O-LevelCommerceWholesale trade7100/21 · May/June 2010 · Q820 Marks

Mustapha Ltd manufactures shoes.

(a)State two ways in which Mustapha Ltd can add value to the leather it has bought from suppliers.[2]
(b)The company sells its shoes directly to customers online. It also sells to shoe shops. Explain what is meant by selling online.[2]
(c)(i)Explain what is meant by trade discount.[2]
(c)(ii)Calculate (showing your working) how much net profit Mustapha Ltd will make if the company sells: 120 pairs of shoes online 180 pairs of shoes to the shoe shops[6]
(c)(iii)Should Mustapha Ltd continue to sell to the shoe shops or should it concentrate on selling online? Give reasons for your answer.[6]
(d)One of the shoe shops has returned five pairs of shoes. Explain how a credit note would be used in this transaction between Mustapha Ltd and the shoe shop.[2]

Mark scheme

Marking points from the official mark scheme (May/June 2010). The mark or mark type is shown in brackets.

[2] (a) Any two ways × 1 mark each – Cutting out the leather; Stitching the shoes; Adding buckles; Adding fasteners; Manufacturing/processing; Dyeing the leather; Polishing; Any other relevant way; (0 marks for beyond manufacturing)
[2] (b) Any two points × 1 mark each – Using the Internet to sell the shoes; By establishing a website; Showing details of the shoes/showing an online catalogue; And accepting credit card payments; E-commerce; Any other relevant point
[2] (c)(i) Any two points × 1 mark each – Discount given by trader to another; So that the buyer can make a profit; Encourages bulk buying; And repeat business; Any other relevant point
[6] (c)(ii) Revenue = 120 × $40 = $4800 + (1 mark); 180 × ($40 – $12) $28 = $5040 (1 mark); $4800 + $5040 = $9840 (1 mark); Cost of the batch of 300 pairs of shoes = 300 × $25 = $7500 (1 mark); Total Profit made = $9840 – $7500 (1 mark) = $2340 (1 mark); OR Gross Profit per pair of shoes = $40 – $25 = $15 (1 mark); Online - 120 × $15 (1 mark) = 1800 (1 mark); + Shoes shops – 180 × (28 – $25) $3 (1 mark) = $540 (1 mark); Total Profit made = $1800 + $540 (1 mark) = $2340 (1 mark); OFR applies Please award full marks for a correct answer without working
[6] (c)(iii) Level 2 (4-6 marks) Has offered an opinion substantiated by a reasoned argument. May have used some numerate techniques in the argument. Mustapha Ltd should continue to sell to shoe shops as well as sell online. It sold more of the shoes to the shoe shops than it did online. It may have sold other lines more successfully to the shoe shops. It may have offered them less trade discount on other lines. It is still making a profit on these shoes – $3 per pair of shoes, total profit of 180 × $3 = $540. It may not have been able to sell all the shoes online and it is sensible to have two different markets for the shoes so that there is more chance of selling all of them. Level 1 (1-3 marks) Has made some comment on selling to shoe shops and/or selling online with little or no reasoning. Mustapha Ltd should sell online. It makes more profit on each pair of shoes. Selling to shoe shops may mean more work and less profit. The company is not making much profit by selling to shoe shops and it should concentrate on selling online.
[2] (d) Any two points × 1 mark each – A credit note is issued for returned/faulty goods; (Mustapha Ltd will issue a credit note) for $140 ($28 × 5); So the statement of account/debt will be reduced; By $140; Any other relevant point