Using the data in Appendix 3, calculate the following ratios for CC: • Gross profit margin • Profit margin • Current ratio • Acid test ratio Show your workings.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [1] gross profit/revenue × 100
2. [1] profit/revenue × 100
3. [1] current assets/current liabilities
4. [1] current assets – inventory/current liabilities
5. OR
6. [1] $400000/$800000 × 100
7. [1] = 50%
8. [1] $150000/$800000 × 100
9. [1] = 18.75%
10. [1] $20000/$15000
11. [1] = 1.33 or 4:3
12. [1] $15000/$15000
13. [1] = 1
14. Increase in the minimum wage - Advantages: If wages increase it may improve motivation
15. Increase in the minimum wage - Disadvantages: Increased costs as have to pay 10 workers higher pay
16. Increase in the minimum wage - If already pay just above minimum wage so may not have to increase pay - costs may not change
17. Increase in the minimum wage - Alternative employers may attract the workers away from CC if does not give a pay increase - higher recruitment costs
18. Increase in the minimum wage - Increase in potential customers due to increase in disposable income leading to more sales of CC's mobile phone covers
19. More controls over what can be stated in advertisements - Disadvantages: Adverts for mobile phone covers may have to be changed if they are misleading and may be less appealing/less attractive to customers leading to lower sales
20. More controls over what can be stated in advertisements - Advantages: May not make any difference if CC already only makes true claims about the covers always preventing phones from being damaged
21. More controls over what can be stated in advertisements - Advantages: Competitors will have to tell the truth so may increase sales of CC phone covers if they are better
22. No waste plastic can be sent to landfill sites - Disadvantages: Increased cost to remove waste from factory as all plastic will need to be disposed of correctly - may recycle plastic
23. No waste plastic can be sent to landfill sites - Advantages: If competitors have higher costs because they produce more plastic waste then CC will be more competitive and increase sales of phone covers and possibly have higher profit
24. No waste plastic can be sent to landfill sites - Disadvantages: Need to train 10 workers and change production techniques to minimise waste - increases cost initially - long-term could save on purchasing raw materials
25. Conclusion Justification: Impact will depend on what competitors are paying as wages but CC is paying just above the minimum wage and if it has to increase pay then wage costs will rise and this will have the greatest effect on profit as it is likely to fall. CC is already producing plastic waste but it could simply change the materials used to produce the phone covers so this legal control would have no effect. Advertising claims may already be truthful so this will not have any effect on profit.
26. Conclusion Justification: Stricter laws on advertising are likely to have a big effect on profit if CC is taken to court and fined for making false claims. If the claims about protecting phones from damage are not true then CC may need to change its advertising to stop it having bad publicity. Otherwise, this could lead to a large fall in sales and profit and it will be the biggest effect on profit of the three changes in legal controls.
27. Conclusion Justification: Increased costs from the disposal of plastic waste will have the biggest impact on profit as prices may have to rise to cover the increased costs of alternative ways of waste disposal. CC already produces a large amount of plastic waste so costs will increase significantly, and sales will fall due to the higher prices.