–3– M06/3/BUSMT/SP2/ENG/TZ0/XX

2. Teddybears Picnics Ltd

Teddybears Picnics Ltd produces teddy bears. Financial information includes:

2004 2005
($) ($)
Fixed assets 10 000 10 000
Sales revenue 22 000 24 000
Cash 1 200 1 000
Stock 4 800 5 200
Debtors 2 900 3 200
Cost of sales 8 400 8 900
Creditors 3 200 3 400
Retained profit 8 700 9 900
Overheads 4 400 5 000
Long term liabilities 7 000 6 100

(a) Define the following terms:

(i) fixed assets

(ii) current assets
(iii) current liabilities. [6 marks]

(b) Construct a profit and loss account for Teddybears Picnics Ltd for each of the
years 2004 and 2005. [5 marks]

(c) Produce a balance sheet for Teddybears Picnics Ltd for each of the years 2004
and 2005. [6 marks]

(d) Identify three ways in which Teddybears Picnics Ltd can improve their
net profit. [3 marks]

2206-5104 Turn over

 –– N06/3/BUSMT/SP2/ENG/TZ0/XX

5. Seifert Sawmill

The Seifert Sawmill has operated in Sweden for 80 years. Daniel Seifert, the managing director,
provided the following data on a proposal to set up a Sawmill in Latin America.

Table 1
Fixed costs $800 000 per annum
Variable costs $1000 per batch
Selling price $4000 per batch
Forecast sales 500 batches per annum

Table 2
The fixed costs per annum: $
Directors fees 200 000
Rent 250 000
Annual logging licence 100 000
Depreciation 70 000
Interest 150 000
Other expenses 30 000
The variable costs: $
Direct labour 300 per batch
Machine hire 100 per batch
Electricity 100 per batch
Vehicle running costs 100 per batch
Materials 400 per batch

Seifert Sawmills has hired a management consultancy firm, Business Dynamics, to assess the business
environment in Latin America. The following is a summary of their findings:

• the local and regional construction industry is showing strong signs of recovery from recession
• the recent national elections resulted in the PBP political party being re-elected with policies
favouring the business community
• the local currency has been pegged to the US dollar in an attempt to improve business confidence
and contain inflation
• the trade union movement in Latin America is getting stronger. There is a widespread belief
among employees that trade unions offer the only real hope of improving living standards
• global and local environmental groups are gaining in popularity and political influence
• there is a growing use of synthetic materials in the construction industry rather than timber.

(a) Use the data in Table 1 to prepare a break-even chart for Seifert Sawmill. [6 marks]

(b) Identify on your chart the margin of safety and profit if 500 batches are sold. [2 marks]

(c) Assuming 500 batches are sold, construct a forecast profit and loss account using
the data provided in Table 2. [6 marks]

(d) Use a PEST/STEP framework to evaluate two external factors which might
influence Seifert Sawmill’s decision to set up a sawmill in Latin America. [6 marks]

8806-5014
 –2– M00/370/S(2)

1. John Bite owner of a retail store has recorded the items below during the year ending
December 31, 1999.

Item Value ($ 000s)

Stock 40
Vehicles 80
Building 200
Sales 100
Owner’s equity
Accounts payable (creditors) 20
Accounts receivable (debtors) 15
Cost of goods sold 60
Long term loan 200
Bank money (money in a bank account) 5
Expenses 20

The current assets ratio for 1998 was 1:1 and the asset test ratio was 0.5 :1.

From the above figures:

(a) Produce the Balance Sheet for the year ending December 1999 and
calculate the owner’s equity. [6 marks]

(b) Identify the two possible elements that make up the owner’s equity. [2 marks]

(c) Prepare an Income Statement (Trading and Profit and Loss Account). [3 marks]

(d) Calculate the current assets ratio and acid ratio for 1999. [2 marks]

(e) Explain what these ratios measure and show why both are important to
the firm. [4 marks]

(f) Compare the 1998 ratios to the 1999 ratios and write a comment on
your findings. [3 marks]

220-110
 –3– M00/370/S(1)

At an annual shareholders meeting Bill Adriano reported the following financial information

Figure II

1999 2000 (projected)

$ $

Total sales 2 600 000 2 400 000

Total cost of sales 1 820 000 1 900 000
Administration costs 140 000 145 000
Selling and distribution 40 000 42 000
costs
Other costs 80 000 81 000

Vidler’s appointed a market research consultant, to undertake a $10 million project to find out
20 the perception consumers had of Vidler, compared to its rival, Vercher.

Figure III Main Findings of the Project

Vidler Vercher

Dull grey and brown corporate identity Bright modern corporate identity
Few special offers Special offers to attract customers
Slow checkout services Fast scanning to speed up checkout
Telephone order line Internet ordering
Narrow aisles Wide aisles
Staff discount Staff bonus scheme for suggestions
Standard trolleys Different trolleys
Small car parks Large car parks

Vidler will use the recommendations made in the report produced by the market research
consultant to decide changes that are needed to increase market share.

220-109 Turn over

 –4– M00/370/S(1)

1. What is meant by the following terms?

(a) Market leader.
(b) Branding.
(c) Tertiary sector. [6 marks]

2. Produce one pie chart showing market share for each company for 1999. [4 marks]

3. Evaluate three consequences of removing a layer from the organisational

structure at senior director level. [6 marks]

4. You are the market research consultant appointed by Vidler. Produce a report for
the Chief Executive, Bill Adriano, discuss your findings and conclusions, and
make at least three recommendations as to how Vidler could relaunch itself for
Year 2000. [8 marks]

5. Vidler need to improve communication between store managers and their

staff. Explain three methods they could implement in order to make
communication more effective. [6 marks]

6. If the total sales for Vercher, in December 1999 were $ 420 000, calculate the
total sales Vercher had in January 2000. [2 marks]

7. Using the financial information given prepare a profit and loss account for
Vidler for the year ending 1999 and the projected figures for 2000. Use two
ratios to compare the accounts and comment on what is happening. [8 marks]

220-109
 –3– N00/370/S(1)

Safebuy Supermarkets

Safebuy Supermarkets, established in 1988, grew rapidly on the back of aggressive pricing
and marketing. The store’s own brand products make up 60% of sales by value. Each store is
run by a manager, who is given considerable independence. Most managers are recruited
35 from competitors, tempted by high performance related bonuses. They are young: averaging
32 years old, and work to strict sales targets. Those who do not meet their targets are
dismissed. The managers recruit their own staff, who are required to be flexible and work as a
team. Staff turnover is relatively high. Team leaders run several departments and the organisation
structure below team leaders is flat.

40 Safebuy is facing increasing competition as the economy moves out of recession. Customers
are looking for higher quality, good value branded products. In particular, Safebuy has lost
market share to INCA Brands. INCA Brands offers clothes, household items, food, computers
and even small motorbikes. It has recently been acquired by a large US clothing retailer and
is able to charge low prices because of economies of scale in purchasing. INCA’s recent
45 advertising claims that prices in its stores will be cut by 5% over the next twelve months.
They are also heavily promoting their new Internet shopping service and home delivery.

Table I Hunter & Sons financial highlights 1998 – 2000

1998 1999 2000

$m $m $m
sales revenue 788 754 706
cost of sales 244 258 266
overheads 368 356 364
fixed assets 1880 2200 2340
current assets 484 488 486
current liabilities 276 325 378
long term liabilities 288 483 548
shareholders funds 1800 1880 1900

880-109 Turn over

 –5– N00/370/S(1)

1. Using the information in the text and from Figures I and II, compare the
organisation structures of Hunter & Sons and Safebuy Supermarket, and
discuss how the different structures and management cultures will affect the
operation and management of the two stores. [8 marks]

2. Prepare Profit and Loss Accounts and Balance Sheets for Hunter & Sons for the
years 1998 and 2000. [8 marks]

3. Comment on the performance of Hunter & Sons over the three years 1998 to
2000 and its present financial position. Assess the profitability, liquidity and
efficiency of Hunter & Sons over the three years 1998 to 2000, using
appropriate ratios to support your analysis. [8 marks]

4. (a) Explain two purposes of branding products. [4 marks]

(b) Why is Tom Spielberg planning to sell cheaper, more fashionable

clothes under the Botticelli brand rather than use the existing Hunters
brand name? [2 marks]

5. (a) Produce a SWOT (Strengths, Weaknesses, Opportunities and Threats)

analysis for Hunter & Sons. [8 marks]

(b) Using your SWOT analysis, write a report from Tom Spielberg to the
Hunter brothers analysing possible advantages and potential problems of
the proposed merger with Safebuy Supermarkets.
The report must be in a format suitable for presentation to the board of
directors. [8 marks]

6. Examine the benefits and limitations for both customers and retailers of
on-line Internet shopping. [4 marks]

880-109
 –6– M05/3/BUSMT/SP2/ENG/TZ0/XX

5. Brownlow Ltd

The following financial information is given for Brownlow Ltd for 2003 and 2004:

2003 2004
Sales revenue 20 000 24 000
Fixed assets 1 20 000 1 20 000
Stock 8 000 9 000
Cost of sales 9 000 12 000
Cash in bank 2 000 2 500
Creditors 20 000 30 000
Share capital 52 000 52 000
Long term liabilities 40 000 40 000
Debtors 10 000 12 500
Overheads 3 000 3 000
Reserves 28 000 22 000

(a) Prepare a profit and loss account for 2003 and 2004. [5 marks]

(b) Prepare a balance sheet for 2003 and 2004. [5 marks]

(c) Using four appropriate ratios analyse the liquidity and profitability of
the company and comment on its performance. [10 marks]

2205-5014
 –– N07/3/BUSMT/SP1/ENG/TZ0/XX

4. The finance manager, Colin Buckley, has drawn up draft accounts for the year ended 31 May 2007.
The main figures from these accounts are given below.

$000
Gross profit 525
Net profit 190
Interest 35
Tax 25
Dividends 100
Turnover 2750
Fixed assets 1250
Creditors 450
Debtors 350
Cash 50
Short-term borrowing 135
Net assets 1570
Share capital 350
Loan capital 550

(a) (i) Calculate the gross profit margin and the net profit margin for the years
ended 31 May 2006 (see Appendix 1 in the case study) and 31 May 2007. [4 marks]

(ii) Explain two possible reasons for the change in the net profit margin
between 31 May 2006 and 31 May 2007. [4 marks]

(b) Use the figures above to construct a full profit and loss account and balance
sheet for the year ended 31 May 2007 (N.B. Use the same layout for the accounts
as in Appendix 1). [10 marks]

8807-5013
 –4– N04/3/BUSMT/HP1/ENG/TZ0/XX

6. The board of directors of Riveau Yachts are keen to know what the financial results are likely
to be for 2004 and so have asked the financial director to prepare a forecast set of accounts.
The financial director has started to collect forecasts of the financial information for the
financial year 2004. He has so far managed to get the following information:

Total sales revenue $160 000 000 Stock $28 550 000
Gross profit $18 750 000 Debtors $18 250 675
Net profit $7 250 000 Cash $789 950
Retained profit $1 894 000 Current liabilities $20 500 250
Net assets $75 841 000

He is also using the following supplementary information and assumptions:

! the number of shares is the same as in 2003

! the board want to pay a dividend of $0.50 per share
! the interest bill will be the same as in 2003
! the tax bill will be $1 250 000
! share capital and loan capital figures will be the same as in 2003.

(a) Construct the forecast balance sheet and profit and loss account for
2004. [8 marks]

(b) The firm is considering conversion to a public limited company in 2005.

With reference to the figures you have calculated in part (a) and using
four ratios, evaluate these forecast accounts from the point of view of a
potential investor. [12 marks]

8804-5011
 –8– N04/3/BUSMT/HP2/ENG/TZ0/XX

6. Stock valuation

Trend-Setter, established in January 2004, produces dresses for fashion conscious clients.
The company buys a fixed amount of the silk material used for production from cheap, but
very reliable overseas suppliers.

In the first three months of its first trading year, Trend-Setter sold 2 000 dresses per month at
$20 each. However, in the next three months of operation the company experienced a 50 %
drop in the number of dresses sold despite a 20 % price cut. Consequently, the amount of
stock held increased.

The manager, therefore, is thinking of introducing the JIT (just-in-time) method of production
and stock control.

Stock data for Trend-Setter for the first six months of 2004 is shown below

Month / 2004 Purchases Stock used

(sq meters and price) (sq meters)

January 5 000 @ $3 2 000

February NIL 2 000

March 5 000 @ $4 2 000

April NIL 1 000

May 5 000 @ $4 500

June NIL 500

(a) Using the FIFO (first in first out) method of stock valuation:

(i) calculate the value of the closing stock at the end of June 2004.
(Show all your working.) [6 marks]

(ii) prepare a profit and loss account for the period January to June
2004. (Show all your working.) [5 marks]

(b) Explain how the use of the alternative LIFO (last in first out) method of
stock valuation will affect gross profit. (Calculations are not required.) [3 marks]

(c) Evaluate whether Trend-Setter should introduce a JIT (just-in-time)

method of production and stock control. [6 marks]

8804-5012