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IGCSE Business Studies 0450 Structured Practice Paper
IGCSE Business Studies 0450 Structured
IGCSE Business Studies 0450 structured practice paper: 10 original questions, 100 marks in 90 minutes, covering break-even, cash flow forecasts, ratios, market share.
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Paper details Level: S4-S5 | Subject: Business Studies | Time: 90 minutes | Marks: 100 | Questions: 10
Section A Markets and Financial Basics (50 marks)
Questions 1-2
| # | Question | Answer and marking notes |
|---|---|---|
| 1 | A coffee shop has monthly fixed costs of $120,000. Each cup sells for $40 and its variable cost is $24. (a) Calculate the contribution per cup and the monthly break-even quantity. (b) If 9,000 cups are sold in a month, calculate the margin of safety in units and in dollars. | (a) Contribution = $40 – $24 = $16; break-even = $120,000 / $16 = 7,500 cups ($300,000 of revenue). (b) Margin of safety = 9,000 – 7,500 = 1,500 cups = $60,000 (output 20% above break-even). Marking: contribution must exclude fixed costs before dividing. |
| 2 | A retailer starts June with a cash balance of $25,000. Cash inflows are $80,000 (debtor receipts $52,000, cash sales $28,000) and cash outflows are $92,000 (supplier payments $60,000, wages $22,000, rent $10,000). The firm requires a minimum month-end balance of $20,000. (a) Calculate the net cash flow and closing cash balance for June. (b) Calculate the minimum bank loan needed. | (a) Net cash flow = $80,000 – $92,000 = -$12,000; closing balance = $25,000 – $12,000 = $13,000. (b) Shortfall = $20,000 – $13,000 = $7,000, so the minimum loan is $7,000 (before interest and repayment). Marking: a negative net cash flow is acceptable; borrow only the shortfall. |
Questions 3-5
| # | Question | Answer and marking notes |
|---|---|---|
| 3 | A company has revenue of $500,000, cost of sales $300,000, operating expenses $140,000 and capital employed of $400,000. (a) Calculate gross profit and gross profit margin. (b) Calculate net profit and net profit margin. (c) Calculate return on capital employed. (d) Calculate the mark-up. | (a) Gross profit = $500,000 – $300,000 = $200,000; gross margin = 40%. (b) Net profit = $200,000 – $140,000 = $60,000; net margin = 12%. (c) ROCE = $60,000 / $400,000 = 15%. (d) Mark-up = $200,000 / $300,000 = 66.7%, which differs from the 40% gross margin because the base is cost rather than revenue. |
| 4 | A consumer electronics market sold 2.4 million units this year. One brand sold 360,000 units for revenue of $9,000,000. The industry forecasts 2.76 million units next year. (a) Calculate the market share and average selling price this year. (b) If the brand sells 414,000 units next year, calculate its market share and its sales growth rate, and compare it with the growth of the whole market. (c) How many units must it sell next year to reach an 18% market share? | (a) Market share = 360,000 / 2,400,000 = 15%; average price = $25. (b) Next year share = 414,000 / 2,760,000 = 15%; brand growth 15% equals market growth 15%, so share is unchanged. (c) 18% x 2,760,000 = 496,800 units. |
| 5 | A factory employs 8 workers, each working 40 hours a month. Monthly output is 12,000 units with labour cost of $64,000. After training, with the same workers and hours, output rises to 15,000 units and labour cost to $72,000. (a) Calculate labour productivity per hour and unit labour cost before training. (b) Calculate the same two figures after training. (c) Calculate the percentage change in productivity and in unit labour cost. | (a) Hours = 320; productivity = 37.5 units/hour; unit labour cost = $5.33. (b) Productivity = 46.875 units/hour; unit labour cost = $4.80. (c) Productivity rises 25%; unit labour cost falls 10%, because output grew faster than labour cost. |
Section B Operations, Location and Liquidity (50 marks)
Questions 6-7
| # | Question | Answer and marking notes |
|---|---|---|
| 6 | A manufacturer has revenue of $900,000, bought-in materials and components of $540,000 and bought-in services (logistics, design) of $60,000. (a) Calculate the value added and its percentage of revenue. (b) If the cost of materials and components falls by 10% and everything else is unchanged, calculate the new value added and its percentage increase. | (a) Bought-in inputs = $600,000; value added = $300,000, i.e. 33.3% of revenue. (b) Materials fall to $486,000, inputs total $546,000, value added = $354,000, an 18% increase. Marking: only bought-in inputs are deducted; wages and rent are not. |
| 7 | A company is considering a machine costing $240,000 with a four-year life and no residual value. Annual cash inflows are $60,000, $80,000, $90,000 and $70,000 respectively. (a) Calculate the payback period in years and months. (b) Calculate the accounting rate of return (ARR) and explain why ARR differs from cash inflows. | (a) Cumulative inflows: $60,000, $140,000, $230,000; year 4 needs $10,000 / $70,000 = 0.143 year, so payback = 3.14 years (about 3 years 2 months). (b) Total inflows $300,000, average $75,000; depreciation $60,000 a year, average profit $15,000; ARR = 6.25%. ARR uses profit after depreciation while cash flow does not, hence the difference. |
Questions 8-10
| # | Question | Answer and marking notes |
|---|---|---|
| 8 | A factory offers two pay schemes: A, an hourly rate of $28 for a 40-hour week; B, a piece rate of $2.40 per unit. A worker produces 500 units a week. (a) Calculate the weekly wage under each scheme and the difference. (b) Calculate the output at which the piece-rate wage exactly equals the time-rate wage. (c) Explain one possible effect of piece rates on product quality and one way to reduce that risk. | (a) Time rate = $1,120; piece rate = $1,200; difference $80. (b) $1,120 / $2.40 = 466.7 units, so from 467 units the piece rate pays more. (c) Piece rates encourage volume and may reduce quality; remedies include a quality bonus or rejecting defective output from payment. |
| 9 | A retail chain compares two sites: Site A has monthly rent of $60,000 and variable cost of $12 per unit; Site B has rent of $96,000 and variable cost of $8 per unit. Both sell at $20. (a) Calculate the break-even quantity for each site. (b) If both sell 12,000 units a month, calculate the monthly profit of each. (c) Calculate the quantity at which profits are equal and give a location recommendation. | (a) Site A: contribution $8, break-even 7,500 units; Site B: contribution $12, break-even 8,000 units. (b) At 12,000 units: A earns $36,000, B earns $48,000. (c) Extra rent $36,000 / cost saving $4 = 9,000 units; choose A below 9,000 units and B above it. |
| 10 | A company has current assets of $180,000 (stock $70,000, trade receivables $90,000, cash $20,000) and current liabilities of $90,000. (a) Calculate the current ratio and the acid test ratio. (b) If the company buys $30,000 of stock on credit, recalculate both ratios and comment on the change in short-term liquidity. | (a) Current ratio = 2.0; acid test = (180,000 – 70,000) / 90,000 = 1.22. (b) After the purchase: current assets $210,000, current liabilities $120,000, current ratio 1.75; acid test = 110,000 / 120,000 = 0.92. Both fall because stock rises without extra cash, so short-term liquidity weakens and stock turnover must be watched. |
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