Hassan, a sole trader, owns a business selling pizzas and burgers. Fig. 3 shows his trading figures for the year: value of sales (turnover) $500000 gross profit margin on sales 25% net profit $80000 Fig. 3 Use the information shown in Fig. 3 to help you to answer the following questions.

Mark scheme

Marking points from the official mark scheme (May/June 2011). The mark or mark type is shown in brackets.

1. [4] (a) (i) $500 000 × (25 / 100) (1) = $125 000 (1) $500 000 - $125 000 (1) = $375 000 (1) OFR applies. If the correct answer is given without working award full marks.
2. [2] (a) (ii) $125 000 – $80 000 (1) = $45 000 (1) OFR applies. If the correct answer is given without working award full marks.
3. [2] (b) Any two expenses × 1 mark each: wages/salaries for staff, power, rent, rates, advertising, telephone, insurance, maintenance, transport, interest on borrowing, depreciation, water. Any other relevant expense. NB food/ingredients/supplies = 0 marks as cost of goods sold.
4. [6] (c) Any three actions explained in context × 2 marks each: reduce the expenses e.g. by using fewer staff; using less advertising but this may be self-defeating/increase advertising to try to sell more; looking for cheaper suppliers of the pizzas and burgers so that cost of goods sold is reduced and so gross profit may improve/better discounts; improve gross profit by selling more goods; increasing turnover – by offering other fast food items; reducing prices so that more food is sold/increase prices but this may be self-defeating; look for more efficient ways of operating the business e.g. computerisation to save staff; improve the quality of the food provided – more customers; introduce promotions – example; provide after-sales service – home delivery; change location – cheaper premises, to where there are more customers. Any other relevant action. NB if the reduction of three kinds of expenses is explained = 6 marks max.
5. [6] (d) Level 2 (4-6 marks) Candidate has considered the advantages of taking a bank loan and forming a private limited company and has given a reasoned recommendation. (If a candidate has considered only one option award 4 marks max.) (If a candidate has not given a recommendation award 5 marks max.) It may all depend on how much Hassan wishes to expand. If he wants to extend his present premises, the bank loan may be sufficient. He will have to pay interest and make repayments but he will still be in sole control of the business. If, however, he wishes to open new premises he may need to form the company. This may be more risky and he needs the protection of limited liability so that his personal assets are not at risk. Forming a private limited company would mean that members of his family could invest in the business and that his capital would increase. His business would be more formal but he could still retain control by having the majority shareholding. I would recommend that he forms a private limited company as the bank loan may be insufficient for his needs and he would be able to draw on greater funds for his expansion. Level 1 (1-3 marks) Candidate has commented on either taking a bank loan or forming a private limited company with/without a recommendation. A bank loan would provide Hassan with a lot of money. The private limited company would be difficult to form and shareholders would own the business. Hassan would have limited liability. It might be a good thing to take a bank loan. He is still his own boss.