Hassan offers customers the chance to experience driving a go-kart around a racetrack. He sells packages to individual customers and for group bookings. The go-kart experience package price list is shown in Fig. 5.1. [Figure 5.1]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2022). The mark or mark type is shown in brackets.

1. [4] 1 mark for each correct answer
2. [4] (i) 5 (1)
3. [4] (ii) 100 (1)
4. [4] (iii) 10 (1)
5. [4] (iv) 90 (1)
6. [3] 1 mark for each correct answer
7. [3] A go-kart helmet is a fixed asset. TRUE (✔)
8. [3] Working capital is important for paying Hassan's bills. TRUE (✔)
9. [3] Creditors are suppliers who owe money to Hassan. FALSE (✔)
10. [8] The candidate is able to offer a thorough evaluation of whether Hassan should be an overdraft to improve his business.
11. [8] Candidate offers a satisfactory analysis of the reasons for using/not using an overdraft to improve his business without evaluation.
12. [8] Candidate demonstrates some knowledge and understanding, with application to go-karts, of using an overdraft to improve his business.
13. [8] An overdraft is a short-term (1) borrowing facility (L1) from a bank (L1) attached to a current account (L1) set at an agreed limit (L1) interest charged on overdrawn amount (L1) interest rate variable (L1)
14. [8] Reasons to use an overdraft: An overdraft is flexible (L1) so Hassan can borrow what he needs at the time (L2)
15. [8] It is quick/simple to arrange (L1) as there is less need for formal bank discussions and less paperwork involved (L2)
16. [8] Often cheaper than a loan (L2) because of variable interest payments (L1)
17. [8] There is not normally a charge for paying off the overdraft earlier than expected (L1) reduces borrowing costs (L2)
18. [8] Repairs of $600 (L2) would be suitable for an overdraft as would be considered a short-term source of finance (L1)
19. [8] Reasons not to use an overdraft: Interest is charged on the amount overdrawn (L1) increasing cost of borrowing (L2)
20. [8] Interest rate is variable (L1) making it difficult to calculate accurately borrowing costs (L2)
21. [8] Interest rate is likely to be higher than a loan (L1) increasing costs (L2)
22. [8] The bank has the right to ask for repayment of an overdraft amount at any time (L1) leading to uncertainty (L2)
23. [8] Go-karts would cost $8400 (L2) so would be more suitable for a long-term source of finance (1)
24. [8] Needs combined borrowing of $9000 (L2) which might be difficult to obtain an overdraft for (L2)
25. [8] Evaluation: Overdrafts are mostly used for day-to-day expenses. The repairs costing $600 would be considered a day-to-day expense that Hassan could use an overdraft for and get the repairs done quickly, so that he has two more go-karts available to generate more revenue. The three new go-karts, costing $8400, may be more appropriate for long-term finance, such as a loan or hire purchase which would allow Hassan to plan his outgoings better. We do not know how long Hassan's business has been operating, whether he already has an overdraft facility of over $9000 or whether his bank might loan him the money, but a mixture of both might be the best recommendation. Alternatively, he might want to pay for the repairs first and afterwards save money to help pay for the go-karts.