Nadia set up a sole trader business selling ice cream from a second-hand van. Nadia sold 50000 ice cream cones in her first year for $1 each. The cost of each ice cream cone is: • $0.10 for the cone • $0.30 for the ingredients One of her other expenses is the cost of motor insurance for the van at $2000 per year. Table 3.1 shows part of the expected Profit and Loss account (Income Statement) for Nadia's business after one year. [Table 3.1 Profit and Loss account with Sales revenue=?, Cost of cones=5000, Cost of ingredients=15000, Gross profit=?, Cost of insurance=2000, Profit for the year (net profit)=?]

Mark scheme

Marking points from the official mark scheme (May/June 2019). The mark or mark type is shown in brackets.

1. [2] Sales revenue = $50 000 (2)
2. [1] Method $50 000 × $1 (1)
3. [2] Gross Profit = $30 000 (2)
4. [1] Method $50 000 – $5000 – $15000 (1)
5. [2] Profit for the year = $28000 (2)
6. [1] Method $30 000 – $2000 (1)
7. [1] One owner
8. [1] Controlled by owner / own boss
9. [1] Unlimited liability
10. [1] All profits to owner
11. [1] Owner bears all losses
12. [1] No legal requirements to set up /easy to set up / no legal status
13. [1] Low capital requirement / cheap to set up
14. [1] No publication of accounts
15. [1] In private sector
16. [1] Yes: Insurance will give Nadia with a sense of security
17. [1] she will be protected from loss
18. [1] e.g. consequential loss
19. [1] would allow Nadia to continue her operations
20. [1] while the damage is being repaired
21. [1] e.g. hiring freezers for the ice cream
22. [1] Public liability is needed
23. [1] if a customer makes a claim because of Nadia's negligence
24. [1] she would not suffer financial loss
25. [1] because the insurance company would compensate the customer
26. [1] Theft
27. [1] so the insurance company will provide a replacement if assets are stolen
28. [1] so she can continue to sell ice cream
29. [1] Fire
30. [1] so the insurance company will repair/replace assets
31. [1] No: It is only a small business
32. [1] it will add to her costs
33. [1] reduce her profits
34. [1] because she already has motor insurance
35. [1] which is likely to include theft and fire protection
36. [1] extra costs for insurance are not essential
37. [1] she may not be able to afford it
38. [1] the risk may not be very likely to will happen
39. [1] Self-finance (own savings/retained earnings/selling assets) – no interest - readily available – if she has enough after paying herself
40. [1] Hire purchase – spread payments – can use the van while paying for it
41. [1] Leasing - updated at regular intervals – servicing contract – under personal contract purchase (PCP) can buy the van at the end of leasing contract
42. [1] Loan - specified purpose – fixed rate of interest – collateral may be required
43. [1] Overdraft – is Nadia able to repay it quickly enough – to avoid high charges
44. [X] Example of Evaluation: The cheapest and easiest method is to pay for the van herself if Nadia has enough money but as it is a new business it would be much easier for her to lease a van and know that she will not have any unexpected service/breakdown costs that could cause her cash flow problems so that the business might fail.