A LevelBusinessAQAExam QuestionsManaging FinanceBreak-even

Break-even (AQA A Level Business): Exam Questions

Exam code: 7132

Syllabus Edition

First teaching 2026

First exams 2028

2 hours15 questions
Easy
Medium
Hard
1
6 marks

Source A: MJ Gleeson plc

MJ Gleeson plc builds houses. It is a public limited company listed on the London Stock Exchange and it works in two quite different ways. Gleeson Homes builds and sells houses, mainly in the North of England and the Midlands. Gleeson Land buys options on farmland, obtains planning permission and sells the land on to other housebuilders.

What makes Gleeson unusual is who it sells to. It builds the lowest-priced new homes in Britain and says its average selling price is 34% lower than the average new build price in the regions where it works. In the year to 30 June 2025, 78% of the homes it sold were affordable to a couple both earning the National Living Wage. Many of its buyers are first-time buyers who would otherwise be renting.

The year was a difficult one. Group revenue rose 5.9% to £365.8 million and the company sold 1 793 homes, only 21 more than the year before. The average selling price rose 4.3% to £193 600, but almost all of that came from building a different mix of houses rather than from charging more for the same house: underlying price growth was just 0.6%.

Costs went the other way. The gross margin at Gleeson Homes fell from 24.1% to 20.7%, and its operating profit fell 26.4% to £22.3 million. Gleeson Land had a much better year, completing seven land sales and lifting its operating profit from £2.2 million to £7.0 million, but it is far too small to make up the difference. Group profit before tax fell 17.3% to £20.5 million.

The company built from fewer places. Active build sites fell from 79 to 68, while the land pipeline grew slightly to 19 638 plots. Gleeson holds a medium-term target of building 3 000 homes a year, which is well above the 1 793 it managed this year.

Money left the business. Gleeson began the year with net cash of £12.9 million and ended it with net borrowings of £0.8 million, having held its dividend at 11.0p a share even though earnings per share fell from 33.13p to 27.11p.

Source: MJ Gleeson plc audited results for the year ended 30 June 2025, 16 September 2025

Appendix A: MJ Gleeson plc selected results

Appendix A table comparing 2024 and 2025 results: homes sold 1,772 and 1,793; active build sites 79 and 68; homes sold per active build site 22.4 and ?.

Source: MJ Gleeson plc

MJ Gleeson plc reduced the number of active build sites from 79 to 68. A site has costs that must be paid whether or not homes are sold on it.

Analyse one way in which building from fewer sites might affect the number of homes MJ Gleeson plc has to sell in order to break even.

How did you do?

2
6 marks

Source B: Calder Vale Ceramics Ltd

Calder Vale Ceramics Ltd makes tableware: plates, bowls and serving dishes, thrown and glazed at a single factory in Lancashire. It is a private limited company owned by its two directors, Nadia Okonjo and Rob Hartley, and it employs 19 people.

It does not sell to the public. Its customers are restaurant groups, hotels and independent homeware shops, who order in batches and expect the same glaze to be available again in two years' time. Last year it fired and sold 77 500 pieces at an average price of £16.00, which brought in £1 240 000.

Two kilns do all the work. They cost £14 200 a month to run, staff, maintain and insure, and that is paid whether or not a single piece is fired. A third kiln would cost £180 000 and would let the company take the larger restaurant contracts it currently turns down.

The difficulty is not profit. The difficulty is when the money arrives. Calder Vale Ceramics Ltd's largest customers are restaurant groups, and they take 62 days to pay. Its own clay and glaze come from two small family firms, and Calder Vale Ceramics Ltd pays them within 30 days, because it always has. Finished inventory sits in the warehouse for about seven weeks before a customer calls it off.

Last year it made a gross profit of £558 000 on its £1 240 000 of revenue, once the £682 000 of clay, glaze, packaging and firing was paid for. Wages came to £298 000 and the kiln, factory, insurance and other fixed costs to £170 400, leaving a profit for the year of £89 600. It ended the year with £18 300 in the bank.

Appendix E: Calder Vale Ceramics Ltd break-even chart

Break-even chart of annual pieces fired and sold against revenue and costs: output runs 0 to 100 thousand and values £0 to £1 600 thousand. Fixed costs are about £468 400; revenue and total costs meet at about 65 thousand pieces and £1 040 000.

Source: Analyst

Calder Vale Ceramics Ltd's two kilns cost £14 200 a month to run whether or not a single piece is fired.

Analyse one way in which this might affect the number of pieces Calder Vale Ceramics Ltd must sell before it makes a profit.

How did you do?

3
6 marks

Source B: Calder Vale Ceramics Ltd

Calder Vale Ceramics Ltd makes tableware: plates, bowls and serving dishes, thrown and glazed at a single factory in Lancashire. It is a private limited company owned by its two directors, Nadia Okonjo and Rob Hartley, and it employs 19 people.

It does not sell to the public. Its customers are restaurant groups, hotels and independent homeware shops, who order in batches and expect the same glaze to be available again in two years' time. Last year it fired and sold 77 500 pieces at an average price of £16.00, which brought in £1 240 000.

Two kilns do all the work. They cost £14 200 a month to run, staff, maintain and insure, and that is paid whether or not a single piece is fired. A third kiln would cost £180 000 and would let the company take the larger restaurant contracts it currently turns down.

The difficulty is not profit. The difficulty is when the money arrives. Calder Vale Ceramics Ltd's largest customers are restaurant groups, and they take 62 days to pay. Its own clay and glaze come from two small family firms, and Calder Vale Ceramics Ltd pays them within 30 days, because it always has. Finished inventory sits in the warehouse for about seven weeks before a customer calls it off.

Last year it made a gross profit of £558 000 on its £1 240 000 of revenue, once the £682 000 of clay, glaze, packaging and firing was paid for. Wages came to £298 000 and the kiln, factory, insurance and other fixed costs to £170 400, leaving a profit for the year of £89 600. It ended the year with £18 300 in the bank.

Appendix E: Calder Vale Ceramics Ltd break-even chart

Break-even chart of annual pieces fired and sold against revenue and costs: output runs 0 to 100 thousand and values £0 to £1 600 thousand. Fixed costs are about £468 400; revenue and total costs meet at about 65 thousand pieces and £1 040 000.

Source: Analyst

Appendix E shows that Calder Vale Ceramics Ltd breaks even at about 65 000 pieces a year. Last year it sold 77 500 pieces.

Analyse one way in which this might affect Calder Vale Ceramics Ltd's ability to keep making a profit if one of its restaurant customers stopped ordering.

How did you do?

4
6 marks

Source B: Brackenhill Films Ltd

Brackenhill Films Ltd makes documentaries and children's series in Bristol. It is a private limited company with eleven permanent staff: producers, an office manager and two editors. Everyone else is hired for the length of a production.

It does not sell to the public. Broadcasters and streaming services commission a programme, agree a fee and a budget, and Brackenhill Films Ltd delivers it. Last year it delivered four productions for a total of £2 140 000, an average of £535 000 each. The direct costs of making them came to £1 722 000. Fixed overheads, meaning the office, the permanent staff and the edit suites, were £468 000, and they are paid whether a production is in progress or not. The company therefore lost £50 000 on the year.

The budget for each production is agreed with the broadcaster at the start. If a production comes in under budget Brackenhill Films Ltd keeps the difference. If it goes over, Brackenhill Films Ltd pays the difference itself. On the four productions delivered last year the budgets were set by copying the previous year's figures for a similar programme and adding a little for inflation.

Money arrives in three instalments: a third when the programme is commissioned, a third when a rough cut is delivered and a third on final delivery. Costs do not arrive in three instalments. Crews, camera hire and studio time are paid as the work happens, which is why the company's bank balance looks the way it does.

Brackenhill Films Ltd has an overdraft facility of £50 000.

Brackenhill Films Ltd has fixed overheads of £468 000 a year, which are paid whether a production is in progress or not.

Analyse one way in which this might affect the number of productions Brackenhill Films Ltd needs to deliver each year before it makes a profit.

How did you do?

5
6 marks

Source B: Halvergate Storage Ltd

Halvergate Storage Ltd rents storage units by the month. It has three sites in East Anglia, at Norwich, King's Lynn and Lowestoft, with 1 200 units between them. It is a private limited company owned by two brothers, Tom and Michael Ferris, and it employs nine people.

Its customers are households between moves, people who have downsized, and small businesses storing inventory. A unit costs an average of £100 a month. Once a unit is let it costs Halvergate Storage Ltd about £12 a month in electricity, cleaning and administration. Everything else is fixed: staff of £290 000 a year and rates, insurance and maintenance of £186 000, which are paid on the whole building whether the units inside it are full or empty.

Last year 80% of the units were let, which is 960 of the 1 200, and revenue was £1 152 000. Operating profit was £537 760. After £152 000 of interest, profit for the year before tax was £385 760.

The interest is there because the sites were built with borrowed money. The three sites together represent capital employed of £4.2 million, of which £2.6 million is long-term bank loans and £1.6 million is the brothers' own money.

Tom and Michael Ferris have set the company an objective: a return on capital employed of 15% within three years. They are also looking at a fourth site, at Bury St Edmunds, which would cost £1.6 million.

Appendix D: Halvergate Storage Ltd, summary of last year

Table of Halvergate Storage Ltd’s figures: 1,200 units, 960 let (80%), £100 monthly rent, £12 monthly cost per let unit, and fixed staff costs of £290,000 plus £186,000 rates, insurance and maintenance.

Source: Analyst

Halvergate Storage Ltd pays £290 000 in staff costs and £186 000 in rates, insurance and maintenance whether its units are full or empty.

Analyse one way in which this might affect the number of units Halvergate Storage Ltd must let before it makes a profit.

How did you do?

6
6 marks

Source B: Aldergate Landscapes Ltd

Aldergate Landscapes Ltd designs and builds gardens across Cheshire and north Staffordshire. It is a private limited company owned by Joss Aldergate and his wife Ruth, and it employs 19 people alongside regular subcontractors for stonework and electrics.

Most of the work is for private clients having a whole garden rebuilt, at an average of £14 200 a garden. The rest is for two housing developers who want the gardens finished before a show home opens. Last year the company built 188 gardens for revenue of £2 669 600. Materials and subcontractors cost £9 800 a garden. Everything else, meaning the yard, the vans, the permanent staff, the designer and the office, cost £680 000.

The work does not arrive evenly. Appendix E shows what comes in each month, and the three months from December to February brought in £214 000 between them, against fixed costs of about £170 000 for the same period.

To manage this, Aldergate Landscapes Ltd asks private clients for a 50% deposit when the design is signed off. The deposit is spent almost immediately, though not usually on that client's garden: it pays for materials on the job already running.

At the year end the company was owed £312 000 by clients and developers, held £186 000 of gardens that were half built and not yet invoiced, and had £24 000 in the bank. Against that it owed £268 000 to suppliers and subcontractors, £71 000 in VAT and PAYE, and was £46 000 into its overdraft.

Appendix D: Aldergate Landscapes Ltd, summary of last year

Summary table showing 188 gardens built, £4,400 contribution per garden, £680,000 fixed costs and £147,200 operating profit, alongside working-capital figures and a 1.36 current ratio.

Source: Analyst

Aldergate Landscapes Ltd pays £680 000 a year for its yard, vans, permanent staff and office whether it builds a garden that month or not.

Analyse one way in which this might affect the number of gardens Aldergate Landscapes Ltd must build before it makes a profit.

How did you do?

7
6 marks

Source B: Home Instead Ltd

Home Instead Limited arranges care for older people in their own homes: help with washing and dressing, meals, medication, shopping and company. It has been trading in the United Kingdom since 2005 from an office near Warrington, and it is owned by an American company.

Home Instead does not provide the care itself. It is a franchisor. Local business owners buy the right to run a Home Instead office in a particular area, and in return they use the name, the training and the systems, and pay a fee on everything they sell. Those franchisees recruit and employ the carers. This is why the company's accounts look so unusual for a care business: turnover of £19.5 million but only 64 employees, because almost everybody who does the work is employed by somebody else.

The market is growing. The Office for National Statistics projects that the number of people in the UK at state pension age will rise from 12.0 million in mid-2022 to 13.7 million by mid-2032, an increase of 13.8%, while the population as a whole grows by 7.3%. Older people are becoming a larger share of the country, and most of them would prefer to stay in their own homes.

The company's own finances moved in two directions during 2025. Turnover rose 7.9% to £19.5 million. But cash at the bank fell by 28.8% to £3.12 million and net assets fell by 10.8% to £5.10 million.

Home Instead now has a choice about how to grow. It could recruit more franchisees to cover the areas it does not reach. Or it could buy back some territories and run them itself, employing the carers directly. Appendix E shows what a typical franchise costs to run and Appendix F shows the break-even chart for one.

Source: information sourced from Companies House and the Office for National Statistics, 2026

Appendix E: Information on one Home Instead franchise

Appendix E tables: per-hour care price £32.00, carer wages and related costs £20.00, Home Instead fee £1.60 and contribution £10.40; annual fixed costs £260,000, break-even output “?” and forecast sales 32,000 hours.

Source: Analyst

Appendix F: Break-even chart for one Home Instead franchise

Break-even chart: total revenue and total costs meet at 25 thousand hours and £800,000. Hours sold axis 0 to 40 thousand; revenue and costs axis £000, 0 to 1,400; fixed costs are £260,000.

Source: Analyst

One Home Instead franchise earns a contribution of £10.40 for each hour of care it sells and has fixed costs of £260 000 a year.

Analyse one way in which a rise in carers' wages might affect the number of hours of care that franchise must sell in order to break even.

How did you do?

1
9 marks

Source B: Home Instead Ltd

Home Instead Limited arranges care for older people in their own homes: help with washing and dressing, meals, medication, shopping and company. It has been trading in the United Kingdom since 2005 from an office near Warrington, and it is owned by an American company.

Home Instead does not provide the care itself. It is a franchisor. Local business owners buy the right to run a Home Instead office in a particular area, and in return they use the name, the training and the systems, and pay a fee on everything they sell. Those franchisees recruit and employ the carers. This is why the company's accounts look so unusual for a care business: turnover of £19.5 million but only 64 employees, because almost everybody who does the work is employed by somebody else.

The market is growing. The Office for National Statistics projects that the number of people in the UK at state pension age will rise from 12.0 million in mid-2022 to 13.7 million by mid-2032, an increase of 13.8%, while the population as a whole grows by 7.3%. Older people are becoming a larger share of the country, and most of them would prefer to stay in their own homes.

The company's own finances moved in two directions during 2025. Turnover rose 7.9% to £19.5 million. But cash at the bank fell by 28.8% to £3.12 million and net assets fell by 10.8% to £5.10 million.

Home Instead now has a choice about how to grow. It could recruit more franchisees to cover the areas it does not reach. Or it could buy back some territories and run them itself, employing the carers directly. Appendix E shows what a typical franchise costs to run and Appendix F shows the break-even chart for one.

Source: information sourced from Companies House and the Office for National Statistics, 2026

Appendix E: Information on one Home Instead franchise

Appendix E tables: per hour, client price £32, carer costs £20, Home Instead fee £1.60 (5%), contribution £10.40. Per year, fixed costs £260 000, break-even output unknown, forecast sales 32 000 hours.

Source: Analyst

Appendix F: Break-even chart for one Home Instead franchise

Break-even chart: hours of care sold (thousands) from 0 to 40 against revenue and costs (£000) from 0 to 1 400. Fixed costs are £260 000; total revenue and costs intersect at 25 000 hours and £800 000.

Source: Analyst

Assess whether a new Home Instead Ltd franchisee is likely to cover its costs in its first year.

Calculate the break-even output in hours of care per year to support your answer.

How did you do?

2
9 marks

Source A: Ridgeway Signs

Tomasz Nowak trades as Ridgeway Signs. He is a sole trader, which means the business is not separate from him in law: he owns everything it owns and he is personally responsible for everything it owes. He has no employees and works from a rented unit on a small industrial estate, with a van.

He designs, prints and fits signs for local businesses: shop fascias, vehicle graphics, banners, menu boards and exhibition displays. Almost all of his customers are other businesses within about twenty miles. Every job is quoted separately, and he wins roughly one quote in three.

Last year Ridgeway Signs took £85 000. Materials cost about 30p in every pound of work Tomasz does himself, so he keeps about 70p. Rent on the unit, the van, insurance and design software cost £21 000 a year whatever he sells.

The business has a shape to it. Appendix B shows sales month by month. October and November are his best months, because retailers refit before Christmas, and January and February are his worst.

There is one piece of work he cannot do. Large-format printing, such as vehicle wraps and big banners, needs a machine he does not own, so he sends those jobs to a trade printer in another town. Last year that work was worth £22 000 of his sales, but the trade printer takes most of it: Tomasz keeps only about 20p in the pound. He also turns away large jobs when the trade printer is busy.

A wide-format printer costs £24 000. Tomasz has £6 200 in the business account. Appendix C sets out what his accountant thinks would happen if he bought one.

Appendix A: Ridgeway Signs, summary of last year

Appendix A table (£): in-house sales 63,000; trade-printer sales 22,000; total sales 85,000; variable costs 36,500; fixed costs 21,000; annual profit 27,500; year-end cash 6,200.

Source: Analyst

Appendix C: Data on buying a wide-format printer

Data table for buying a printer: cost £24,000; five-year bank loan at 9.4% interest secured on printer; outsourced sales £22,000, retaining 20%; in-house retention 70%; £14,000 turned-away sales; extra fixed costs £6,000 yearly.

Source: Analyst

Assess whether buying the printer would make Ridgeway Signs a riskier business.

Calculate Ridgeway Signs' break-even level of sales after buying the printer to support your answer.

Assume Tomasz Nowak keeps 70p in every pound of sales. Give your answer to the nearest £100.

How did you do?

3
9 marks

Source B: Brightpath Learning Ltd

Brightpath Learning Ltd is an online tutoring company set up six years ago by two former teachers, Aisha Rahman and Tom Petridis, who are its only shareholders and directors. It employs 31 people at its office in Leeds and works with about 400 self-employed tutors.

It sells two quite different things.

Live tutoring. A student books one-to-one lessons online with a subject specialist. A lesson costs the parent £38. Brightpath pays the tutor £26 and keeps £12. This is the larger part of the business and the part parents ask for by name, but it can only grow as fast as Brightpath can recruit and check tutors, and a tutor can only teach one student at a time.

The practice platform. A subscription costs £9 a month and gives a student unlimited access to Brightpath's own question banks, marked practice papers and progress tracking. It costs almost nothing to serve one more subscriber, because the material is already written. Fewer parents ask for it, because it is harder to explain than a lesson with a teacher.

Last year Brightpath took £7.4 million: £6.5 million from tutoring and £0.9 million from subscriptions. Fixed costs, covering the office, the 31 staff, the software and the marketing, came to £1.9 million.

The business is highly seasonal. Appendix E shows lessons booked month by month: demand builds through the autumn, rises sharply after Christmas and peaks in April, then collapses once exams finish. Aisha and Tom have to pay the office and the staff through June, July and August whatever happens.

They now have to decide where to put next year's money. Appendix F sets out the two options.

Appendix D: Brightpath Learning Ltd, summary of last year

Appendix D table: practice platform revenue is £0.9m; subscription price is £9 a month, with no tutor payout and £9 retained per subscriber. Year-end subscribers total 9,100.

Source: Analyst

Assess whether the practice platform could support Brightpath Learning Ltd on its own.

Calculate the number of subscribers the practice platform would need in order to cover the company's fixed costs to support your answer.

Give your answer to the nearest whole number.

How did you do?

4
9 marks

Source B: Whitbourne Coaches Ltd

Whitbourne Coaches Ltd runs 18 coaches out of a depot in Herefordshire. It is a private limited company owned by Carol Whitbourne and her son Ryan, and it employs 22 people, most of them drivers.

Rather more than half its work is school contracts, run for the county council and for three private schools, which together brought in £1.36 million last year. The rest is private hire and day trips, which brought in £0.98 million. Total revenue was £2.34 million.

The company thinks in coach-days. A coach out on the road for a day earns an average of £420 and costs £180 in fuel, tolls and cleaning, leaving £240. Last year its coaches were out for 5 570 days. Against that it pays £1 200 000 a year in costs that do not change with use: the depot, insurance, vehicle finance and the drivers' basic wages. Profit for the year was £136 800.

The difficulty is that the profit is not in the bank. The council and the schools pay on their own timetable, which is usually somewhere between 60 and 90 days, and at the year end Whitbourne Coaches Ltd was owed £286 000. It had £31 000 in the bank and £18 000 of fuel in the tank. Against that it owed £142 000 to suppliers, £198 000 of vehicle finance falling due within the year, and £64 000 of VAT and PAYE.

Carol and Ryan Whitbourne take most of their own pay as dividends rather than salary, which is legal and costs the company less in national insurance than paying themselves the same amount as wages.

Appendix D: Whitbourne Coaches Ltd, summary of last year

Summary table: 5,570 coach-days, £420 average revenue and £180 variable cost per day (£240 contribution), £1,200,000 fixed costs and £136,800 profit. Current assets are £335,000 and liabilities £404,000.

Source: Analyst

Assess whether Whitbourne Coaches Ltd is operating at a safe number of coach-days.

Calculate Whitbourne Coaches Ltd's break-even output in coach-days to support your answer.

How did you do?

5
9 marks

Source B: Kettleby Plant Hire Ltd

Kettleby Plant Hire Ltd hires excavators, dumpers and telehandlers to builders across the East Midlands. It is a private limited company owned by Sean Kettleby and it employs 22 people, including four fitters who service the machines and two drivers who deliver them.

It owns 68 machines. Last year they were out on hire for 15 400 machine-days in total, at an average of £118 a day, which is revenue of £1 817 200. Fuel, delivery and servicing cost £34 for every day a machine is out. Everything else costs £1 050 000 a year and is paid whether the machines are out or standing in the yard.

Its customers are not alike. National housebuilders take more than half the revenue and are given sixty days to pay, which in practice becomes seventy-one. Small builders and sole traders are given seven days, or asked for a card when they collect. Sean Kettleby set it up that way and is candid about why: the housebuilders would go elsewhere if he pushed them, and the sole traders would not.

The machines are wearing out. Three excavators need replacing this year at £74 000 each. Sean Kettleby can buy them, which is what he has always done, or he can hire them in from a larger national firm when a customer needs one and hand the margin over. The bank has offered him a five-year loan for the £222 000, and he has enough in the company to pay cash if he chooses to.

Appendix D: Kettleby Plant Hire Ltd, summary of last year

Kettleby Plant Hire Ltd summary table: 68 machines, 15,400 machine-days hired, £118 daily rate, £1,817,200 revenue, £34 variable cost and £84 contribution per day; £1,050,000 fixed costs, £243,600 operating profit, break-even 12,500 machine-days, margin of safety ?.

Source: Analyst

Assess whether Kettleby Plant Hire Ltd is hiring out its machines at a safe level.

Calculate Kettleby Plant Hire Ltd's margin of safety in machine-days to support your answer.

How did you do?

1
15 marks

Source B: Riverford Organic Farmers Ltd

Riverford Organic Farmers Limited grows and delivers organic vegetables. Guy Singh-Watson began delivering boxes of vegetables to local households from the family farm in Devon, and the business was registered as a private limited company in 1999. Its registered office is still Wash Barn at Buckfastleigh in Devon, and its registered business activity is the growing of vegetables, roots and tubers.

Customers subscribe to a weekly box rather than choosing individual items. Boxes are packed at Riverford's own sites and delivered straight to the door by its own drivers, so the company controls its route to market and does not sell through supermarkets. Subscribers pay in advance and can pause or change an order online. Riverford owns five of its sites outright and holds another nine on lease.

In 2018 Guy Singh-Watson began transferring ownership of the company to the people who work in it. The process finished on 8 June 2023, when he sold his remaining shares and the Riverford Employee Ownership Trust became the company's only person with significant control. The business is now held in trust on behalf of its roughly 1 000 employees. There are no outside shareholders, so no dividends are paid to investors outside the business.

In the year ended 3 May 2025 turnover rose by 5.9% to £116.9 million. Cash held at the bank rose by a quarter to £12.31 million, and total liabilities fell by 13.0%.

Organic food remains a small part of UK grocery, and supermarkets have been widening their own organic ranges at lower prices.

Because there are no outside shareholders, the directors and the trust decide together what to do with each year's profit. There is £2.4 million available this year. It could be paid to the co-owners as a profit share, or it could be spent on solar panels and new refrigeration at Wash Barn, which would cut the company's running costs every year from then on. Appendix F shows information on the two options.

Source: information sourced from Companies House, 2026

Appendix D: Riverford Organic Farmers Ltd selected financial data

Table comparing Riverford’s selected financial data for years ended 4 May 2024 and 3 May 2025: turnover £110.37m to £116.90m; cash £9.83m to £12.31m; assets £32.02m to £32.53m; liabilities £19.05m to £16.58m; net assets £12.98m to £15.96m; employees 972 to 1,000.

Source: Companies House

Appendix F: Data for two uses of Riverford's £2.4 million profit

Table comparing Option 1 profit share and Option 2 solar panels and refrigeration: both cost £2.4m; fixed costs £20m versus £19.52m, contribution £8 per box, break-even 2.5m versus ?, and staff turnover falls 3 percentage points versus N/A.

Source: Analyst

Appendix F shows two ways in which Riverford Organic Farmers Ltd could use £2.4 million of profit.

Evaluate both options and recommend which one would be the better use of Riverford Organic Farmers Ltd's £2.4 million.

Calculate the break-even output for Option 2 to support your answer.

How did you do?

2
15 marks

Source B: Fairhurst Linen Ltd

Fairhurst Linen Ltd is a commercial laundry on an industrial estate outside Leeds. It is a private limited company owned by Dev Anand and his sister Rani Anand, and it employs 24 people. It washes, presses and delivers bed linen, towels and table linen for hotels and restaurants across Yorkshire, and it charges by the kilogram.

Last year it processed 3.1 million kilograms at an average of 60p a kilogram, which brought in £1 860 000. Detergent, water, energy and packaging cost 20p for every kilogram put through the machines. Everything else is fixed: wages of £624 000 and premises, machines, maintenance and insurance of £456 000, which together come to £1 080 000 a year and are paid whether the machines run or not. Profit for the year was £160 000.

The machines are not full. They could handle 4.2 million kilograms a year, and last year they did 3.1 million. A new tunnel washer costing £320 000 would raise that ceiling further, and Dev Anand has been talking to the bank about it.

The Anands have set themselves an objective: a profit margin of 15% within three years.

Two things complicate the plan. The first is a contract. A hotel group has offered Fairhurst Linen Ltd 900 000 kilograms a year, which would nearly fill the machines, but only at 44p a kilogram, against the 60p its other customers pay. The second is that Fairhurst Linen Ltd pays its detergent supplier, a small chemicals firm in Rotherham, after 90 days, while its own hotel customers pay it after 45.

Appendix D: Fairhurst Linen Ltd, summary of last year

Appendix D summary table: contribution is 40p per kilogram; hotels pay in 45 days and Fairhurst pays its detergent supplier in 90 days; profit margin is shown as “?”.

Source: Analyst

Appendix E: Fairhurst Linen Ltd, kilograms processed against capacity

Table of Fairhurst Linen Ltd’s kilograms processed against capacity: Q1 690,000 of 1,050,000 (65.7%); Q2 780,000 (74.3%); Q3 820,000 (78.1%); Q4 810,000 (77.1%); annual 3,100,000 of 4,200,000 (73.8%).

Source: Analyst

Appendix F: Data for the hotel group contract

Comparison table for the hotel contract: accepting 44p gives 900,000 extra kilograms, 24p contribution per kilogram, £216,000 extra annual contribution, 95.2% capacity and a three-year term; holding 60p gives none, £0 and 73.8% capacity.

Source: Analyst

Appendix F shows the contract a hotel group has offered Fairhurst Linen Ltd.

Evaluate whether Fairhurst Linen Ltd should accept the contract at 44p a kilogram or hold its price at 60p.

How did you do?

3
15 marks

Source B: Marlowe Joinery Ltd

Marlowe Joinery Ltd makes bespoke staircases in a workshop outside Shrewsbury. It is a private limited company run by Gethin Marlowe, the third generation of his family to run it, and it employs 17 people, nine of them joiners who served apprenticeships there.

Every staircase is different. An architect or a builder sends drawings, Gethin Marlowe quotes a price, and if the quote is accepted the workshop builds it. Last year it made 560 staircases at an average price of £2 400, which is revenue of £1 344 000. Timber, fittings and the joiners' time on the job come to £1 560 a staircase. Everything else, meaning the workshop, the machinery, insurance, administration and the wages of people not on a job, comes to £392 000 a year.

The quoting is done by eye. Gethin Marlowe has forty years of it and is good at it, but each quote is its own small budget and nobody adds them up until the year end.

He is considering a computer-controlled cutting machine costing £340 000. It would cut the cost of a staircase to £1 410 and raise the workshop's fixed costs by £68 000 a year once depreciation and finance are counted. It would also lift what the workshop could make in a year from 600 staircases to 900.

The machine would be paid for by borrowing. Marlowe Joinery Ltd already has £280 000 of long-term loans against £620 000 of Gethin Marlowe's own money in the business.

Appendix D: Marlowe Joinery Ltd, summary of last year

Table: 560 staircases at £2,400; revenue £1,344,000; variable cost £1,560 and contribution £840 each; fixed costs £392,000; operating profit £78,400; interest £21,000; profit before tax £57,400; capacity 600; loans £280,000; owner’s capital £620,000; gearing not given.

Source: Analyst

Appendix F: Data for the cutting machine

Comparison table of buying the machine versus making staircases by hand: cost, variable cost, contribution, fixed costs, break-even, profit at 560 staircases, and annual capacity. Machine: £340,000 borrowed; £1,410; £990; £460,000; 465; £94,400; 900. Hand: none; £1,560; £840; £392,000; 467; £78,400; 600.

Source: Analyst

Appendix F compares buying the cutting machine with carrying on by hand.

Evaluate whether Marlowe Joinery Ltd should buy the cutting machine or keep making staircases by hand.

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