Questions
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Fishers
Fishers manufactures baseball caps. In 2017, it sold 75 000 caps. The variable cost per cap was $6. 70
% of Fishers’s annual sales occur from April to September. Starting in March, Fishers experiences a
significant increase in current assets and current liabilities, which start to decrease in October.
Table 1: Selected data for Fishers for 2017 (figures in $000s)
Table 2: Selected forecasted financial information for Fishers for 2018
Sales price per cap will remain the same as in 2017.
[Source: © International Baccalaureate Organization 2018]
a. Define the term current assets. 2
[ ]
b.
F 2 7
Using Table 1, calculate ishers’s net profit before interest and tax for 01 (show all your
working).
2
[ ]
c.i. 2 :
Using Table 2, calculate the following forecasted figures for 018 sales revenue [1]
[Link]. Using Table 2, calculate the following forecasted figures for 2018: total variable costs
[1]
[Link]. 2 :
Using Table 2, calculate the following forecasted figures for 018 income tax [1]
[Link]. Using Table 2, calculate the following forecasted figures for 2018:
net profit after interest and tax. [1]
d.
Explain why Fishers experiences a significant increase in current assets and current liabilities
from March to October.
2
[ ]
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Ace Industries (AI)
Ace Industries (AI) manufactures plastic containers, mostly for the soft and fruit juice industries. The
operations management department uses flow production for its standard-sized products and batch
production for its customized products.
% H
AI’s sales are growing rapidly. It currently has a 6 share of the plastic container market. owever, it
S
has recently struggled to meet customized orders on time. ome customers have complained about
product quality. Currently, AI is organized by region, which allows the company to have strong
relationships with customers, who feel that AI knows them and cares about their interests. The human
N
resource department is proposing restructuring the organization by function. ot everyone at AI
M
agrees with this change. any think that the problems of late delivery and poor quality could be
solved through greater delegation.
Lloyd Rinnegrat, Chief Financial Officer, has suggested that AI’s management think more deeply about
their rapid growth. Except Lloyd, most people at AI believe that rapidly growing sales are good – that
by increasing its market share AI will, in the long run, benefit by being a large organization. However,
Lloyd argues that being a small organization has many merits, as shown by the changes in AI’s recent
gross profit margins and net profit margins.
Table 1: Selected financial data for AI
The marketing department has predicted that the soft and fruit juice industries are moving away from
major mass-produced drinks and toward niche products, such as exotic fruit drinks and speciality
beverages for very particular markets.
S
[ ource : © International Baccalaureate Organization 2019]
a. Outline two features of batch production. 2
[ ]
b.
Draw a possible organizational chart for a manufacturing firm like AI if it is organized by function.
[2]
c.i. Calculate the total size of the plastic container market in 2019 (show all your working). [2]
[Link].
2 2 9
Calculate the difference in AI’s net profit before interest and tax between 018 and 01 (show
all your working).
2
[ ]
d. Explain how delegation might help AI improve its delivery times. [2]
e. With reference to AI, discuss Lloyd’s view that being a small organization has merits. [10]
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Copper Health (CH)
H H
Copper ealth (C ) was the market leader in the production of anti-venom* vaccines to treat
H –
poisonous snake bites. C ’s mission influenced heavily by corporate social responsibility (C SR) – is
to put customers first and profits second in the treatment of snake bites.
Despite 100 000 deaths worldwide each year from snake bites and 400 000 serious injuries, CH
recently announced that it will no longer produce anti-venom vaccines. Several large Mexican,
Brazilian and Indian pharmaceutical companies have entered the market selling anti-venom vaccines
at a much lower price than CH.
A spokesperson for CH said: “We will remain a private limited company where corporate social
responsibility (CSR) remains an important driving force for our mission. Our medical research is only
financed from retained profit. When the lower-priced competition arrived, our sales and profits of
anti-venom vaccines decreased significantly. Treating snakebites no longer makes financial sense.
Instead, the technology used to produce anti-venom vaccines will be used to research and develop
(R&D ) other life-saving vaccines”.
A non-governmental organization ( NGO H
) has demanded action. “C is the largest manufacturer of
H
anti-venom vaccines in the world. Although C ’s competitors are increasing their production of anti-
venom vaccines they will not be able to produce enough to satisfy demand for the next two years.
There will be a major shortage. This will result in many life-threatening injuries and deaths.”
The non-governmental organization ( NGO) has urged C H to seek new sources of finance to continue
the production of the anti-venom vaccine.
S
[ ource : © International Baccalaureate Organization 2019]
:
* anti-venom a medication made from antibodies that is used to treat venomous bites and stings
a. Define the term retained profit. 2
[ ]
b. Explain one advantage and one disadvantage for CH of having a mission statement. [4]
c.
Explain two possible external sources of finance CH could use to continue production of anti-
venom vaccines.
[4]
d. Discuss CH’s decision to stop producing anti-venom vaccines. [10]
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KPJ
KPJ operates a cinema in a small town. It uses a price discrimination strategy for cinema tickets.
Table 2: Selected financial information for KPJ for year ending
31 December 2019 at 31 Dec 2019 (all figures in $)
a. Define the term price discrimination. 2
[ ]
b.i. Using Table 2, calculate X (no working required). [1]
[Link]. 2 9
Using Table 2, calculate the current ratio for 01 (no working required). [1]
c. D 2 9
Using Table 2, prepare a balance sheet for the year ending 31 ecember 01 . [4]
d.
Explain the possible changes to KPJ’s balance sheet for 2019 if KPJ spent $30 000 on a new
digital projector.
2
[ ]
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Ritev Enterprises (RE)
Ritev Enterprises (RE) is a public limited company that owns a chain of 20 gas (petrol) stations. Next
year, RE plans to modernize its gas stations by installing self-service pumps.
Table 2 provides selected financial data for RE from:
the profit and loss account for year ending 31 May 2021
the balance sheet as of 31 December 2021.
Table 2: Selected financial data for RE
The finance director is concerned about the trend in consumer preference for electric cars and the
potential impact of increased numbers of electric cars on . RE
a.
State two appropriate external sources of finance that RE could use to modernize its gas
stations.
2
[ ]
b.i. Construct a fully labelled balance sheet for RE as of 31 December 2021. [5]
[Link]. Calculate RE’s gross profit margin (no working required). [1]
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Red Squirrel Apple Juice (RS)
Red Squirrel Apple Juice (RS) is a cooperative of apple farmers. RS was named after the red squirrel,
whose population is declining because of growing numbers of grey squirrels. Originally from North
America, grey squirrels are aggressive and take over red squirrels’ habitats. RS’s founders thought
that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple
juice due to consumer preference for high-sugar American-style beverages. With the symbol, RS
aimed to appeal to environmentally aware and health-conscious consumers.
Originally, RS only sold apple juice in bulk to beverage companies. These companies bottle the juice
and sell it under their own labels. RS requires these companies to place RS’s logo of a red squirrel on
their labels. Although RS only sells to a small number of beverage companies, its logo is on juice
bottles in stores across the country.
Awareness of the RS brand grew. The cooperative’s managers recently opened another channel of
:
distribution direct sales of bottled juice to consumers at the cooperative’s processing plant. RS
charges lower prices than stores. The new channel of distribution required capital expenditure for
bottling equipment and additional revenue expenditure. RS experienced increased labour and
promotion costs, which some farmers complained about.
In recent decades, RS S
’s home country has experienced rising anti-immigrant sentiment. ome
politically motivated organizations have begun to use images of red squirrels to symbolize this
sentiment, so some beverage companies no longer want to use RS ’s logo on their labels.
Some of RS’s stakeholders are concerned.
a. State two features of a cooperative. 2
[ ]
b. With reference to RS, explain the importance of branding. [4]
c.
With reference to RS, explain the difference between capital expenditure and revenue
expenditure.
[4]
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Wong Corporation (WC)
2 %
Wong Corporation (WC) manufactures clothes dryers. WC pays tax at a rate of 0 . WC has a
hierarchical organization structure. Table 3 shows selected forecasted financial information for the
2 22
company for 0 , and Table 4 shows its annual cash flow forecast for 0 . 2 22
Table 3: Selected forecasted financial information for WC for 2022 (all figures in $000s)
Table 4: Annual cash flow forecast for WC for 2022
(all figures in $000s)
a. State two features of a hierarchical organizational structure. 2
[ ]
b.
2 22 (show all your
Calculating X and Y in Table 3, prepare a profit and loss account for WC for 0
working).
[4]
c. Using Table 4, calculate WC’s net cash flow for 02 22 (show all your working). 2
[ ]
d. Explain the difference between WC’s profit and its cash flow. [2]
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Dana’s Handbags (DH)
Dana’s Handbags (DH ) is a small manufacturer of women’s handbags. DH sells directly to large retail
chains in Europe. The company is privately owned and has fifteen shareholders.
Table 1: Selected financial data for DH for 2016 and 2017 (figures in $000s)
Beginning in 2017, DH adopted a programme of corporate social responsibility (CSR) by:
donating money to charities
encouraging employees to do three paid hours per week of community service during work hours
using only biodegradable materials in its handbags.
This programme was expensive.
DH’s management thought that a programme of corporate social responsibility (CSR) would
strengthen DH’s brand. During the first year of the corporate social responsibility (CSR) programme,
employee morale improved and DH received favourable media attention.
However, at the annual general meeting in January 2018, financial results from 2017 revealed that
sales growth had not improved. Several influential shareholders complained about the high cost of
the corporate social responsibility (CSR) programme. Other shareholders suggested that DH should
develop consumer awareness that it is a socially responsible company.
a. Identify two features of a private limited company. 2
[ ]
b.i. DH for 2016 and 2017.
Calculate the net profit margins for [2]
[Link]. Calculate net current assets (working capital) for DH for 2016 and 2017. [2]
c.
Explain one method of above-the-line promotion and one method of below-the-line promotion
that DH could use to raise consumer awareness that it is a socially responsible company.
[4]
d. Discuss DH’s decision to develop a policy of corporate social responsibility (CSR). [10]
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Pelican Pies (PP)
Pelican Pies (PP) produces high-quality pies that have limited brand loyalty outside of their local
market. The prices of the pies are higher than those of PP’s competitors.
Table 1: Selected financial information for PP for the year ending 30 April 2017.
For 2018, PP’s owner, Austin, is looking to increase sales beyond the local market by lowering prices
and spending a greater proportion of PP’s promotional budget on above-the-line methods such as
regional newspaper advertisements. To finance this type of promotion, Austin will have to increase his
$
loan amount by 10 000.
Table 2: Selected financial information for the year ending 30 April 2018.
a. Describe one reason why brand loyalty would be important to PP. 2
[ ]
b.
Construct a profit and loss account for PP for the year ending 30 April 2017 based on the figures
in Table 1 (show all your working).
[4]
c.
Construct a forecasted profit and loss account for PP for the year ending 30 April 2018 based on
the figures in Table 2 (show all your working).
[4]
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Sotatsu Electronics (SE)
Sotatsu Electronics (SE) manufactures electronic products and is famous for its innovative televisions.
In late 2015, SE introduced a new high-definition television with twice the quality of the best-selling
television of its chief competitor. Determining that it would be two years before its competitors could
have a similar product, SE adopted a price skimming strategy.
Table 1: Select financial information for SE for 2015 and 2016.
Figures in $000 000.
a. Define the term price skimming. 2
[ ]
b.i. Calculate the values of X and Y in Table 1 (no working required). [2]
[Link]. SE for 2015 and 2016.
Construct a profit and loss account for [4]
c. Calculate net current assets (working capital) for 2016 (show all your working). 2
[ ]
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Anubis
/
Tom operates Anubis as a sole trader, selling cell mobile phone cases on the internet. The market is
increasingly competitive. The retail price of phone cases is predicted to fall in the second quarter of
2 E % 2
018. mployees at Anubis will receive a 3 rise in wages starting from 1 April 018.
Tom has forecasted the following monthly cash outflows for January through March 2018:
• Heating and lighting: $4000.
• Wages: $50 000.
• Packaging: $15 000.
• Delivery charges: 5 % of sales revenue.
• Cost of goods sold: $220 000.
Additional information:
• Opening balance on 1 January 2018: $8000.
• Sales revenue: $300 000 each month.
• Rent of $2000 paid quarterly: first payment in January 2018.
• Receipt of a tax refund in February 2018: $3000.
a.
Outline two appropriate external short-term sources of finance for Anubis other than loans from
family and friends.
2
[ ]
b.
J
Using the information above, prepare a fully labelled cash-flow forecast for Anubis from anuary
M 2
to arch 018.
[5]
c. 2
Comment on the predicted cash flow for Anubis for 018. [3]
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Visionary Toys (VT)
Visionary Toys (VT) produces highly innovative toys for children. VT began operation in January 2017
and its unique selling point/proposition (USP) is producing toy parts with a 3D printer. The financial
director presented financial information for VT at the end of 2017. He was concerned about VT’s
liquidity.
Table 1: Revenue and expense information for the year 2017 and balance sheet items at 31
December 2017
S : © International Baccalaureate Organization 2018]
[ ource
a. Define the term unique selling point/proposition (USP). 2
[ ]
b.i. Construct a fully labelled balance sheet for VT for the end of 2017. [5]
[Link]. Calculate the acid test (quick) ratio for VT for 2018. [1]
c. Explain one way VT could improve its liquidity. 2
[ ]
Markschemes
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a.
Current assets are items either owned by a business or owed to that business with a life of less
than twelve months.
Candidates are not expected to word the definition exactly as above.
N.B. no application required. Do not credit examples on their own, though correct examples can
provide reinforcement to answers.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition.
b. Sales revenue − variable costs − fixed costs = net profit before interest and tax
900 000 − (6 × 75 000) − 55 000 = $395 000
To receive [2], candidates must show workings.
c.i. $990 000 Accept responses if candidates do not include 000s: $990
Apply OFR where applicable. Candidates are not required to show workings.
[Link]. $577 500 Accept responses if candidates do not include 000s: $577.5
Apply OFR where applicable. Candidates are not required to show workings.
[Link].
PLEASE NOTE: Income tax is not included in the syllabus for 2024 exams onward (although tax is
included in the profit and loss exemplar in the Business Management Guide for first exams
2024). Related parts of this multi-part question may be used.
$65,500
If a candidate calculates tax before deducting interest expense, award [0]. The answer is incorrect.
Accept responses if candidates do not include 000s : $65.5
Apply OFR where applicable. Candidates are not required to show workings.
[Link].
PLEASE NOTE: 3.4.2 Net profit after tax is not included in the syllabus for 2024 exams onward. It
is now referred to as profit per period for a for profit organization. Related parts of this multi-
part question may be used.
$262,000
If a candidate calculates tax before deducting interest expense in question (c)(iii), award [0]. The
H $2
answer is incorrect. owever, if the candidate then produces the answer 56 000 for (c)(iv),
award [1] for that question based upon the .OFR
Accept responses if candidates do not include 000s : $262
Apply OFR where applicable. Candidates are not required to show workings.
d.
S F
In anticipation of increased sales during the period April through eptember, ishers must increase
M
production starting in arch. Thus, it buys more stock, which increases both current assets (stock,
F
which later become debtors) and current liabilities (short-term borrowings and creditors). ishers
maintains this higher volume of trading (and levels of current assets and current liabilities) until
O O M
sales start to contract in ctober. In anticipation of lower sales from ctober through arch, the
reverse of the process above occurs.
If candidates simply say that the increase is “due to peak sales” (or something very similar), do not
award credit.
N.B. Application may be limited or nominal, which is acceptable, provided that the response is
relevant.
Award [1] for a basic explanation that conveys partial understanding.
Award [2] for a full explanation that conveys knowledge and understanding similar to the above.
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a.
Features of batch production include:
Limited quantity produced according to specific specifications.
Non-continuous: batches are produced at intervals.
Batches more from stage to stage of production together (in other words, stage 1, one process
occurs. Then, the batch moves to the next stage, where another process is done, etc).
Accept any other relevant feature.
Award [1] for each feature identified up to [2].
b.
The organizational chart does not have to appear exactly as above. Award [1] if the candidate
demonstrates some understanding of an organizational chart. Award [2] if the candidate draws an
organizational chart that is organized by function and has at least three functional areas labelled
(operations, marketing, accounting and finance, HR
, etc).
c.i.$421 000 000 = 0.06 × (total market size) 421 000 000
0.06
= $7 016 666 666.67
Accept $7 016 666 667
Award [2] for correct answer and workings. Award [1] for correct process but with a mathematical
error.
[Link].
PLEASE NOTE: Market size is not included in the syllabus for 2024 exams onward. Related parts of
this multi-part question may be used.
0.08 × 376 000 000 = 30 080 000 7 × 421 000 000 = 29470000
0.0
610000
The difference between AI’s profit in 2018 and 2019 was −$610 000.
Award [2] for correct answer and working. Award [1] for correct process but with a mathematical
error.
d.
PLEASE NOTE: Delegation is not included in the syllabus for 2024 exams onward. Related parts of
this multi-part question may be used.
Delegation occurs when authority and responsibility are passed down the chain of command and
subordinates are empowered to make decisions. When properly done, delegation leads to more
effective decision making by subordinates, as they now feel the weight and bear the responsibility
for their decisions. In the case of AI, if employees who deal with the customers’ orders and manage
the operations line had greater authority, they could better align customized sales, which requires
some reconfiguration of tooling for each batch, with capacity and availability.
Award [1] for some understanding of delegation and award an additional [1] for an explanation of
how delegation could improve delivery time.
e.
Refer to Paper 2 markbands for May 2016 forward, available under the "Your tests" tab >
supplemental materials.
Advantages of being a small business include :
can implement change quickly (flexibility)
can maintain relationships with customers and employees
can maintain consistency of brand identity
management can focus, including having tight control over operations
there are fewer risks associated with overtrading.
Disadvantages of being a small business include: /
less recognition awareness in the market place
fewer opportunities for economies of scale
less ability to compete on price
lesser access external sources of finance.
AI is transitioning into a large organization, but its growth affects the business. AI, for example, is
not delivering orders on time, customers are complaining about product quality, and the company
is not making the same margins it previously was. Unless AI can specifically pinpoint benefits from
higher market share, which presumably explains the rapidly rising sales, the company may want to
consider whether its sales growth is worth the problems.
Marks should be allocated according to the paper 2 markbands for May 2016 forward.
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a.
Retained profit is profit that is not given to shareholders in the form of dividends but is held back
as part of shareholder equity to provide a source of funds for possible future activities.
Accept any other relevant definition.
N.B. no application required. Do not credit examples.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition that conveys knowledge and understanding similar to the answer
above. A candidate must demonstrate an understanding that retained profit is part of shareholder
equity and that it can be used as a source of funds for possible future business activities.
b. Advantages for CH of having a mission statement include:
Provides an example of where a business currently sits in the eyes of its stakeholders, such as
H
customers, employees and managers. C produces vital anti-venom vaccines, but its mission
H M
statement demands that C carry out its operations in a socially responsible manner. ission
statements can have an influential role in setting organizational objectives.
H
C ’s mission statement may act as a motivating force for employees and could lead to low staff
/
turnover and or benefits for the recruitment of new employees.
Disadvantages include:
Some mission statements may be written as vague statements of intent. It can be difficult to
ascertain exactly what the business stands for in terms of setting sustainable business objectives.
This may discourage some investors. CH is stating that profitability is secondary after CSR. Yet this
profitability is being used to finance future growth and research. Investors may not commit funds
given this perceived confusion from the mission statement.
/
Accept any other relevant advantage disadvantage. Mark as 2 + 2.
For an identification or a description of one advantage/disadvantage with or without application
[1].
For explanation of one advantage/disadvantage with no application [1].
For explanation of one advantage/disadvantage and application [2].
Application must refer to the issues around CH having a mission statement.
c.
The question is sufficiently broad to allow candidates to explain a range of possible sources of
/
finance, but any candidate who looks at internal organic sources, such as increasing sales profits,
must be not given credit.
Possible external sources include:
H
As C is a private limited company, the decision could be taken to raise funds through an initial
H
public offering. C could be “floated or listed” on the appropriate local share market to raise
funds.
Angel investors who have strong ethical C/ SR intent could provide funds.
The NGO G
has demanded action. iven the number of deaths and injuries from snakebites, the NGO
could be approached to provide new finance or governments in those countries predominantly
affected. There could be the possibility of a private public partnership.
Accept any other relevant possible source. Mark as 2 + 2.
For an identification or a description of one possible source of external finance with or without
application [1].
For explanation of one source with no application [1].
For explanation of one source and application [2].
Application must refer to the possible sources of finance for production of anti-venom vaccines of
anti-venom vaccines.
d.
Refer to Paper 2 markbands for 2016 forward, available under the "Your tests" tab > supplemental
materials.
Answers at the top level will look at the ethical arguments of retaining the production of anti-
venom vaccines versus the final implications for doing so.
H
C ’s mission statement alludes to “putting customers first and profits second”. The decision to
stop producing the anti-venom vaccines will be viewed as hypocritical by stakeholders and will
/
lead to a loss of its market leader status. There could be a consumer backlash boycott, and this will
hamper marketing attempts for any new life-saving vaccines. The drop in revenue could be
considerable and as a result there may be no profits to finance research and development. The
comments from the NGO are unhelpful and will bring increased scrutiny and further unwelcome
S H
publicity. topping production may damage the economic sustainability of C to the point where
they may cease to exist.
However, the increased competition and wave of price reductions cannot be ignored. We must
assume that this new competition has a product that competes with CH on price because, as the
market leader, we would assume CH has a certain degree of brand loyalty. Clearly, consumers see
the competition from Brazil, Mexico and India as a substitute, and unit sales of CH’s vaccine have
fallen significantly. If CH does not stop production and cut its losses now, it may not have time or
finance to develop new life-saving vaccines, through which it may be able to recreate its market
leader status.
H
The profit motive is the reward for entrepreneurial initiative and risk. C is quite within its rights to
stop production of a loss-making vaccine and switch to a market that may be underdeveloped,
albeit one with considerably more risk. Ironically, if the decision to stop production is made quickly,
H
C may be the beneficiary of some panic buying, boosting short-term revenues before the anti-
venom vaccine is withdrawn from the shelves.
Given the ethical and moral issues in this case, CH may be wise to wait and carry out some further
market research on the competition. It is indicated that for two years, the new competition will be
unable to fill the gap left by CH if it decides to leave this market. CH is still the market leader.
Possibly CH could emphasize its product quality over the competition and see if this acts as a spur.
A conclusion with judgment is expected.
A balanced response is one that covers at least two arguments for and at least two arguments
against.
Marks should be allocated according to the paper 2 markbands for May 2016 forward with further
guidance below.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is
one-sided, award up to a maximum of [4].
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and
understanding throughout the response with reference to the stimulus material but there is no
/
judgment conclusion.
/
Candidates cannot reach the [7–8] markband if they give judgment conclusions that are not based
/
on analysis explanation already given in their answer.
/
Candidates cannot reach the top marks if there is no relevant reference application to the
stimulus.
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a.
PLEASE NOTE: Price Discrimination is not included in the syllabus for 2024 exams onward.
Related parts of this multi-part question may be used.
Price discrimination is when a firm charges a different price to different groups of consumers for an
identical good or service.
Award [1] for a basic definition conveying the idea that it allows a business to sell the same
/
goods services at different prices. Award an additional [1] for stating the differing prices are for
different groups of consumers that can be separated in some way.
A candidate may achieve the second mark through the use of a good exemplar, eg by explaining
that a cinema charges higher prices for adults than for children.
b.i. X = Gross profit Gross profit = Sales revenue − costs of goods sold
= $ 175 000 - £ 122 000 = $ 53 000 Award [1] for correct answer with or without working.
current assets $ 8330
[Link]. Current ratio = = = 1 . 23
current liabilites $ 6800
c.
Award [4] if the candidate constructs an accurate balance sheet (that balances) according to the I B
prescribed format.
Award [3] for a largely accurate balance sheet that balances, according to a generally accepted
format, such as the vertical format above or the horizontal model typically used in the United
States.
Award [2] if the candidate constructs a largely recognizable balance sheet but it does not balance,
or it has two major problems of classification.
Award [1] if the candidate conveys some idea of what a balance sheet is.
For full marks, the balance sheet must be dated. Failure to date the balance sheet is an error and,
therefore, the maximum award that an undated balance sheet could receive is [3].
d.
$
The purchase of a new digital projector will increase net fixed assets by 30 000.
Award [1] for recognizing that the net fixed assets will increase. Award [1] if the candidate then
addresses the offset, which could be
a reduction in cash
KJ
an increase in long-term debt ( P takes outa long-term loan).
D
Accept any other reasonable suggestion for financing the projector. o not accept a short-term
loan or expansion of trade credit.
The two potential marks for this question are independent of one another. In other words, a
candidate may address the financing (the candidate suggests taking out a bank loan) and receive
/ O
[1] even if s he did not mention that net fixed assets will increase. r, the candidate could state
that net fixed assets will increase but not mention the offset, in which case the candidate would
receive [1].
Maximum award: [2].
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a.
Award [1] for each appropriate source of finance up to a maximum of [2].
Appropriate external sources include:
share (capital)
/
loan (capital) bank loans
retained profit
debentures
venture capital
leasing
equity finance.
Do not award inappropriate sources such as:
trade credit
overdrafts
grants
subsidies
debt factoring
hire purchase
business angels
partners
entrepreneur.
b.i.
N.B. if the candidate does not follow the IB prescribed format award a maximum of [3].
N.B. candidates should not be penalized for: omitting the row “Long-term liabilities (debt)”, or for
writing “retained profit” omitting the word “accumulated”.
Award [1] if the candidate conveys some idea of what a balance sheet is.
Award [2] if the candidate constructs a largely recognizable balance sheet, but it does not balance,
or it has two major problems of classification.
Award [3] for a largely accurate balance sheet that correctly balances. (There could be one
misclassification.)
Award [4] if the candidate constructs an accurate balance sheet (that balances) according to the I B
prescribed format.
Award [5] if the candidate constructs an accurate balance sheet (that balances) according to the I B
prescribed format and the balance sheet is dated.
[Link]. $100 000m – 80 000m = $20 000m $ 20 000m
$ 100 000m
= 20 % Correct answer = 20 % or .2
GM
If a candidate does not express the gross profit margin ( P ) as a percentage or as a decimal, the
answer is incorrect.
Award [1] for the correct answer (no working required).
[Link].TZ0.4
a.
The main features of a cooperative include :
/
An aim is to serve the members of the cooperative members with a common interest.
A cooperative is a type of corporation.
A cooperative has a board of directors or trustees.
M embers of the cooperative have limited liability.
Cooperatives have democratic or democratically spirited management.
Legal existence is separate from the members themselves.
M embership is usually open.
S /
urpluses profit are distributed except when needed for finance.
The organization will not end if a member dies or withdraws.
All owners have equal voting rights.
Accept any other relevant feature.
Award [1] for each relevant feature identified up to [2].
b.
Branding is a way for a company to distinguish itself from other organizations. Ideally, it succinctly
delivers a message about your product, as RS hoped with the symbol of the red squirrel would
symbolize environmental friendliness by reminding consumers of the dangers of invasive species
and would symbolize health consciousness, as RS was promoting traditional juice, which has less
sugar (and preservatives) than American-style beverages. In this way, RS hoped to build credibility
with consumers – any beverage with the RS symbol would be healthy and would remind
consumers of the environment. With these features, RS hoped to build goodwill.
Brands, and their symbols, run the risk of taking on a life of their own. Sometimes a famous brand,
like McDonald’s, enjoys decades of positive psychological associations but then, as culture and
consumer trends change, the brand starts to generate negative associations. Such was partially the
case with RS. Originally, the image of the red squirrel was at worst innocuous and at best heart-
warming. As anti-immigrant groups co-opted the red squirrel for its own purposes, however, the
cooperative faced risks of being associated with anti-immigrant sentiment. Some consumers may
now be turned off by the brand as to them a red squirrel may symbolize a political position that
they disagree with.
Award [1] if the candidate demonstrates some understanding of branding. Award up to [2] if the
candidate demonstrates a clear understanding of the importance of branding but makes no
meaningful reference to the stimulus.
Award up to [3] if the candidate demonstrates a clear understanding of the importance of branding
and makes meaningful reference to the stimulus, but the explanation is one-sided. Award up to [4]
if the candidate demonstrates a clear understanding of the importance of branding, makes
meaningful reference to the stimulus, and points out both a benefit of branding and some risks
inherent with it.
Maximum award: [4]
N.B. For application, just mentioning red squirrel is not enough. Candidates must link the response
"
to the stimulus (for example, appeal to environmentally aware and health-conscious consumers ). "
c.
R
Capital expenditure is the purchase of assets whose life exceeds one year. evenue expenditure is
:
made up of expenses related to the trading cycle purchasing raw material, processing, inventory,
making payroll, etc. With respect to RS, capital expenditure refers to the bottling equipment
needed to produce bottled apple juice to sell directly to consumers. RS experienced an increase in
revenue expenditures when it started selling bottled apple juice, as it had increased labour costs
(presumably to operate the bottling equipment) and increased costs for promotion.
Award [1] for a theoretical understanding of capital expenditure and an additional [1] for reference
to the bottling equipment.
Award [1] for a theoretical understanding of revenue expenditure and an additional [1] for reference
to increases in labour expenses or increased costs in promotion.
Mark as [2] + [2]. Maximum award: [4].
[Link].TZ0.2
a.
Features of a hierarchical organization include:
Pyramidal with many layers (workers>supervisors>managers>senior managers>executives>CEO) or
long chain of command or tall structure.
Usually a narrow span of control.
D ecisions flow from top down and information passes from the bottom up.
/
Authority decision-making is centralized.
D elegated authority, if any, is narrowly defined.
Individuals in a hierarchical organization tend to have specialized skills.
D ecision-making typically takes time or is not a quick process.
If a candidate raises the issue of decision-making, award [1] if they say that decision-making
typically takes time.
However, if the candidate appropriately contextualizes their response, they can earn [1] for saying
decision-making can be faster. For example, if a candidate wrote something to the effect of “In
hierarchical organizations where delegation occurs, decision-making can be fast.”
Accept any other relevant feature.
Award [1] for each feature identified up to a maximum of [2].
b. Gross profit (X) = $16 000 000
Tax (Y) = $800 000
If, in their workings, the candidate has dropped the 000s, accept X = $16 000 and Y = $800.
WC Profit and loss account for the year 2022
Figures in $000
X Y
Award [1] for correctly calculating gross profit ( ), [1] for correctly calculating ( ), [1] for the
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correct layout of a profit and loss account, and [1] for a correct heading. aximum award [4]. :
N.B. In the heading candidates must say the name of the company (WC), the year, and profit and
loss account (they may say income statement). If the candidates does not say “in 000s”, accept.
c.
If, in their workings, the candidate has dropped the 000s, accept Z = $2 600.
An alternate method for calculating net cash flow is to use the following formula :
=
Closing balance net cashflow + opening balance
$10 000 000 = N F $7
C + 400 000
$10 000 000 − $7 = $2
400 000 600 000.
Award [1] for correct method and [1] for correct answer. Maximum award: [2].
d.
A candidate can earn [1] by defining profit (revenue minus expenses) and then explain that cash
flow is the movement of funds such as external financing (an inflow) or debt service (an outflow) or
some other specific examples of inflows or outflows.
For a second mark [2], candidates must apply their response to the stimulus. Application must be
more than nominal (just naming WC but otherwise providing a generic answer). Based up the
stimulus, two opportunities exist for genuine application:
The candidate refers to the $3 200 000 profit and the $2 600 000 cashflow.
The candidate refers to the product (dryers) when exemplifying how a timing difference can occur
between sales and payment received (trade credit).
An alternate way a candidate can earn [2] is by explaining that profit is typically calculated on an
accrual basis (when revenue or expense actually accrues to the business) but does not reflect the
O $2
actual movement of funds. n an accrual basis, WC had a net profit of 3 00 000. Cash flow
–
reflects the actual movement of funds when a business receives payment or makes a payment. In
2022, WC had receipts in excess of payments in the net amount of $2 600 000. This difference
between profit and cashflow reflects a timing difference between the accrual of a revenue or an
expense and the actual receipt or payment of funds.
Award [1] for partial understanding and explanation and [2] for a complete understanding and
explanation. A candidate does not have to use the word accrual, but they must convey some
understanding of a timing difference between the profit and loss account and the cash flow. If the
candidate does not apply their response to the stimulus, the maximum award is [1].
[Link].TZ0.4
a.
Features of a private limited company include:
shareholders have limited liability.
ownership of shares is restricted to a small number of investors (varies from country to country but
in general is a low number).
information does not have to be shared publicly.
it is less costly to manage shareholders because of lesser disclosure and other legal requirements.
it is a separate legal entity distinct from the owners of its shares.
Accept any other relevant feature. Award [1] for each feature identified up to [2].
b.i. 2016 2017
1370
= 4.89 % = 4.48 %
1300
28000
===== 29000
=====
Award [1] for each correct answer. Showing working is not required.
Accept 4.9 % (2016) and 4.5 % (2017), but do not accept 5 % (2016) or 4 % or 5 % (2017).
[Link]. In 000s of dollars:
2016 2017
5000 − 3000 = $2000 5200 − 3500 = $1700
===== =====
Award [1] for each correct answer. Showing working is not required.
c. Methods of above-the-line promotion that DH could use include:
television advertising
radio advertising
advertising in newspapers, journals, magazines, or trade journals
cinema advertising
billboards.
Methods of below-the-line promotion that DH could use include: direct mailing
exhibitions and trade fairs
sponsorship
public relations
celebrity endorsement
personal selling.
Do not accept word of mouth as a form of below-the-line promotion.
Accept any other appropriate form of above-the-line or below-the-line promotion.
Mark as a 2 + 2.
Award [1] for an appropriate above-the-line method identified and an additional [1] for
development of the explanation illustrating the appropriateness of the method with respect to DH.
Award [1] for an appropriate below-the-line method identified and an additional [1] for
development of the explanation illustrating the appropriateness of the method with respect to DH.
Maximum award [4]. :
If the answer has methods but no application (or just mentions the name of the business) then
award a maximum of [2] overall.
d.
Refer to Paper 2 markbands for May 2016 forward, available under the "Your tests" tab >
supplemental resources.
DH’s decision to develop a policy of corporate social responsibility (CSR) fits well with trends in
business today, whereby many companies are doing so. Indeed, sometimes today stakeholder
groups exert powerful pressure on companies to practice CSR. The pressure to follow triple-
bottom line reporting is also influencing companies to act in a more socially responsible way
(despite some criticism of CSR by certain economists).
DH has adopted several approaches that are popular today: giving profits, lending employees, and
being more environmentally friendly. All these methods have garnered DH favourable media
attention, though less clear is if DH’s brand identity has benefited. Sales growth has not improved.
The gross profit margin decreased from 50 % to 48.28 %, and the net profit margin declined from
4.89 % to 4.48 %. The costs of donating profits, lending employees and presumably higher-priced
biodegradable materials took a toll on profits. The situation also negatively affected the balance
sheet, which saw a deteriorated working capital position, falling from $2 000 000 to $1 700 000.
One of the commonly cited reasons for practicing CSR is that it is a form of enlightened self-
interest: doing good for others will in the long run lead to greater profits. In the case of DH,
perhaps that was its intention. Employee morale improved, which can lead to greater productivity
and loyalty (labour turnover would probably decline). CSR would enhance DH’s reputation, socially
responsible consumers would find an additional reason to purchase DH products, and, over time,
the company would make more profits than it otherwise would
have.
Some shareholders, however, are not satisfied with the results so far. At the annual general
meeting, they complained about unimproved sales growth and lower margins, which they directly
linked to the CSR programme. Several shareholders suggested that DH develop consumer
awareness that it is a socially responsible company. The favourable media attention in the first year
was insufficient to make an impact on the revenue side. Were DH to take this approach, reshape its
brand identity and raise consumer awareness, it would have to invest in a promotional and public
relations campaign, which might be costly. Profits and margins might go down before they go up,
and possibly even more shareholders will be dissatisfied.
Accept any other relevant evaluation.
Marks should be allocated according to the Paper 2 markbands for May 2016 forward.
For a limited discussion of the financial situation (income statement only or balance sheet
statement only), award up to [3]. For limited discussion of financial situation and one relevant non-
quantitative consideration, award up to a maximum of [4].
/
If a candidate evaluates addresses only the financial situation or only non-financial considerations,
award a maximum of [5].
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and
understanding throughout the response with reference to the stimulus material but there is no
/
judgement conclusion.
/
Candidates cannot reach the [7–8] markband if they give judgement conclusions that are not
/
based on analysis explanation already given in their answer.
[Link].TZ0.1
a.
Brand loyalty would be important to PP given that they operate in a local market with a number of
competitors and that the prices they charge are higher. Given this fact, it would be critical for PP to
have brand loyalty or their sales could fall (although not on the stimulus, sharp-eyed candidates
may spot that PP’s pies are price inelastic given the additional information for 2018).
Accept any other relevant description.
Award [1] mark for conveying some understanding that PP has considerable competition or that it
charges higher prices than most of its competitors. If a candidate conveys an understanding of
both of those ideas, award [2] marks.
A candidate can achieve one or two marks by making other accurate assertions about brand
loyalty, provided they are relevant and logically reasonable (for example, brand loyalty assures
some continuity of revenue or stable revenue). Award up to a maximum of [2].
b. 2 7:
Profit and loss account for PP for year ended 30 April 01
Award marks as follows :
Candidates do not have to list all types of expenses (electricity, rent, promotion) under expenses,
as the I BOformat does not specify different items. Therefore, working of electricity and rent per
year are not expected.
Supporting working is expected with the calculation of total revenue/costs /interest/tax are
given.
c. 2 :
Profit and loss account for PP for year ended 30 April 018
N.B. Do not double penalize candidates if they use the same incorrect format from part (b).
Award marks as follows :
Candidates do not have to list all types of expenses (electricity, rent, promotion) under expenses,
BO
as the I format does not specify different items. Therefore, working of electricity and rent per
year are not expected.
Supporting working is expected with the calculation of total revenue/costs /interest/tax are
given.
Please note :
/
If the candidate was penalised for inappropriate structure or headings format in part (b) and
repeats the same in part (c) provided that the working is correct and shown, do not double
penalise and award full marks.
Generally, do not double penalise any wrong headings/ omission presented in part (b) and
repeated in part (c). Question (c) is more about the manipulation/ calculation of the old figures.
However, be aware that sometimes a candidate makes a mistake in question (b) (for example, in
calculating income tax) and also miscalculates income tax in question (c) but makes a different kind
of error (in one instance multiplies 25 % by net profit before tax but makes a mathematical error
and then, in the other instance, multiples 25% by net profit before interest), then each should be
counted as an error.
[Link].TZ0.1
a.
Price skimming is setting prices high when introducing a new product to the market. This strategy
typically works only for a limited time, as competitors will respond to the new product with
innovations to their own products. As competitors introduce new products in response, demand
for the original company’s product (the company price skimming) falls, and prices must be
lowered.
Candidates are not expected to word their definition exactly as above.
Award [1] for a basic definition conveying the idea that price skimming involves setting a high price
for a new product. Award and additional [1] mark for extra relevant information, such as the idea
that the product is unique or differentiated from competitors’ products or that the price will fall
M
over time. aximum award [2]. :
b.i. X = $2200 (millions of dollars)
Y = $1500 (millions of dollars)
Award [1] mark for each correct answer up to a maximum of [2].
[Link].
Award [4] if both profit and loss accounts are correct. Award [3] if the candidate correctly formats
both profit and loss accounts, but has one mathematical error.
If a candidate does not correctly format the profit and loss accounts or has two mathematical
errors, award [2]. Award [1] if the candidate demonstrates some understanding of a profit and loss
account but otherwise has numerous errors.
Own figure rule applies. Many candidates will probably rough out a P & L on scratch paper to
produce answers for 1(b)(i) and then neatly reproduce the P & L on the examination paper. If a
candidate makes a mathematical error in (b)(i) and makes the same error in (b)(ii), apply the OFR.
c.
Net current assets (working capital) is calculated by subtracting current liabilities from current
assets (all in millions of dollars):
Current assets − Current liabilities = Net current assets $700 − $300 = $400
– =
Writing out “current assets current liabilities net current assets” is not sufficient for getting the
$7 –
[1] for correct working. Candidates must write out 00 300 400. =
Award [1] for the correct working and [1] for the correct answer. Award up to a maximum of [2].
[Link].TZ0.2
a.
The sources of finance suggested must be external and short term – therefore the only
four rewardable answers are :
• Trade credit
•F actoring
•O verdraft
•S hort-term bank loan
H
Award [1] per correct source identified up to a maximum of [2]. owever, if a candidate outlines
overdraft and short-term bank loan, maximum award [1].
Award [1] per correct source identified up to a maximum of [2].
b.
Award [1] if the candidate has some idea of an annual cash-flow forecast but otherwise has
numerous errors. Award [2] if the cash flow has three or more errors or has a largely inaccurate
/
format. Award [3] if it is largely formatted correctly and or has two errors. Award [4] for a correctly
formatted forecast with just one error. Award [5] for a correctly formatted and mathematically
correct forecast.
c.
2
The cash flow forecast is a cause for concern. The forecast covers the first three months of 018
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but the closing balance worsens each month and is forecasted to be negative in arch. Thereafter,
Anubis faces lower gross profit margin because of lower retail prices of phone cases and higher
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wages costs. iven that the market is increasingly competitive, Anubis may not be able to
generate sufficient additional sales revenue to offset the lower gross profit margin. Thus, the
situation for Anubis is not promising.
Award [1] for recognition that the business’s cash flow position is predicted to deteriorate.
Award [1] for each additional relevant comment related to the stimulus and specifically referring to
M :
it, up to [2]. aximum award [3].
N.B. The candidate’s commentary should be based upon the cash flow numbers that
were produced in 2(b). Examiners should follow a procedure similar to the Own Figure Rule. Even if
the candidate’s cash flow numbers are extremely inaccurate, the candidate can still comment on
them. The comment should be logically dependent on the numbers produced in 2 (b).
[Link].TZ0.2
a.
A unique selling point is any aspect of the organization, brand or product that enables
differentiation in consumers’ minds from the competitors.
N.B. no application required. Do not credit examples.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition that conveys knowledge and understanding similar to the answer
above.
b.i. Balance sheet for VT for the end of 2017:
Accurate presentation refers to the correct heading, sub-heading and to the inclusion of all and
only the relevant figures.
Allow OFR. [0]
The B/S does not reach a standard described below.
[1–2]
The B/S /
is not accurately constructed, and or the calculations within and between the various
H
components are not presented or largely incorrect. owever, there is limited evidence of a general
understanding of the format
[3–4]
The principal elements of the B/S
are constructed, but may not be entirely accurate. The
/ /
calculations under each heading component part are largely correct.
Allow up to two mistakes in calculations and/or presentation for [3].
Allow for either one error in calculation or one error in presentation [4].
For an accurately constructed B/S
with incorrect calculations, award up to a maximum of [3].
Allow OFR.
For example, if one irrelevant figure that belongs to the P/L account is added, obviously the rest
will not match.
[5]
The B/S is accurately constructed in the expected I BO
format. All the relevant headings of each
/ D
component parts are used and correctly classified. o not penalise for internal order of
N
classification. All and only the relevant figures are presented. o extra irrelevant figures that
/L
belong to the P are included.
Deduct [1] for one omission including the overall heading provided the B/S is accurately balanced.
N.B. If the candidate did not follow the IBO format award up to [3] marks.
[Link]. Current assets: $9000 Acid test ratio:
$ 9000 − $ 4500
= 0.6
Stock: $4500 $ 7500
Current liabilities: $7 500
Apply OFR where applicable. Candidates are not required to show workings.
Award [1] for a correct answer.
c. V
Ways T could improve liquidity include :
•attempt to operate with a lower re-order level of stock
•sell fixed assets and lease long-term assets
•pay less in dividends
•raise capital, either more share capital or long-term debt.
Accept any other acceptable and relevant means to improve liquidity.
V
If a candidate proposes negotiating longer trade terms with T’s creditors, award [1]. This
response is theoretically correct if all of the funds generated by the longer payment terms are used
R
for no other purpose than building cash. Thus, while theoretically correct (the AT would go up), it
is not a particularly useful approach to the problem.
N.B. The question provides no real opportunity for application and thus application is not
H
expected. owever, a response must be relevant to receive full marks.