Rakesh manages a car repair business in country Y. He buys cars that are damaged or have parts missing. Rakesh adds value by repairing these cars until they look like new ones. He employs 5 workers to do the repairs. The business holds a large stock of car parts and Rakesh always pays cash for these. However Rakesh's sales are usually on credit. Table 1: Some information for a typical trading week Cars bought by Rakesh 6 Average cost of each car $2000 Average cost of parts used per car $500 Weekly wages per employee $1000 Weekly fixed costs $4000 Average price per car sold $5000 Number of cars sold 6

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [2] Clear understanding e.g. costs that do not change [1] as the level of activity changes [+1]
2. [1] Some understanding [1]: e.g. costs that stay the same.
3. Note – Must link answer to level of activity/output to gain full marks. Do not accept examples.
4. [2] Clear understanding [2] e.g. the difference between the price of the product and the cost of the resources needed to produce it OR an improvement to the product [1] that makes it worth more [1].
5. [1] Some understanding [1]: e.g. makes product more valuable.
6. Note - increased value is a repetition of the question and should not be credited.
7. [4] Correct answer [4]: 6000 ($ not required. No further calculations are required)
8. [3] Some understanding [can gain up to 3 marks]:
9. Breakdown of marks as follows:
10. Revenue per week (5000 × 6) =$30000 [1]
11. Costs per week:
12. [2] [2000 × 6] + [500 × 6] + [1000 × 5] + $4000 = $24000 [2] 1 mark for 3 of these 4 correct costs
13. OR (ii) 30000 [1] – 17500 = 12500 [+1]
14. Profit per week $6000 [1]
15. NOTE – OFR (own figure rule) can apply e.g. (i) 30000 [1] – 7500 = 22500 [+1]
16. [6] Knowledge [2 × 1] - award 1 mark for each reason identified.
17. [6] Application [2 × 1] – award 1 mark if relevant reference made to data/Rakesh's business.
18. [6] Analysis [2 × 1] – award 1 mark for each relevant explanation (show why they create cash flow problems).
19. Points might include:
20. Sales are on credit [k] although he is making a profit from the cars [app] money will not be received until later [an]
21. Purchase of stock is by cash [k] as he holds a large stock of parts [app] profit is not earned until it is sold [an]
22. Some costs may not be paid every week e.g. insurance or rent
23. Buys the cars for cash [k] takes time to repair them [app] and so only makes profit when they are sold.
24. Explanation will focus on the fact that timing of flows creates an imbalance between cash in and out.
25. [6] Knowledge [2 × 1] award 1 mark for each relevant issue identified.
26. [6] Application [1] – award 1 mark if relevant reference made to this type of business.
27. [6] Analysis [1] – award 1 mark for relevant development of point(s).
28. [6] Evaluation [2] – justified decision made as to whether Rakesh's business is likely to be less successful.
29. Points might include:
30. Recession could mean a fall in disposable income [k]
31. Higher unemployment [k] so fall in people's living standards [an] so might not be able to buy a new car [app]
32. Depends on what is meant by successful [k]
33. Developed answer:
34. Recessions usually mean a fall in disposable income [k] and an increase in unemployment [k]. Both of these usually mean a fall in consumer demand [an] especially for non-essential products such as cars [app]. This is not good news for Rakesh's business [eval]. However, it is possible that there will be a switch in demand towards cheaper cars [an] and this might help his sales so he could still be successful [eval].