Exam code: 7132
Syllabus Edition
First teaching 2023
Last exams 2027
A business reduces the credit period it offers to its customers from 60 days to 30 days.
What is the most likely effect on the business?
Cash inflows arrive sooner, but some customers may move to competitors offering better credit terms
Its current liabilities fall, because it owes less money to its suppliers
Its profit for the year rises, because customers now pay more for each product
Its inventory levels fall, because products are sold more quickly
Choose your answer
Was this exam question helpful?
A business raises the price of a product for which demand is price elastic.
What is the most likely effect on the business's revenue?
Revenue will rise, because each unit now sells for a higher price
Revenue will stay the same, because price and quantity always offset one another
Revenue will fall, because the fall in quantity sold outweighs the higher price
Revenue will rise, because the business's costs are unchanged
Choose your answer
Was this exam question helpful?
What is meant by the term 'overtrading'?
How did you do?
Was this exam question helpful?
Halesmoor Joinery has £48,000 of unsold timber and finished units sitting in its workshop. It needs cash to pay wages at the end of the month.
Explain one way Halesmoor Joinery could improve its cash flow.
How did you do?
Was this exam question helpful?
Denbury Coffee roasts and sells speciality coffee beans. The price of green coffee has risen sharply, and the business is considering reducing its variable costs.
Explain one drawback to Denbury Coffee of reducing its variable costs.
How did you do?
Was this exam question helpful?
Kelvin Signs manufactures signage for large construction firms. Its biggest customer has extended the time it takes to pay from 60 days to 120 days.
Explain one difficulty this creates for Kelvin Signs in improving its cash flow.
How did you do?
Was this exam question helpful?
Thurlby Vehicle Hire owns its depot outright. It is considering a sale and leaseback arrangement, selling the depot to a property company and renting it back.
Explain how a sale and leaseback arrangement would affect Thurlby Vehicle Hire's cash flow.
How did you do?
Was this exam question helpful?
WWH Ltd
WWH Ltd manufactures and sells a single model of wood-burning stove. Rising energy prices mean that gas and electric heating is expensive to run. Wood-burning stoves are a cheaper and increasingly popular alternative source of heating in homes. This has led to an increase in demand for WWH Ltd’s wood-burning stoves. WWH Ltd is profitable and owns its buildings.
WWH Ltd uses demand forecasts to estimate how many wood-burning stoves to make. Once manufactured, the stoves are stored in WWH Ltd’s warehouse until they are needed. When a customer places an order, they pay a 25% deposit and the remaining 75% when the stove is fitted in the customer’s home. The production department has been able to increase manufacturing to keep up with the growing demand. However, lead time for fitting by WWH Ltd’s expert fitters has been increasing and is currently two months.
Looking to the future, WWH Ltd’s directors are concerned. The government has introduced legislation to set environmental standards for wood-burning stoves. News media continue to run stories that the sale of wood-burning stoves may be banned completely in the future. This uncertainty means that banks are not willing to lend WWH Ltd any more money.
Up until now, WWH Ltd’s directors have seen the focus on a single product as a strength which has allowed them to keep a simple organisational design:
no need for research and development and new product development
functional structure with department responsibilities unchanged since the business set up
relatively flat structure which helps to keep costs under control.
Now, the directors want to grow the business and are considering recruiting more staff and developing a portfolio of new products. Developing newer models of wood-burning stoves may enable WWH Ltd to keep ahead of ever-increasing government environmental standards. Alternatively, developing unrelated products could reduce dependence on a market with increasing government regulation.
Analyse how WWH Ltd could improve its cashflow.
How did you do?
Was this exam question helpful?
Analyse the possible effects on Marchford Bakeries' profitability of the three options in Table 1.
How did you do?
Was this exam question helpful?
Evaluate the main difficulty Saltbeck Outdoor faces in improving its cash flow.
How did you do?
Was this exam question helpful?