 2005

.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[2]
(ii) The output per employee in 2005
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[2]

(iii) State and explain two possible reasons why the productivity of the workforce
changed in 2006.

Reason 1: ..................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

Reason 2: ..................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[4]

(d) Abioli has recently heard of a production method known as lean production.

P1 32
(i) Explain what is meant by ‘lean production’.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[2]
ii) Do you think lean production methods would help improve efficiency in the factory?
Explain your answer.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[4]

(c) (i) 80000/40 [1] = 2000 [2] Total hours/individual hours

(ii) 240000/2000 [1] = 120 [2] OFR applies. Output/labour input

(iii) The output per employee in 2006 was 108. Thus productivity fell in 2006.
Reasons for this change might include the following –
demotivated employees/
machine breakdowns/
supply chain problems.

1 mark per problem identified [max 2] plus 1 mark per valid explanation.

(d) (i) Lean production refers to a process of operation that aims to reduce the quantity of
resources used up in production [2]. Some understanding like using less resources [1]

(ii) The approach is designed to improve efficiency so it would be of great potential benefit.
Reference to lean methods such as JIT rewardable for knowledge and application marks
Knowledge and application of lean production concept [2–1]
Understanding of link with efficiency making evaluative comments [2–1]

2 (a) (i) 1 mark for method. 2 marks for the calculations. Number of garments/number of
employees. [1]
Answers are 2000 units in 2003 and 1800 units in 2004. [2] [1k/2an]

(ii) Fall in productivity will weaken the business because unit cost will rise
and hence put pressure on selling price and profit margins. [4-3]

Use of data to argue case logically. Judgement shown. [2-1]

Some attempt to explain but flawed in some respects. E.g. recognise that
change will reduce profits but unable to explain why. [1k/2an/1e]

(c) Choice of medium with justification. [4/3]

Evaluation of medium identified.

P1 33
Choice of medium with flawed explanation. [2/1]

Because of the sensitivity of the information direct contact or through line

managers essential. Fears and rumours will occur and these need to be sorted out.
Speed and accuracy of transmission essential. [1k/2ap/1e]

(d) [5-4] Pros and cons analysed and some evaluation leading to a justified conclusion.
[3-2] Some pros and cons identified and analysed.
[1] Awareness of the piece rate system.

Time rate to piece rate.

Pros direct incentive/
possibility to earn more BUT
depends on the rate
might be more pressure/
exploitation/quality reject/
objection to change.

(a) (i) Calculate the output per employee in both 2003 and 2004.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................3]

(ii) How might the business be affected by the change in labour productivity between
the two years?
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................4]

(c) How should Sarah communicate the change in production methods to the
employees?
Give reasons for your suggestions.
P1 34
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[4]
Sarah plans to change the way employees are paid. At present they are paid on a time
rate
but she wants to alter this to a piece rate.

(d) Do you think that the employees will like this change? Explain your answer.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[5]

5. People and Work ( 11, 13,14)

1 Jomo owns a restaurant in the centre of town. He employs three staff in the kitchen,
two
serving at tables and one at the cash desk. Jomo pays his staff the legal minimum
weekly
wage but he does share all tips equally between them. The staff would like the
payment
system to change so that they would be paid a higher weekly wage but then all the
tips
would be kept by Jomo.

(a) Do you think this change in the payment system would benefit the following?
Explain
your answer.
The staff: ..........................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
Jomo: ...............................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
..................................................................................................................................... [6]

P1 35
 (c) (i) Jomo needs to employ a new person to serve at the tables. Produce a job
description
that you think would be suitable for the job.

.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.............................................................................................................................. [4]

(ii) Explain how the job description might help in the recruitment of the new member
of
staff.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.............................................................................................................................. [4]

1 (a) Clearly the change could benefit both parties but this is not inevitable.
For the employees it depends upon the size of the increase compared to the average level of
tips earned.
It does however give them a greater level of certainty and stability in their earnings.
The staff might not have to work as hard to gain their money.
From Jomo’s viewpoint it will increase his costs
but this is offset by the fact that he now receives the tips.
So could go either way.
However incentive for staff to perform is reduced so control might need to be even tighter.
Argument can be one sided or either way i.e. benefits or not.

Application and analysis 4–1 [2 times 2]

P1 36
Evaluation 2–1 [1 times 2]

(c) (i) Job description outlines the tasks, functions and responsibilities of the job holder.
Features will reflect a waiters/
waitresses job and might include taking customer orders,
setting tables, serving at tables, clearing etc. Four specific elements in context gains

4 marks.
Knowledge 2–1
Application 2–1

(ii) By producing a job description the features of the job become clear. Thus it helps the
selection process because requirements that job holder needs to carry out are explicit
and hence qualifications/
experience/
skills/
qualities needed can be identified.
Therefore it is easier to match the applicant to the demands of the job.
Focus should be on showing why it helps to gain top marks.

Knowledge 2–1
Explanation 2–1

5 Kim Chan has recently been on a management training course. He has learnt that
‘work
helps to satisfy human needs’. Kim went back to his father’s business and told his
father, Wu,
all about the course. His father laughed and said ‘Nonsense, money satisfies human
needs.
People only work to earn money’.

(a) (i) Explain what is meant by ‘work helps to satisfy human needs’.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

P1 37
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[4]

Wu Chan has recently reduced the number of employees in his business by 40%.
Despite
this, sales and output have not fallen.

(b) (i) How can the output in Mr Chan’s company stay the same if the number of
employees
has fallen by 40%?
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[2]

(c) In most countries workers have an employment contract.

(i) State two pieces of information usually contained in an employment contract.

Information 1: ...........................................................................................................
.................................................................................................................................
Information 2: ...........................................................................................................
..............................................................................................................................[2]

(ii) Explain why such contracts might be of benefit to both employer and employee.
Benefit to employer: ..................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
Benefit to employee: .................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[4]

5 (a) (i) Human needs might include physiological, safety, social, esteem and self
actualisation.

P1 38
Work can help the attainment of these needs by creating the opportunity for achievement,
recognition, social interaction and financial reward.

(ii) If these needs exist then money alone cannot satisfy them.
So people do not work solely for money.
However without money few, if any, needs can be achieved.
Thus money is crucial.

(b) (i) Two most likely reasons are changes in working methods that have lead to efficiency
gains and motivational improvements/
capital investment/
over manning existed.

(ii) Yes because unit costs will have fallen and efficiency has increased.
Thus profits will increase.
However might have caused morale to fall and might create poor impression of an uncaring
employer.
So might damage the business in the longer term.

Explanation i.e. understanding as to why. [2–1]

Evaluation [2–1].

(c) (i) Contract likely to include number of hours worked/

designation of the job/
pay and methods/
benefit entitlement/
disciplinary procedure/
notice of termination.

(ii) Avoids any misunderstanding for both sides.

Provides employees with protection against unfair treatment.
Provides the employer with protection against an unsatisfactory employee as it spells out the
employee’s duties and responsibilities.
Thus allows dismissal to occur “fairly”.

P1 39
(a) (i) Explain the main differences between the two pay systems.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[4]

(ii) Which company would you prefer to work for? State your reasons.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[4]

Tara needs to employ a secretary to manage the office. She decides to produce a job
description for the position.

(b) (i) Explain what is meant by a ‘job description’.

..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................3]

(ii) Why might a job description help when recruiting the secretary?
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................

P1 40
..................................................................................................................................
...............................................................................................................................3]

3 (a) (i) Differences in guaranteed minimum [1]

and different rates of financial incentives [1].
E guarantees a higher minimum wage but with less incentive to produce more.
F has the opposite impact.
Neither company uses a time based system and both systems are variations on piece rate so
these are not acceptable differences between them.

(ii) ability to earn more/

greater security of earnings etc.
Much depends upon how much can be produced.
If output exceeds 80 units then F is better company financially to work for.
Less than 80 units then E is more attractive.

Reasoned judgement showing evaluation in arriving at a conclusion [2–1]. This may

include reference to fact that money only factor influencing where you might like to work.

(b) (i) [3] marks for idea well developed/illustrated.

[2-1 ] for answer with knowledge but limited in understanding.
Content – outline of tasks and functions of the job holder. [1k 2ap]

(ii) [3] Link of description to appointment. Thus shows how recruitment process
will be enhanced by use of job description.
[2-1] Awareness of value but unable to fully explain reason explicitly.

Match qualities needed to do the job with applicant’s experience/

abilities. etc. [1k 2an]

P1 41
 (b) What problems might a company have if a high percentage of its work force left
each
year?
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[5]

(d) ‘A motivated work force is a productive one.’

(i) What is meant by motivation?

..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................2]

(c) Manfred is planning to increase staff salaries. Do you think that this will reduce
the
problem of staff leaving? Explain your answer.
(ii) How useful is induction training to businesses?
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.................................................................................................................................... [6]

(ii) How useful is induction training to businesses?

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

P1 42
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
.............................................................................................................................. [4]

(d) ‘If wages increase, profits must fall.’ Do you agree with this statement? Justify
your
answer.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[4]

(c). Staff leave jobs for a variety of reasons.

One of these is of course the pay.
Thus an increase in salaries should have a positive impact on staff turnover.
However it will clearly have little impact on other causes such as long hours /
lack of job satisfaction etc.

(ii). Content. The training should better equip the employee to carry out tasks
required and to be able to deal with problems as they arise. Thus it should
improve employee efficiency / minimise procedural errors / speed up operations
and hence reduce costs. Much depends on the effectiveness of the training

P1 43
i) Describe how the wage system shown in Fig. 1 operates.

..................................................................................................................................
...............................................................................................................................2]

(ii) Is the wage system used by company B a good way of motivating staff? Explain
your answer.
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................6]

P1 44
(ii) Explain why you think that the information that you have added is important.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................4]

(iii) Explain where you think the business should place such an advertisement.
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................2]

(c) Trade unions often try to increase the wages of their members. What arguments
might
they use to justify such increases during their wage negotiations?
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[4]

3 (a) (i) Two features can be identified from Fig. 1. Initially wages are
independent of output (1 mark); beyond a given level of output wages are
positively related to output (1 mark). Crucial level seems to be some kind
of target.

(ii) If money is thought to be a key motivating factor then the success of this
system will all depend on the level when the performance linked pay starts to operate.
If it is set at a level that can be reached easily then there will be a strong motivational
incentive to perform well
so that access to higher earnings is achieved.
If the target is not reachable then the system will not have any financial incentive built into it.
Much also depends on how great the extra earnings are in relation to the guaranteed basic
wage.

P1 45
6. Business Finance and Accounting

P1 46
(b) Explain one reason why Goldright might make use of creditors.
.........................................................................................................................................
.........................................................................................................................................
..................................................................................................................................... [3]

(c) What use is a balance sheet to any two of the stakeholders in Goldright?
.........................................................................................................................................
.........................................................................................................................................
..................................................................................................................................... [4]

(d) When would Goldright find it better to use a bank loan than an overdraft to finance
its
activities? Explain your answer.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
..................................................................................................................................... [4]

P1 47
1 (a) 1 mark per correct calculation. Answers (i) $45000 (ii) $80000 (iii) $130000
$ not needed nor ‘000’s

(b) Creditors imply those to whom the business owes money.

Usually it implies using the resources of suppliers before payment is made.
It represents money owed by the business to its suppliers.
They are used to ease cash flow problems.

(c) A balance sheet shows the assets and liabilities of a company at a point of time.
It shows what the business is worth,
what it owes and how it is financed.
It is therefore of particular use to shareholders, potential investors and creditors.
It is of little or no use to stakeholders such as customers.

Knowledge of balance sheet and or stakeholders 2–1.

Assessment of usefulness to stakeholders 2–1.

(d) A bank loan is a long term source of funds while a bank overdraft is short term.
Thus a loan is appropriate when the need for cash is essentially long term such as the finance
of the
purchase of a fixed asset.

Knowledge of the difference betw een the two sources of finance 2–1 [focus on time duration/
cost/ease of withdrawal].
Explanation of when appropriate 2–1.

P1 48
2 Rose Tuilagi had always wanted to run her own business. She decided to open a Thai
restaurant. She knew that competition in the catering industry was strong and that
her profit
margins might be low. However she believed that her business could make high
profits.

(a) (i) What is meant by a ‘low profit margin’?

.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[2]

(ii) How could her business make high profits if profit margins were low?
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[3]

1 Lloyd Samuel owns a meat wholesale business. He buys his supplies from local
farmers and
sells to private customers and retail shops. He pays for his supplies when they are
delivered
but sells to the retailers on one month’s credit. Table 1 is an incomplete cash flow
forecast
for the last three months of 2008.

(a) Calculate the following values:

(i) Opening balance in November: ............................................................................ [1]
(ii) Closing balance in November: .............................................................................. [1]
(iii) Monthly net cash flow in December: .................................................................... [1]

(b) Explain one reason why Lloyd gives credit terms to the retail shops.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................

P1 49
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[3]

(c) Why might a cash flow forecast be of use to Lloyd in managing his business?
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[4]

2 (a) (i) Profit margin expresses the profit made as a % of sales value. Low implies this % is
small in a comparative sense.

Knowledge [1] i.e. knows what is meant by a profit margin.

Understanding [1] i.e. appreciates what is meant by margin being low.

(ii) Profit is determined by profit margins times volume. Hence if she sells large quantities
then the absolute profit is high even if the unit profit is low.

Understanding of how along with explanation [3–2]. Answer shows the link between
margins and profit and how one can be low but the other relatively large.
Some understanding [1].

(a) 1 mark per correct calculation.

(i) $9000
(ii) $10000
(iii) ($4000).
$ not needed neither ‘000’s [3]

(b) Credit terms imply the use of the goods before payment is made.
This may be done because it is standard business practice;
maintain customer accounts;
marketing strategy.

Retail customers likely to place large orders and hence important to keep their business.
Identification of reason. [1]
Development of reason [2–1] e.g. by offering credit terms he makes his business more
attractive to customers and hence should increase sales and profits.

(c) Cash flow forecast is a prediction of the timing and amounts of cash in and out of a
business.
It is of value as a means of identifying cash needs and potential imbalances.
It thus aids financial planning.
Allows for overdraft funding to be put in place.
It would allow Lloyd to anticipate future problems.

P1 50
Knowledge of cash flow [2–1] to include reference to amounts and timing.
Explanation of usefulness [2–1].

(a) (i) Label the Total Revenue and Total Cost lines on the chart. [2]
(ii) Which of the letters W, X, Y, Z represents the break-even volume?
.................................................................................................................................
..............................................................................................................................[1]

(b) The chart includes variable costs and fixed costs. Explain what is meant by a
‘fixed
cost’.
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[2]

(c) How useful is this break-even chart in making decisions in Carina’s business?
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[5]

(d) In 2006 Carina’s business made a profit of $80 000.

(i) Calculate the rate of return on the capital that Carina originally invested.
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................

P1 51
..............................................................................................................................[3]

(ii) How might she decide if this return was acceptable?

.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[3]

(e) Carina’s bank manager told her that a cash flow statement was more important
than a
profit and loss statement. Do you agree?
.........................................................................................................................................
.........................................................................................................................................

.....................................................................................................................................[4]

1 (a) (i) 1 mark for each of the Total Revenue and Total Cost lines correctly identified and
labelled.
(ii) Y= 1 mark [nothing else acceptable].

(b) Fixed cost is a cost that is unrelated to output and is incurred as a result of the existence
of a
business [2]. Some understanding of the concept for example costs that stay the same [1].
An example of a fixed cost e.g. rent [1].

(c) Break-even chart shows the relationship between revenue and costs at different levels of
output.
Thus potentially very useful as it allows a prediction of the level of profit that can be expected
at different output levels.
However its usefulness in practice is much reduced because of the underlying assumptions
that it is based upon.
However it is an aid to decision making.

Identifications of value of the technique [2–1] Pros of the technique.

Identification of limitations [2–1] Cons of the technique.
Judgement showing evaluation [1].

(d) (i) 20% [3] 1 mark for method. 2 marks for accuracy.
Rate of return = profit/capital employed %. $80000/$400000 % = 20%.
If % left out then [2] marks for 20. Also for [2] marks 0.2 or 1/5. If answer is
$80000/$400000 [2]. If profit /capital alone then [1].

P1 52
(ii) Compare with last year/other businesses/own targets/opportunity cost.
Identification of yardsticks [2–1] Explanation [1] so if opportunity cost of funds is 10%
then clearly 20% is highly acceptable.

(e) Cash flow statement is a forecast of the timing and amounts of money in and out of a
business.
P/L account is a statement of revenue and allocated costs during a specific time period,
based upon given accounting conventions. Recognition of the differences between the two [2–
1]

. Evaluative judgement [2–1].

Cash is necessary for survival in the short run and hence the cash flow statement is of great
importance. However profit is a measure of performance so the P/L account indicates the
degree of success achieved by the business.

3 Puregloss is a public limited company that manufactures paint. Table 2 shows an

incomplete
Profit/Loss Account for the business in 2006.

Table 2
Profit/Loss Account Puregloss 2006 $m
Sales ?
Cost of Sales 350 Gross Profit 150 Overheads ? Net Profit 40

(c) The Managing Director of Puregloss thought that if the company made a net profit
of
$40m in 2006 then its cash in the bank would also rise by $40m. Explain why she
might
be wrong.

.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.........................................................................................................................................
.....................................................................................................................................[4]

(iii) In 2006 sales of the business rose by $100m and net profit by $5m compared to
2005. Do these figures suggest that Puregloss was successful in 2006?
.................................................................................................................................
P1 53
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
.................................................................................................................................
..............................................................................................................................[6]

(c) Profit is difference between sales recorded and costs allocated to a specific time period.
This
is not the same as cash movements.

Knowledge of difference [2-1]

Understanding of difference as shown by illustration or development [2–1]

For example sales might be on credit and hence no immediate cash movement. Some costs
allocated such as depreciation. Reference to appropriation account gets full reward of marks.
Also acceptable are references to tax and dividend payments as it is not stated whether the
profit is after these.

(iii) Financial success often measured in terms of return on assets [capital].

Profits also often seen as an indicator of success.
Not possible to calculate return on capital but netprofit margin can be calculated.
This shows 2005 35/400% = 8.76% 2006 = 8%
Thus 2006 not obviously better.
So sales are up: profit is up but margins down.
Thus issue as to whether 2006 is better is not conclusive.
Profit rose by 14.2% while sales rose by 25%.
On balance probably was a successful year but justification

P1 54
(a) (i) Calculate the change in the net profit margin between these two years.
..................................................................................................................................
...............................................................................................................................3]

(ii) Suggest two reasons that could explain this change.

..................................................................................................................................
..................................................................................................................................
...............................................................................................................................2]

(iii) Calculate the return on capital in 2003.

..................................................................................................................................
..................................................................................................................................
...............................................................................................................................2]

(iv) Explain what the return on capital ratio tells us about a company.
..................................................................................................................................

P1 55
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................3]

(v) State and explain two other pieces of information that would help you decide if
2003 had been a successful year for Company A.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................4]

(b) (i) Explain the term working capital.

..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................2]

(ii) How can a business make a profit and yet have a cash flow problem?
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................4]

P1 56
(a) (i) Explain what is meant by a ‘current asset’.
..................................................................................................................................
..................................................................................................................................

P1 57
..................................................................................................................................
...............................................................................................................................2]

(ii) Calculate the current ratio for Carlton.

..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................2]

(ii) Do you think that Carlton should increase its debt to finance the expansion?
Explain your answer.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................5]

(c) Carlton made a net profit of $200 000 in 2004.

(i) Calculate the rate of return on capital employed.

..................................................................................................................................
..................................................................................................................................
...............................................................................................................................3]

(ii) Explain one way in which a profitable business could run out of cash.
..................................................................................................................................
..................................................................................................................................
..................................................................................................................................
...............................................................................................................................4]

3 (a) (i) Current asset is an asset that can be turned into cash quickly and with certainty
[2]. Simple answer such as ready cash [1] [k/u]. [2]

(ii) 1.5 [2] ca/cl [1] [1k/1ap] 3: 2 [1]. [2]

(b) (i) Identify [2] explain [2]. Sources

retained profit/sale of assets/

better cash flow
management

(ii) Use of figures to arrive at conclusion [3]. General discussion [2/1].

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No because 78.5% of capital already comes from debt.
Thus further debt undesirable/
cost of borrowing/
impact on profits .

(c) (i) 14.3% [3]. 1 for method [1k/2ap] or for inaccurate answer e.g. 14%. The %
sign must be included to gain full marks. [3]

(ii) Cash and profit not the same.

Cash represents available funds.
Profit is an accounting surplus.
A profit might be declared but debtors are outstanding.

Furthermore purchase of assets might lead to cash shortages not matched by

any corresponding P/L item [2k/2an].

b) Explain the difference between profit and revenue.

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Using profitability ratios explain which company in your view has the better
performance.
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[6]

e) The success of a business can be assessed by looking at its final accounts. Explain
how this can be done.

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(e) Level 3 Answer considers concept of success; identifies criteria for
measurement; links criteria to final accounts. 6-5 marks

Success might be assessed in terms of achievement of objectives,

e.g. sales targets,

profits, etc.
Rate of return of capital.
Improvement in performance compared to previous years.

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( Regulating and Controlling Business Activity)
(ii) The government in country Z is passing tougher consumer protection laws on
materials used in clothing. How might this affect Sudhir’s business in the future?
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(c) If the currency of country Z appreciated in value how would this affect the
profitability of
Sudhir’s business? Explain your answer.
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Swanfield supermarket stores operate in the UK and they buy some of their fruit from
Ombaja. In 2004 they bought $100m of fruit from Ombaja. Explain how the exchange
rate change between 2004 and 2005 would have affected Swanfield stores.
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(d) The government of country Y gave B.M.F. financial help to set up in their country.
Not
everyone in the country was pleased to see the factory built. Some pointed out that
there would be social costs produced by the factory.
Explain what these social costs might be.
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(ii) Such laws would mean compliance with stricter standards.

Thus Sudhir needs to be sure that the quality of the merchandise sent to him meets the
required specifications.
He might need to find new suppliers.
Certainly he needs to communicate with the suppliers.
It might increase his costs.
It is of course possible that existing materials used already comply but this seems unlikely.

Understanding of issues 2–1

Analysis of possible impact on the company 2–1

(c) An appreciation in the value of the currency would mean that it was cheaper to import
products than before.
This should be of benefit to Sudhir because all his purchases are fromcountry X.
Thus he should be able to increase his profit margins or sell greater volume by offering lower
prices.
Either way profits should rise.

Reference to increased sales gains up to 3 marks [showing how this comes about]. Link to
profit gains 4 marks.
Knowledge of currency appreciation 2–1
Application and analysis 2–1

(c) Swanfield imported food would cost much less.

Previously it cost £10m to buy $100m worth of food.
Now the cost would be £4m.
Thus inputs cheaper/profits higher.
It would work to the benefit of the company.

(d) Social costs usually refer to the costs to society as well as to a business.
They are usually regarded as being the negative externalities associated with business
activity.

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 In this context they would include noise / air / visual pollution as well as things like
congestion and damage to local environment and other businesses.

Knowledge of social costs [1-3]

Explanation /application of the concept [1-3]

2 General Plastics is a multinational company that has recently set up a factory in

Country J.
This General Plastics factory imports some of the raw materials that it uses and
assembles
them at the factory. The finished products are then exported from Country J.

(b) Changes in currency exchange rates can cause problems for multinational
companies.
If the currency of Country J increased in value [appreciated], would this benefit
General
Plastics? Explain your answer.
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(d) In many countries governments have introduced laws to stop employees being
exploited. Using any examples known to you explain how such laws should help
employees.
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(c) The exchange rate of the £ to the U.S.A. $ is £1 = $1.5.

(i) If a Balltop plc product is priced at £200 what price would you expect it to sell for
in

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the U.S.A.? Show your calculations.
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(ii) If the exchange rate of the £ rose against the $, would this help Balltop plc’s
exports to the U.S.A.? Explain your answer.
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(d) Pressure groups, such as Greenpeace, are a group of people who feel strongly
about
issues.

(i) How might a pressure group attempt to get a company like Balltop plc to change
some of its policies?
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(b) The change in the exchange rate would affect General Plastics in two ways as it is both an
importer and exporter.
The appreciation in the currency would mean that the imports into J become cheaper but the
exports out of J become more expensive.
On balance the impact likely to be damaging to the company as only some of its costs
become cheaper while all its exports become more expensive.

2–1 for identification of impact.

2–1 for evaluation of impact.

(d) Might protect employees from poor working conditions

(noise, atmosphere);
danger (machinery, etc.);
excessive hours;
low pay.

4-3 marks - for number of points plus good application.

2-1 marks - limited number of points/little application.

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)

(c). (i). £200 times $1.5 [1] = $300[2]

(ii). . Rise in exchange rate implies that £ rate is higher against $.

Thus might have risen to say £1 = $1.75.
Thus consequence will be that export price will rise and hence outcome is unhelpful to the business.

(d). (i).
Pressure groups might bring bad publicity or increase public awareness of their anti social activities.
The purpose of this approach is to damage the company’s sales and hence profits.
Fear of this might bring about a change in company policies.

2 Anesh Patel’s business makes toys. His business has been successful. However
recently
sales and profits have been falling. ‘Things seem to be getting worse,’ he said. ‘The
government is raising interest rates and introducing new health and safety laws. I may
have
to make some workers redundant if my costs rise any more. What the government
should be
doing is keeping out cheap imports.’

(ii) Do you think that governments should introduce health and safety laws? Explain
your answer.
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(b) (i) Why does Anesh believe that the government should keep out cheap imports?
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(ii) Explain one method that could be used to protect Anesh’s business from cheap
imports.
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(c) Why might a rise in interest rates affect the profits of Anesh’s business?
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2. (a) (i). Problems could be related to things like working environment /

noise /
temperature /
dangerous machinery /
sanitation.

Answers should identify aspect

and produce an illustration to gain full marks

(ii). If no laws then an employer might be tempted to cut costs in order to boost profits.
This might lead to exploitation of employees.
To prevent any
possibility of this occurring laws are needed.

(b) (i). His sales are falling.

His costs are rising and hence prices being driven up.

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Thus cheap imports add to his problems.

(ii). . Methods likely to be tariffs or quotas

. The first is an import tax which would increase the domestic cost of imports.
The second is a volume constraint that would free up some of the market for domestic producers.

(c). If the business has debts then it will pay interest on its borrowing.
This is a cost and hence if rates rise then profits will fall.
The business might try and pass this on in the form of higher prices in which case volume sales will
probably decrease.
It is also possible that interest rates might have an adverse impact on consumers ability to buy.
This too would damage profits.

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