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unit 3

The document outlines exam questions related to finance for businesses, covering topics such as the role of finance, sources of finance, and specific case studies of various companies. It includes easy and medium difficulty questions, focusing on definitions, advantages, and disadvantages of different financing options. The document is structured to help students prepare for their exams by testing their understanding of financial concepts and applications.

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0% found this document useful (0 votes)

17 views

unit 3

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eshmeet.m03

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IB DP Business 42 mins 14 questions

Exam Questions

3.1 Introduction to
Finance
Role of Finance for Businesses

Scan here to return to the course

or visit savemyexams.com
Easy (8 questions) /16

Medium (6 questions) /26

Total Marks /42

Case Study
Global Innovations AG, a Swiss research firm, recorded strong profits in 2024 but
faces challenges in managing its day-to-day operations. The CEO has identified
several areas requiring immediate financial attention.

State two reasons why businesses need ﬁnance.

(2 marks)

Case Study
Nordic Steel AB, a Swedish manufacturing firm, is evaluating its expenditure
patterns. The financial controller has highlighted the distinction between
different types of business spending, particularly focusing on capital expenditure
in their 2024 budget.

Deﬁne the term 'capital expenditure'.

(2 marks)

Case Study
Emirates Trading Group, a Dubai-based retail company, has implemented new
cost monitoring systems in 2024. The ﬁnance team focuses particularly on
managing revenue expenditure to maintain proﬁtable operations.

Deﬁne the term 'revenue expenditure'.

(2 marks)

Case Study
Mexican Pharmaceuticals SA, a leading healthcare manufacturer, needs to
budget for its day-to-day operations in 2024. The ﬁnancial controller must
identify key areas of revenue expenditure.

State two examples of revenue expenditure.

(2 marks)

Case Study
Finance managers at energy company Portuguese Renewables SA pride
themselves on their eﬃcient management of its day-to-day operations. The 2024
ﬁnancial strategy emphasises the importance of working capital for business
stability.

Deﬁne the term 'working capital'.

(2 marks)

Case Study
Kenya Coffee Cooperative Ltd, an East African agricultural business, experienced
cash flow challenges in 2024 despite strong sales. The finance director needs to
review working capital management.

State two components of working capital.

(2 marks)

Case Study
Norwegian Seafood AS, a Scandinavian food processing company, monitors its
ﬁnancial stability closely. Their 2024 annual report emphasises the importance of
liquid assets for business operations.

Deﬁne the term 'liquid assets'.

(2 marks)

Case Study
Tesla is expanding its European operations with a new gigafactory in Berlin. The
company plans to spend €4 billion on state-of-the-art robotic assembly lines and
automated manufacturing systems.

Explain one reason why Tesla's spending on robotic assembly lines is classiﬁed as capital
expenditure.

(2 marks)

Case Study
Bloom Interiors is a small business specialising in designing and manufacturing
custom furniture. The company is well-regarded for its craftsmanship and uses
high-quality materials. With increasing demand for sustainable furniture, Bloom
is considering upgrading its machinery to enhance production capacity and
reduce waste.

The estimated cost for the new machinery is £50,000, which represents a
significant investment for the company. To fund this, Bloom is evaluating
whether to use retained profits or apply for a short-term bank overdraft.
Management is particularly concerned about maintaining smooth cash flow while
financing this capital expenditure.

Explain one advantage and one disadvantage of using retained proﬁts to ﬁnance capital
expenditure at Bloom Interiors.

(4 marks)

Describe two factors Bloom Interiors should consider when deciding on a ﬁnancing
option.

(4 marks)

Case Study
Grace & Glow Day Spa is a boutique spa oﬀering luxury treatments in a serene
setting. Recently, the spa has gained popularity, resulting in increased demand
for its services. To accommodate more customers, the owner is considering
expanding the spa by renovating an unused section of the building and
purchasing additional equipment.

The estimated cost for the expansion is £25,000. To finance this revenue
expenditure, Grace & Glow is debating between using a trade credit arrangement
with suppliers or applying for a short-term loan from a local bank. The owner is
particularly concerned about maintaining the spa’s premium image while
managing cash flow effectively.

Analyse two advantages and one disadvantage of using a short-term bank loan for
Grace & Glow’s expansion.

(6 marks)

Describe two risks Grace & Glow Day Spa might face if the expansion is not ﬁnanced
eﬀectively.

(4 marks)

Case Study
Vibrant Vistas Photography is a small business offering professional photography
services for weddings and events. The company recently secured several high-
profile bookings, increasing demand for advanced equipment and additional
staff to meet client expectations.

To ﬁnance these expenses, Vibrant Vistas is considering using revenue from pre-
booked events or applying for a hire purchase agreement to acquire new
equipment. The owner is particularly concerned about managing short-term cash
ﬂow while ensuring the business can deliver high-quality services.

Explain one advantage and one disadvantage of using revenue from pre-booked events
to ﬁnance equipment purchases at Vibrant Vistas Photography.

(4 marks)

Describe two advantages to Vibrant Vistas Photography of leasing equipment instead of

purchasing it outright.

(4 marks)

Exam Questions

3.2 Sources of Finance

Internal Sources of Finance / External Sources of Finance / The Best Choice of
Finance

Scan here to return to the course

or visit savemyexams.com
Easy (8 questions) /16

Medium (7 questions) /30

Total Marks /46

Case Study
Eco Harvest Technologies Ltd, an agricultural technology company based in New
Zealand, has experienced rapid growth since 2023. The company's founders are
considering using retained proﬁt to fund further expansion.

Deﬁne the term 'retained proﬁt'.

(2 marks)

Case Study
Quantum Computing Research Ltd, a technology startup in India, secured INR 50
million from a wealthy business angel in December 2023. The investor, a former
technology entrepreneur, now owns 25% of QCR and provides business advice.

Deﬁne the term 'business angel'.

(2 marks)

Case Study
African Solar Solutions Ltd, a renewable energy provider in Kenya, requires
immediate working capital to fulﬁl a major government contract. The company is
considering various short-term ﬁnancing options.

State two types of short-term ﬁnance available to businesses.

(2 marks)

Case Study
Nordic Wind Power AB, a Swedish renewable energy company, allows suppliers
90 days of trade credit for turbine components.

State two beneﬁts of oﬀering trade credit to customers.

(2 marks)

Case Study
South African Mining Corporation needs to replace its vehicle ﬂeet but wants to
avoid large capital expenditure. It is considering leasing.

Deﬁne the term 'leasing'.

Case Study
Malaysian Palm Industries PLC experienced rapid growth in 2023. The company's
ﬁnancial director has recommended maintaining a good relationship with their
bank to ensure continued access to their overdraft facility.

State two characteristics of a bank overdraft.

(2 marks)

Case Study
Finnish Forest Products operates in the paper industry. The company's high
gearing ratio has made traditional lenders, such as banks, reluctant to provide
additional ﬁnancing.

State two alternatives to traditional bank lending.

(2 marks)

Case Study
Yorkshire Tea, a medium-sized family-owned private limited company, needs £5
million to fund a new automated production line. The company has a good credit
rating but currently has £8 million in outstanding bank loans.

Explain one way how Yorkshire Tea's existing debt level might aﬀect their choice of
ﬁnance.

(2 marks)

Case Study
Coastal Gardens Landscaping is a small business specialising in designing and
maintaining bespoke gardens for high-end residential clients. The company has
built a strong reputation for quality and attention to detail. Recently, Coastal
Gardens secured a large contract to landscape a luxury seaside resort.

To complete this project, the business needs additional capital to purchase

specialised equipment and hire temporary staff. Coastal Gardens is considering
two financing options: seeking angel investment or applying for government
grants for small businesses. Management is focused on ensuring cash flow
stability while financing the expansion.

Explain one advantage and one disadvantage of seeking angel investment to ﬁnance
Coastal Gardens’ project.

(4 marks)

To complete this project, the business needs additional capital to purchase

Analyse two advantages and one disadvantage of applying for government grants for
small businesses to ﬁnance Coastal Gardens’ project.

(6 marks)

Case Study
Summit Sportswear is a medium-sized business specialising in high-performance
outdoor clothing. The company is known for its innovative designs and eco-
friendly materials. Due to increasing demand, Summit plans to open a new
flagship store in a major city, requiring significant capital for renovations,
inventory, and staff recruitment.

The management team is considering ﬁnancing this expansion through trade

credit or a long-term bank loan. They are particularly concerned about balancing
short-term cash ﬂow with the long-term ﬁnancial health of the business.

Analyse two advantages and one disadvantage of using a long-term bank loan to ﬁnance
Summit Sportswear’s expansion.

(6 marks)

The management team is considering ﬁnancing this expansion through trade

credit or a long-term bank loan. They are particularly concerned about balancing
short-term cash ﬂow with the long-term ﬁnancial health of the business.

Describe two factors Summit Sportswear should consider when choosing an appropriate
source of ﬁnance for its expansion.

(4 marks)

Case Study
Radiance Fitness is a boutique gym offering high-end fitness classes and personal
training sessions. The gym has gained a reputation for its excellent trainers and
state-of-the-art equipment, attracting a growing membership base. To
accommodate this demand, Radiance Fitness plans to open a new training studio
and purchase advanced fitness machines.

The estimated cost of the expansion is £100,000. The management is evaluating

two ﬁnancing options: seeking venture capital investment or using crowdfunding
to raise the necessary funds. Radiance Fitness aims to maintain its premium
image while ensuring smooth operations during the expansion.

Explain one advantage and one disadvantage of seeking venture capital investment to
ﬁnance Radiance Fitness’s expansion.

(4 marks)

The estimated cost of the expansion is £100,000. The management is evaluating

Describe two factors Radiance Fitness should consider when deciding between venture
capital and crowdfunding.

(4 marks)

Case Study
UrbanEats Ltd. operates a chain of street food stalls in major cities. To expand its
operations, the company secured a short-term one-year business loan of
$135,000 at an annual interest rate of 6.3%, with interest calculated on the initial
loan amount and paid annually. The loan amount will be repaid in full at the end
of the year.

Loan Amount 135,000

Interest Rate 6.3%

Calculate the total cost of the loan (including interest and loan amount) for UrbanEats
Ltd. (show all your working).

(2 marks)

Exam Questions

3.3 Costs & Revenues

Types of Costs / Sales Revenue

Scan here to return to the course

or visit savemyexams.com
Easy (8 questions) /16

Medium (9 questions) /34

Total Marks /50

Case Study
Northwind Manufacturing Ltd is a precision engineering company based in
Shenzhen that produces specialised automotive components. In 2024, despite
increasing production volumes by 45%, several of their ﬁxed costs remained
unchanged.

Deﬁne the term 'ﬁxed costs'.

(2 marks)

Case Study
Jakarta Fresh Foods Co produces ready-to-eat meals for supermarkets across
Indonesia. The company experienced signiﬁcant variable cost increases in 2024
as their production doubled to meet growing demand.

State two examples of variable costs.

(2 marks)

Case Study
Melbourne Motors Ltd, an Australian automotive retailer, tracks various business
expenses. Most of its indirect costs cannot be easily allocated to speciﬁc vehicles
or services they sell.

State two examples of indirect costs.

(2 marks)

Case Study
Swiss Precision Engineering AG operates a high-tech manufacturing facility in
Zurich. The company's management accountant is looking at ways to lower
overhead costs.

Deﬁne the term 'overheads'.

(2 marks)

Case Study
Cape Verde Resorts PLC, a luxury hotel chain, earned revenue from a variety of
sources in 2024.

State two types of revenue streams.

(2 marks)

Case Study
Oslo Tech Innovations AS is a Norwegian software company that sold 15,000
licences of its security software in 2024, boosting its sales revenue.

Deﬁne the term 'sales revenue'.

(2 marks)

Case Study
Mexico City Entertainment Corp tracks revenue from ticket sales, merchandise,
sponsorships, and concessions at its theme parks.

State two ways to increase sales revenue.

Case Study
The Football Association's ﬁnancial report shows that their revenue comes from
multiple sources. Match ticket sales account for 35% of total revenue, while
broadcasting rights contribute 45%. The remaining revenue is generated through
sponsorship deals, merchandise sales, and licensing agreements with various
partners.

Describe one feature of sponsorship as a revenue stream.

(2 marks)

Case Study
Sunshine Cinemas operates a chain of independent movie theatres offering a
mix of mainstream and indie films. The company’s reputation for comfortable
seating and unique concessions has drawn a loyal customer base. Recently,
Sunshine Cinemas identified an opportunity to open a flagship theatre in a city
centre.

The estimated cost of the expansion is £200,000. Sunshine Cinemas plans to

fund the project using its existing sales revenue and exploring revenue streams
such as renting theatre space for events and selling branded merchandise.
Management aims to ensure that the expansion aligns with their brand image
while remaining proﬁtable.

Analyse two advantages and one disadvantage to Sunshine Cinemas of renting theatre
space for events as a new revenue stream.

(6 marks)

The estimated cost of the expansion is £200,000. Sunshine Cinemas plans to

Describe two factors Sunshine Cinemas should consider when introducing branded
merchandise as a new revenue stream.

(4 marks)

Case Study
Artisan Ceramics is a small studio that creates handcrafted pottery for retail and
wholesale customers. The company’s main product lines include tableware and
decorative pieces. Due to increasing demand, Artisan Ceramics is considering
expanding its operations by hiring additional staﬀ and upgrading its kiln to a
more energy-eﬃcient model.

The studio is also evaluating its cost structure, particularly ﬁxed and variable
costs. Management is exploring ways to manage these costs while maintaining
product quality and proﬁtability.

Explain one advantage and one disadvantage of increasing ﬁxed costs by upgrading
Artisan Ceramics’ kiln.

(4 marks)

The studio is also evaluating its cost structure, particularly ﬁxed and variable
costs. Management is exploring ways to manage these costs while maintaining
product quality and proﬁtability.

Analyse two advantages and one disadvantage to Artisan Ceramics of bulk purchasing of
materials.

(6 marks)

Case Study
Nova Apparel is a sustainable fashion brand that designs and sells eco-friendly
clothing. The company operates through an online store and pop-up shops at
events. To expand, Nova Apparel plans to open a permanent retail store in a
major city.

Management is analysing its cost structure to determine the ﬁnancial feasibility

of the expansion. Fixed costs such as rent and salaries for store employees will
increase signiﬁcantly, while variable costs like raw materials will depend on sales
volume. Nova Apparel is also considering oﬀering customisation options as a
revenue stream to attract more customers.

Explain one advantage and one disadvantage to Nova Apparel of increasing ﬁxed costs
by opening a retail store.

(4 marks)

Management is analysing its cost structure to determine the ﬁnancial feasibility

Describe two types of costs Nova Apparel must evaluate when planning the retail store
expansion.

(4 marks)

Case Study
SnapPrint Ltd. offers affordable printing services for businesses and individuals.
In 2024, the companysold 12,385 print jobs at an average price of $15 per job.
The variable cost per job was $7.47, and SnapPrint achieved a profit of $53,865.

Units Sold 12,385

Average Selling Price Per Job 15

Variable Cost Per Job 7.47

Proﬁt 53,865

Calculate SnapPrint Ltd's ﬁxed costs in 2024 (show all your working).

(2 marks)

Case Study
AquaHome Ltd. sells water purification systems for households. In 2024, the
company sold 3,268 systems at a price of $451 each. The company’s fixed costs
were $562,430, and it achieved a profit of $155,380.

Selected Financial Data for 2024 Amount ($)

Units Sold 3,268

Selling Price Per Unit 451

Fixed Costs 562,430

Proﬁt 155,380

Calculate the total variable costs for AquaHome Ltd. in 2024 (show all your working).

Case Study
EliteFit Ltd. produces premium gym equipment. The company produced and sold
847 units in 2024. Each unit had a variable cost of $319, and the company’s ﬁxed
costs were $125,685. EliteFit achieved a proﬁt of $244,175.

Selected Financial Data for 2024 Amount ($)

Units Sold 847

Variable Cost Per Unit 319

Fixed Costs 125,685

Proﬁt 244,175

Calculate EliteFit Ltd's revenue in 2024 (show all your working).

(2 marks)

Exam Questions

3.4 Final Accounts

Statement of Proﬁt or Loss / Statement of Financial Position (Balance Sheet) /
Depreciation Methods

Scan here to return to the course

or visit savemyexams.com
Easy (8 questions) /16

Medium (9 questions) /34

Total Marks /50

Case Study
Meritech Solutions Ltd is a software development company based in Madrid.
After a successful year in 2023, MSL's Statement of Profit or Loss showed
significant growth in sales revenue, but the company's gross profit decreased
compared to the previous year.

Deﬁne the term 'gross proﬁt'.

(2 marks)

Case Study
Summit Beverages Ltd, an Australian soft drinks manufacturer, recorded strong
financial performance in 2023. The company's Statement of Profit or Loss shows
various expenses that impacted their final profit figure.

State two expenses shown in the proﬁt and loss account.

(2 marks)

Case Study
Fez Trading Group, a Morocco-based conglomerate, prepares its Statement of
Financial Position for 2024. The company's accountants must properly classify its
assets between non-current and current categories.

Deﬁne the term 'current assets'.

(2 marks)

Case Study
Bologna Food Associates, an Italian spice wholesaler, recorded signiﬁcant non-
current liabilities in its 2024 Statement of Financial Position.

State two examples of non-current liabilities.

(2 marks)

Case Study
Canadian Forest Products Ltd reviews its Statement of Financial Position for
2024. The accountants discuss the concept of net assets when analysing the
company's ﬁnancial position.

Deﬁne the term 'net assets'.

(2 marks)

Case Study
African Pharmaceuticals PLC, based in Kenya, maintains various intellectual
property rights protecting its medical innovations.

State two types of intellectual property.

(2 marks)

Case Study
Brno Manufacturing Ltd uses various depreciation methods for its factory
equipment, including the straight-line approach. The company needs to
determine the most appropriate method for its new machinery in 2024.

State two situations when straight-line depreciation is appropriate.

(2 marks)

Case Study
Coca-Cola, a multinational beverage company, experienced revenue growth in
2024 due to increased demand in emerging markets. The company’s Statement
of Proﬁt or Loss was closely monitored.

Explain one way Coca-Cola can use the Statement of Proﬁt or Loss to make business
decisions.

(2 marks)

Case Study
Harmony Publishing is a small company that produces and distributes
educational books for schools. The company has a steady revenue stream from
annual contracts with several school districts. Recently, Harmony Publishing
invested in new printing equipment worth £60,000 to improve production
eﬃciency.

The company’s latest Statement of Profit or Loss reveals that its gross profit has
increased due to lower cost of sales, but its operating expenses have risen
because of higher maintenance costs for the equipment. Additionally, Harmony’s
directors are concerned about its net profit margin, which has slightly decreased
compared to the previous year. They are exploring whether further investment in
automation could reduce operating expenses.

Analyse two benefits and one drawback of Harmony Publishing using its Statement of
Profit or Loss to evaluate financial performance.

(6 marks)

Describe two reasons why Harmony Publishing’s net proﬁt margin decreased.

(4 marks)

Case Study
Stellar Sports is a medium-sized company that designs and sells premium sports
equipment. The company recently expanded its product line, which required
signiﬁcant investment in marketing and product development. Stellar Sports’
Statement of Financial Position reveals that its non-current assets have increased
by £120,000 due to new manufacturing equipment, but its current liabilities have
also risen.

The company’s directors are concerned about its liquidity, as the current ratio
has dropped to 1.2:1 from 1.5:1 in the previous year. Stellar Sports is now
considering selling oﬀ older inventory at a discount to improve its working capital
position.

Explain one advantage and one disadvantage of selling oﬀ older inventory to improve
Stellar Sports’ working capital position.

(4 marks)

Describe two ways Stellar Sports’ directors can use its Statement of Financial Position to
make decisions.

(4 marks)

Case Study
GreenGlobe Energy is a renewable energy company that installs solar panels and
wind turbines for residential and commercial clients. The company recently
expanded its operations into a new region, which required significant investment
in vehicles and equipment. GreenGlobe’s latest Statement of Profit or Loss shows
a significant increase in sales revenue but also a rise in cost of sales due to higher
material prices.

The directors are concerned about the company’s gross profit margin, which has
dropped from 40% to 35% over the past year. They are also evaluating whether
adopting more cost-effective suppliers could help improve profitability.

Explain one advantage and one disadvantage of using cheaper suppliers to reduce
GreenGlobe Energy’s cost of sales.

(4 marks)

The directors are concerned about the company’s gross proﬁt margin, which has
dropped from 40% to 35% over the past year.

Analyse two advantages and one disadvantage to workers at GreenGlobe Energy of

using ﬁnancial statements to assess their job security.

(6 marks)

Case Study
BrightSpace Ltd. provides coworking spaces for freelancers and small businesses.
The company’s ﬁnancial performance has grown steadily, and its management
wants to assess its net assets at the end of 2024.

© 2025 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 11
Statement of Financial Position (2024) Amount ($)

Inventory 56,840

Non-current Assets 412,750

Cash 82,420

Bank Loan 150,000

Trade Receivables 37,965

Trade Payables 48,350

Accrued Expenses 12,570

Calculate the net assets of BrightSpace Ltd. at the end of 2024 (show all your working).

(2 marks)

Case Study
SavvyStyle Ltd. is a clothing retailer specialising in aﬀordable casual wear. In
2024, the company generated total revenue of $524,780 by selling its products
through online and physical stores. The company’s cost of goods sold (COGS)
includes the cost of materials and production, totalling $312,430. Additional
expenses, such as marketing and rent, amounted to $62,900.

Total Revenue 524,780

Rent 25,700

Total costs 375,330

Marketing Expenses 37,200

Calculate the gross proﬁt for SavvyStyle Ltd. in 2024 (show all your working).

(2 marks)

Case Study
TechVision Ltd. is a well-established manufacturer of premium computer
accessories, including ergonomic keyboards and high-performance mice. The
company prides itself on innovation, regularly investing in research and
development. Management is conducting a ﬁnancial review to assess net proﬁt
for 2024.

Selected Financial Data (2024) Amount ($)

Revenue 865,420

Cost of Goods Sold 548,780

Operating Expenses 185,430

Interest Income 24,500

Interest Expenses 8,900

Tax Expenses 12,750

© 2025 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 13
Calculate the net proﬁt for TechVision Ltd. in 2024 (show all your working).

(2 marks)

Exam Questions

3.5 Profitability &

Liquidity Ratio
Analysis
Profitability Ratios / Liquidity Ratios

Scan here to return to the course

or visit savemyexams.com
Easy (8 questions) /16

Medium (11 questions) /38

Total Marks /54

Case Study
Banbury Chocolates Ltd manufactures premium chocolates and confectionery. In
2024, the company's sales revenue was $2.4 million, and with the cost of sales
amounting to just $960,000, the company achieved a healthy gross profit margin.

Define the term 'gross profit margin'.

(2 marks)

Case Study
Cork Fine Foods Ltd produces artisanal cheeses and dairy products. Last year
they achieved a profit margin of 15%.

State two ways to improve the profit margin.

(2 marks)

Case Study
Peak Performance Bikes Ltd manufactures carbon fibre bicycle frames. The
company had capital employed of $4.5 million and profit before interest and tax
of $900,000 in 2024. It wants to calculate the return on capital employed.

Define the term 'return on capital employed'.

(2 marks)

Case Study
Munich Precision Engineering GmbH produces components for the aerospace
industry. In 2024, their return on capital employed was 18%.

State two ways to improve return on capital employed (RoCE).

(2 marks)

Case Study
Oslo Furnishings AS manufactures office furniture. The company's current ratio
was 2:1 in 2024.

Define the term 'current ratio'.

Case Study
Vilnius Software Solutions provides IT services to businesses. The company's
accountant has identified potential liquidity issues.

State two ways to improve liquidity.

(2 marks)

Case Study
Shanghai Tech Corporation's financial statements show declining liquidity ratios
in 2024.

State two factors that could cause liquidity problems.

(2 marks)

Case Study
Unilever, an international consumer goods company, tracks its liquidity through
financial ratios. In 2024, its current ratio worsened, partly as a result of increased
stock levels.

Describe one way a business could improve its current ratio.

(2 marks)

Case Study
Mountain Adventure Gear is a small business that sells outdoor equipment such
as hiking boots, tents, and climbing gear. The company’s sales have grown
steadily due to increased interest in outdoor activities. However, its financial
statements reveal that while revenue has increased, its gross profit margin has
decreased.

To address this, the company’s management is exploring ways to reduce direct

costs, such as negotiating with suppliers or finding cheaper raw materials. They
are also reviewing their pricing strategy, considering whether raising prices for
premium products could help offset the rising cost of goods sold.

Additionally, Mountain Adventure Gear is evaluating its return on capital

employed (ROCE) to determine whether its recent investment in a new
warehouse is generating sufficient returns.

Analyse two advantages and one disadvantage of increasing prices for premium
products at Mountain Adventure Gear.

(6 marks)

To address this, the company’s management is exploring ways to reduce direct

Additionally, Mountain Adventure Gear is evaluating its return on capital

employed (ROCE) to determine whether its recent investment in a new
warehouse is generating sufficient returns.

Describe two ways Mountain Adventure Gear can evaluate the success of its recent
investment in a new warehouse.

(4 marks)

Case Study
Artisan Furniture is a business that produces handmade wooden furniture,
including tables, chairs, and cabinets. While the company has maintained steady
sales, it has faced challenges with rising material costs and delivery delays.

The company’s recent Statement of Profit or Loss shows that its gross profit
margin has declined, although operating expenses have remained constant.
Artisan Furniture is considering ways to improve profitability, such as sourcing
materials from local suppliers to reduce costs and renegotiating trade credit
terms to improve liquidity.

Additionally, management is using liquidity ratios to assess the company’s ability

to meet short-term obligations while maintaining adequate cash flow for daily
operations.

Explain one advantage and one disadvantage of Artisan Furniture improving its
profitability by sourcing materials from local suppliers.

(4 marks)

Additionally, management is using liquidity ratios to assess the company’s ability

to meet short-term obligations while maintaining adequate cash flow for daily
operations.

Describe two factors Artisan Furniture should consider when renegotiating trade credit
terms to improve liquidity.

(4 marks)

Case Study
Zenith Publishing specialises in producing e-books and printed novels for a niche
audience. The company has seen a steady increase in revenue over the past year
but is facing profitability challenges due to rising overhead costs, such as higher
rents and utility expenses for its office and warehouse.

Zenith’s management is considering reducing operating expenses by

transitioning more operations online, such as offering digital-only publishing
services. They are also reviewing their gross profit margin and return on capital
employed (ROCE) to determine if their current investment in print publishing
remains financially viable.

Additionally, Zenith’s recent liquidity ratios have revealed a slight decrease in the
acid test ratio, prompting concerns about its ability to meet short-term financial
obligations.

Explain one advantage and one disadvantage of transitioning to digital-only publishing

for Zenith Publishing.

(4 marks)

Zenith’s management is considering reducing operating expenses by

Additionally, Zenith’s recent liquidity ratios have revealed a slight decrease in the
acid test ratio, prompting concerns about its ability to meet short-term financial
obligations.

Analyse two advantages and one disadvantage of using the acid test ratio to evaluate
Zenith Publishing’s short-term financial health.

(6 marks)

Case Study

© 2025 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 11
UrbanPrint Ltd provides customised printing services for small businesses and
events. The company prides itself on offering competitive prices while
maintaining quality. In 2024, UrbanPrint earned $342,560 in revenue and
incurred $158,240 in cost of goods sold. Operating expenses, including rent and
marketing, totalled $78,450.

Selected Financial Data (2024) Amount ($)

Revenue 342,560

Cost of Goods Sold 158,240

Operating Expenses 78,450

Marketing Budget 12,000

Calculate UrbanPrint Ltd's gross profit margin in 2024 (show all your working).

(2 marks)

Case Study
ActivePulse Ltd produces and sells fitness trackers designed to help customers
monitor their health. The company has been focusing on reducing production
costs and streamlining operations. For 2024, management set a goal of achieving
a profit margin greater than 15% to attract new investors. They are reviewing
financial data to assess if they have met this target.

Revenue 715,290

Cost of Goods Sold 418,730

Operating Expenses 182,450

Depreciation 25,000

Interest Expenses 8,200

Calculate ActivePulse Ltd's profit margin in 2024 (show all your working).

(2 marks)

Case Study
ClearFlow Ltd specialises in manufacturing eco-friendly water filtration systems,
catering to environmentally conscious households and businesses. The company
has invested heavily in new technology and marketing campaigns to boost
profitability. Management has set an ambitious target to achieve a return on
capital employed (RoCE) greater than 12%.

Selected Financial Data (2024) Amount ($)

Net Profit 312,500

Non-current Assets 1,280,000

Shareholders’ Equity 1,355,000

Current Liabilities 245,000

Retained Earnings 50,000

© 2025 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 13
Calculate ClearFlow Ltd's return on capital employed (RoCE) in 2024 (show all your
working).

(2 marks)

Case Study
EcoGrow Ltd sells indoor gardening kits and accessories, targeting urban
customers who want to grow their own herbs and vegetables. After a strong year
of sales, the company is reviewing its liquidity position to ensure it can meet its
short-term obligations in 2024. Management is particularly concerned about
maintaining a healthy current ratio to support future investments in product
development.

Selected Financial Data (2024) Amount ($)

Cash 84,250

Trade Receivables 72,340

Inventory 95,760

Prepaid Expenses 15,120

Trade Payables 88,600

Bank Overdraft 34,450

Long-term Loan 250,000

Calculate the current ratio for EcoGrow Ltd in 2024 (show all your working).

(2 marks)

Case Study
TechSpark Ltd designs and sells high-end smart home devices. The company is
reviewing its liquidity and is particularly focused on its acid test ratio, as its
management wants to ensure that short-term liabilities can be covered without
relying on inventory. With a push to increase its market share, TechSpark has a
significant amount of stock in hand.

Selected Financial Data (2024) Amount ($)

Cash 125,670

Trade Receivables 95,430

Inventory 110,290

Prepaid Expenses 20,450

Trade Payables 142,380

Bank Overdraft 47,620

Deferred Tax Liability 15,000

Calculate the acid test ratio for TechSpark Ltd in 2024 (show all your working).

(2 marks)

Exam Questions

3.6 Efficiency Ratio

Analysis
Eﬃciency Ratios: Stock Turnover & Gearing Ratio / Eﬃciency Ratios: Debtor &
Creditor Days

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Easy (8 questions) /16

Medium (10 questions) /36

Total Marks /52

Case Study
Solartec Industries Ltd manufactures solar panels in Malaysia. In 2024, SIL has
been experiencing diﬃculties managing its inventory levels due to supply chain
disruptions. As a result, its stock turnover ratio has worsened.

Deﬁne the term 'stock turnover ratio'.

(2 marks)

Case Study
Bangkok Fresh Foods Co operates a chain of convenience stores across Thailand.
The company deals primarily in perishable goods and ready-to-eat meals. Its
managers have recently decided to focus on improving the stock turnover ratio.

State two ways to improve the stock turnover ratio.

(2 marks)

Case Study
Emirates Industrial Solutions PLC had a gearing ratio of 65% in 2024, causing
concern among shareholders about ﬁnancial stability.

State two problems associated with high gearing.

(2 marks)

Case Study
Jakarta Wholesale Distribution experiences regular delays in customer payments,
aﬀecting its working capital in 2024. Its debtor days ratio has recently worsened.

State two methods to reduce debtor days.

(2 marks)

Case Study
Mumbai Textiles Ltd provides 60-day trade credit terms to its business customers
but struggled with late payments in 2024.

Deﬁne the term 'trade credit'.

Case Study
In 2024, Brazilian Steel Manufacturing negotiated improved payment terms with
suppliers to better manage working capital, increasing its creditor days ratio
signiﬁcantly.

State two advantages of high creditor days.

(2 marks)

Case Study
German Auto Parts Ltd experiences supplier relationship issues due to payment
practices, which often result in late settlement of outstanding invoices.

State two consequences of late supplier payments.

(2 marks)

Case Study
IKEA works out how long it takes to pay its suppliers. In 2024, it asked its key
suppliers for more time to pay its bills.

Describe one reason why IKEA might want to take longer to pay suppliers.

(2 marks)

Case Study
Stream Design Studios is a graphic design company that creates marketing
materials for small and medium-sized businesses. The company has recently
expanded its services to include web development and social media
management, requiring signiﬁcant investment in new software and employee
training.

Stream’s ﬁnancial ratios show mixed results. Its debtor days ratio has increased
due to extended payment terms for some clients, causing cash ﬂow challenges.
Meanwhile, its stock turnover ratio has remained stable, as digital services do not
require physical inventory. The company’s gearing ratio has also risen slightly due
to a new loan used to fund the expansion.

To address these issues, Stream Design Studios is considering incentivising

clients to pay invoices faster and using proﬁts from its core design services to pay
down the loan.

Analyse two advantages and one disadvantage of incentivising clients to reduce Stream
Design Studios’ debtor days ratio.

(6 marks)

To address these issues, Stream Design Studios is considering incentivising

clients to pay invoices faster and using proﬁts from its core design services to pay
down the loan.

Explain one advantage and one disadvantage of extending payment terms for clients at
Stream Design Studios.

(4 marks)

Case Study
Belvedere Event Management organises weddings, corporate events, and
festivals. The company recently expanded into luxury event planning, requiring
signiﬁcant investment in new marketing campaigns and hiring additional staﬀ.

Belvedere's ﬁnancial ratios highlight areas for improvement. Its creditor days
ratio has increased due to extended payment terms negotiated with suppliers,
which has helped improve liquidity. However, its return on capital employed
(ROCE) has decreased, as recent investments have not yet generated signiﬁcant
returns. The company is also concerned about its debtor days ratio, which has
risen due to delayed payments from corporate clients.

Explain one advantage and one disadvantage to Belvedere Event Management of

negotiating longer creditor days with suppliers.

(4 marks)

Describe two factors Belvedere Event Management should consider when managing its
debtor days ratio.

(4 marks)

Case Study
Bright Studios Photography oﬀers professional photography services for
weddings, portraits, and commercial projects. The company recently expanded
into videography, requiring investment in new equipment and training for its
photographers.

Bright Studios’ stock turnover ratio has decreased slightly due to delays in selling
older photography packages. Meanwhile, its gearing ratio has remained stable,
but management is reviewing whether taking on additional debt to purchase
advanced equipment for videography is a sound decision. The company’s
creditor days ratio has also risen as it negotiates extended payment terms with
suppliers to improve cash ﬂow.

Management is exploring whether to sell older photography equipment to

improve liquidity and whether investing in advanced videography technology will
yield suﬃcient returns.

Describe two factors Bright Studios Photography should consider when evaluating its
stock turnover ratio.

(4 marks)

Management is exploring whether to sell older photography equipment to

improve liquidity and whether investing in advanced videography technology will
yield suﬃcient returns.

Analyse two advantages and one disadvantage of investing in advanced videography

equipment for Bright Studios Photography.

(6 marks)

Case Study

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BakeWell Ltd produces and sells artisan baked goods to local cafés and
restaurants. The company maintains a significant inventory to meet fluctuating
demand. BakeWell is assessing how efficiently it is managing its stock in 2024.

Selected Financial Data (2024) Amount ($)

Opening Stock 28,500

Closing Stock 32,800

Cost of Sales 145,300

Marketing Expenses 12,450

Total Revenue 210,750

Calculate the stock turnover ratio for BakeWell Ltd to show the number of times stock is
sold during the year (show all your working).

(2 marks)

Case Study
SwiftFurnish Ltd sells home furniture to retailers on credit. The business is
reviewing its eﬃciency in collecting payments from customers, as improving cash
ﬂow is a priority.

Trade Receivables 84,750

Rent 18,200

Total Credit Sales 590,400

Total Sales 635,500

Calculate the debtor days ratio for SwiftFurnish Ltd in 2024 (show all your working).

(2 marks)

Case Study
GreenGrow Ltd supplies agricultural equipment to farmers, purchasing stock on
credit from its suppliers. The company wants to evaluate its eﬃciency in
managing payment terms with creditors.

Selected Financial Data (2024) Amount ($)

Trade Payables 47,350

Total Revenue 430,500

Cost of Sales 312,700

Marketing Expenses 22,600

Calculate the creditor days ratio for GreenGrow Ltd in 2024 (show all your working).

Case Study
SteelForge Ltd manufactures industrial tools and equipment for global
distribution. The company has grown rapidly in recent years and relies on a mix
of shareholder equity and long-term loans to ﬁnance its operations.
Management wants to review the gearing ratio for 2024 to assess the balance of
its funding structure.

Selected Financial Data (2024) Amount ($)

Non-current Liabilities 7,850,000

Shareholder Equity 10,200,000

Retained Proﬁt 1,350,000

Current Assets 3,400,000

Current Liabilities 1,800,000

Calculate the gearing ratio for SteelForge Ltd in 2024 (show all your working).

(2 marks)

Exam Questions

3.7 Cash Flow

Cash Flow & Working Capital / Cash Flow Forecasts / Strategies to Improve Cash
Flow

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Easy (8 questions) /16

Medium (7 questions) /34

Total Marks /50

Case Study
Global Food Retail Ltd, a multinational retailer headquartered in the UK, reported
significant profits in 2023 but faced challenges meeting short-term obligations.
The company's financial controller noted that profit figures don't always reflect
the company's cash flow position.

Deﬁne the term 'cash ﬂow'.

(2 marks)

Case Study
Desert Pearl Resorts Ltd reviews its monthly ﬁnancial data to track performance
against predictions. This includes a strong focus on the company's cash ﬂow
forecast.

State two uses of cash ﬂow forecasts

(2 marks)

Case Study
Grecian Electronics PLC prepares detailed monthly cash ﬂow forecasts for
potential investors. These include the expected opening and closing balances.

Deﬁne the term 'opening balance'.

(2 marks)

Case Study
Brazilian Mining Corporation prepares detailed predictions of its ﬁnancial
position. These include monthly opening and closing balances.

Deﬁne the term 'closing balance'.

(2 marks)

Case Study
EuroMotors Manufacturing Ltd's finance team monitors actual cash flow versus
the position predicted in the cash flow forecast each month.

State two limitations of cash ﬂow forecasts.

Case Study
Following recent cash ﬂow problems, Eastern Trading Corporation is seeking to
optimise its working capital position by improving its cash inﬂows.

State two methods to improve cash inﬂows.

(2 marks)

Case Study
Evergreen Distribution Plc reported diﬃculties maintaining adequate cash
reserves. Its CEO is determined to maintain a healthy cash buﬀer in future.

Deﬁne the term 'cash buﬀer'.

(2 marks)

Case Study
Swift Deliveries, a courier company, improved its cash ﬂow in 2024 by selling
unused delivery vans and leasing new ones instead.

Describe one beneﬁt to a business of selling unused assets to improve cash ﬂow

(2 marks)

Case Study
EcoTech Solutions designs and installs renewable energy systems for residential
and commercial clients. The company has seen steady revenue growth but faces
cash ﬂow challenges due to delayed payments from commercial customers and
increased costs for raw materials.

To address these challenges, EcoTech is considering introducing incentives for

early customer payments, implementing stricter credit policies, and reviewing
inventory levels to reduce holding costs. Management aims to ensure ﬁnancial
stability while continuing to expand its market share in the renewable energy
sector.

Explain one advantage and one disadvantage of implementing stricter credit policies at
EcoTech Solutions.

(4 marks)

To address these challenges, EcoTech is considering introducing incentives for

Describe two factors EcoTech Solutions should consider when oﬀering incentives for
early payments.

(4 marks)

Case Study
Urban Threads is a small business that produces ethically sourced and
sustainably made clothing. The company’s recent cash ﬂow forecast indicates
potential shortfalls in the next quarter due to rising raw material costs and
delayed payments from major retailers.

To address these challenges, Urban Threads is considering introducing discounts

for early payments, negotiating longer payment terms with suppliers, and
launching a ﬂash sale to generate immediate cash inﬂow. Management is
carefully reviewing these options to maintain operational stability while adhering
to its ethical principles.

Analyse two advantages and one disadvantage of launching a ﬂash sale to address
Urban Threads’ cash ﬂow shortfalls.

(6 marks)

To address these challenges, Urban Threads is considering introducing discounts

Describe two factors Urban Threads should consider when negotiating longer payment
terms with suppliers.

(4 marks)

Case Study
Verde Flora specialises in selling rare and exotic plants, catering to collectors and
gardening enthusiasts. The business has seen significant growth in online sales,
but its recent cash flow forecast highlights a shortfall during the next quarter due
to seasonal fluctuations in demand and rising import costs.

To address this, Verde Flora is considering several strategies: reducing its

inventory levels, oﬀering discounts to customers for early payments, and
introducing new capital by securing an equity investor. Management is focused
on maintaining its reputation for quality while ensuring suﬃcient liquidity to
continue operations.

Explain one advantage and one disadvantage of oﬀering discounts to customers for
early payments at Verde Flora.

(4 marks)

To address this, Verde Flora is considering several strategies: reducing its

Analyse two advantages and one disadvantage of reducing inventory levels to improve
Verde Flora’s cash ﬂow.

(6 marks)

Case Study
EcoFresh Ltd. manufactures reusable food packaging for environmentally
conscious consumers. The business experiences seasonal demand and is
reviewing its cash flow forecast for the first quarter of 2024 to ensure sufficient
liquidity.

© 2025 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 11
3-Month Cash Flow Forecast January February March
(2024) ($) ($) ($)

Opening Balance A 8,400 10,100

Cash Inﬂows 24,500 26,200 25,750

Cash Outﬂows 22,800 24,950 26,300

Net Cash Flow 1,700 B -550

Closing Balance 8,400 10,100 C

Complete the cash ﬂow forecast by calculating the values for A, B and C (show all your
working).

(6 marks)

Exam Questions

3.8 Investment
Appraisal
Simple Payback Period / Average Rate of Return (ARR) / Net Present Value (NPR)

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Easy (8 questions) /16

Medium (9 questions) /34

Total Marks /50

Case Study
Orion Robotics Ltd manufactures industrial robots for warehouse automation.
The company is considering investing $450,000 in new production equipment
that would generate constant annual net cash ﬂows of $90,000. It will use the
payback period to assess the investment.

Deﬁne the term 'payback period'.

(2 marks)

Case Study
Sunrise Solar PLC, a renewable energy company, plans to install solar panels in
commercial buildings across Southeast Asia. For 2024, SSP has identiﬁed two
potential projects with diﬀerent payback periods.

State two advantages of using the payback period method.

(2 marks)

Case Study
Paciﬁc Shipping Corporation operates container vessels across Asia. In 2024, PSC
is considering two expansion projects: purchasing a new vessel or upgrading port
facilities. It will use the average rate of return method to compare the projects.

State two advantages of using the Average Rate of Return (ARR) to compare investments.

(2 marks)

Case Study
Qatar Healthcare Group operates medical facilities across the Middle East. For
2024, QHG is using the ARR to analyse investment proposals for new diagnostic
equipment.

State two disadvantages of using ARR to compare investment options.

(2 marks)

Case Study
Global Cargo Hubs Plc is evaluating international infrastructure projects. When
analysing a proposal for a potential airport development, GIH uses the net
present value (NPV) approach.

Deﬁne the term 'Net Present Value' (NPV).

(2 marks)

Case Study
Nordic Wind Power AS develops oﬀshore wind farms in Scandinavia. The
company uses discount factors and the net present value (NPV) to evaluate long-
term projects.

State two advantages of using NPV to compare investment options.

(2 marks)

Case Study
Malaysian Tech Solutions develops software applications. In 2024, MTS must
consider non-ﬁnancial factors when evaluating investments.

State two non-ﬁnancial factors aﬀecting investment decisions.

(2 marks)

Case Study
TechFlow, a start-up software company, is considering investing in a new AI tool
for £50,000. It wants to calculate the simple payback period to determine how
quickly it will recover its investment, as cash ﬂow is a key priority.

Explain one reason why TechFlow might use the simple payback period to evaluate its
investment.

(2 marks)

Case Study
SolarTech Panels is a company specialising in solar energy solutions for
residential and commercial properties. The business is considering investing
£500,000 in a new production facility to meet increasing demand for solar panels.

The new facility is expected to generate net cash inflows of £150,000 per year for
five years. SolarTech is evaluating the investment using the simple payback
period and average rate of return (ARR) methods. Additionally, management is
factoring in qualitative aspects, such as the environmental benefits of expanding
solar energy production and aligning with its corporate social responsibility goals.

Explain one advantage and one disadvantage of using the simple payback period
method to evaluate SolarTech Panels’ investment.

(4 marks)

Describe two factors SolarTech Panels should consider when evaluating its investment in
the new production facility.

(4 marks)

Case Study
Fresh Spring Foods produces premium organic snacks for health-conscious
consumers. The company is evaluating an investment of £300,000 in automated
packaging machinery to increase production eﬃciency. The machinery is
expected to generate annual net cash inﬂows of £80,000 for the next six years.

Fresh Spring is using the Net Present Value (NPV) method to evaluate the
investment. Management is also considering qualitative factors, such as the
potential to reduce waste and improve the company’s reputation for
sustainability. However, they are aware of the complexity of forecasting long-
term cash ﬂows and the challenge of choosing the appropriate discount rate.

Explain one advantage and one disadvantage of using the Net Present Value (NPV)
method to evaluate Fresh Spring Foods’ investment.

(4 marks)

Analyse two advantages and one disadvantage to Fresh Spring Foods of prioritising
qualitative factors in its decision to invest in automated packaging machinery.

(6 marks)

Case Study
EcoHabitat Homes designs and builds eco-friendly modular housing. The
company is considering an investment of £400,000 in new technology to improve
its construction processes. The technology is projected to generate annual net
cash inﬂows of £120,000 over the next ﬁve years.

EcoHabitat is evaluating the investment using the Net Present Value (NPV)
method. Management is also considering non-financial factors, such as the
potential to enhance its sustainability credentials and support its mission to
reduce environmental impact. The company is keen to balance financial metrics
with qualitative benefits while ensuring the investment aligns with its long-term
strategic goals.

Describe two factors EcoHabitat Homes should consider when selecting the appropriate
discount rate for its NPV calculation.

(4 marks)

Analyse two advantages and one disadvantage to EcoHabitat Homes of using the
Average Rate of Return (ARR) instead of the Net Present Value (NPV) to determine
whether its investment in new technology is worthwhile.

(6 marks)

Case Study
EcoHeat Ltd manufactures energy-eﬃcient heating systems for residential
properties. The company is considering investing in new production machinery

© 2025 Save My Exams, Ltd. Get more and ace your exams at savemyexams.com 11
costing $120,000. The expected net cash ﬂows from the machinery vary over the
next ﬁve years due to seasonal demand. Management wants to determine how
quickly the investment will pay for itself.

Annual net cash ﬂow:

Year 1 Year 2 ($) Year 3 ($) Year 4 ($) Year 5 ($)

($)

35,000 30,000 25,000 20,000 18,000

Cumulative net cash ﬂow:

Year 1 Year 2 ($) Year 3 ($) Year 4 ($) Year 5 ($)

($)

35,000 65,000 90,000 110,000 128,000

Calculate the payback period for EcoHeat Ltd’s investment (show all your working).

(2 marks)

Case Study
BrightPrint Ltd specialises in producing high-quality business cards and
marketing materials. The company is considering an investment of $120,000 in
new printing equipment to improve eﬃciency and expand capacity. The expected
total returns from the investment over ﬁve years are $210,000. BrightPrint also
expects to incur an annual maintenance cost of $5,000 for the new equipment.

Initial Investment 120,000

Total Returns Over 5 Years 210,000

Annual Maintenance Costs 5,000

Expected Lifespan of Equipment 5 Years

Calculate the average rate of return (ARR) for BrightPrint Ltd’s investment (show all your
working).

(2 marks)

Case Study
SolarBright Ltd manufactures solar-powered lighting solutions for residential and
commercial use. The company is considering investing in a new production line
costing $250,000. The investment is expected to generate returns over five years.
An 8% discount rate has been applied to calculate the discounted cash flows,
reflecting inflation and opportunity cost. Management wants to determine if the
project is financially viable. The discounted cashflows are:

Year 1 ($) Year 2 ($) Year 3 ($) Year 4 ($) Year 5 ($)

65,100 68,800 67,150 66,600 64,600

Calculate the Net Present Value (NPV) for SolarBright Ltd’s investment (show all your
working).

(2 marks)

Exam Questions

3.9 Budgets
Cost & Proﬁt Centres / Budgets & Variances

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Easy (8 questions) /16

Medium (8 questions) /32

Total Marks /48

Case Study
Phoenix Electronics Ltd operates multiple manufacturing facilities across Asia.
The company recently reorganised its structure to better track financial
performance using profit centres. Plant managers now have responsibility for
generating revenue while maintaining efficient operations.

Deﬁne the term 'proﬁt centre'.

(2 marks)

Case Study
Tafel Solutions International provides IT support to multinational corporations.
TSI's head oﬃce includes several cost centres that support the company's
operations but do not directly generate income.

State two examples of cost centres.

(2 marks)

Case Study
Asian Dynamics Corporation is reviewing its ﬁnancial planning approach for 2025.
The Finance Director wants to implement a system of zero-based budgeting.

Deﬁne the term 'zero-based budgeting'.

(2 marks)

Case Study
Pet food manufacturer PawLife Ltd monitors its ﬁnancial performance through
regular variance analysis.

State two uses of variance analysis in decision-making.

(2 marks)

Case Study
Apex Manufacturing monitors production costs and delegated budgets across its
fourteen Asian factories.

State two types of delegated budgets.

Case Study
Eastern Electronics carefully monitors financial targets across its retail outlets.
Managers take action when a significant budget variance is identified.

Deﬁne the term 'budget variance'.

(2 marks)

Case Study
Revolution Music Production tracks costs and revenues with specialised software.
It uses this information to construct budgets.

State two diﬃculties in constructing budgets.

(2 marks)

Case Study
GreenBuild Ltd, a construction firm, uses budgets to monitor costs on different
projects. In 2024, the firm faced rising material prices and revised its budget to
reflect these changes.

Explain one beneﬁt for GreenBuild Ltd of using budgets in project management.

(2 marks)

Case Study
Heartfelt Greetings produces personalised greeting cards for various occasions,
selling directly to customers online. The company operates cost centres for
design, printing, and marketing, while its online store is treated as a proﬁt centre.

A recent budget variance analysis revealed favourable revenue variances due to

increased holiday season sales, but adverse cost variances in the printing cost
centre caused by rising paper costs. Management is debating whether to
renegotiate supplier contracts, upgrade printing equipment, or implement
stricter cost controls to address these issues.

Analyse two advantages and one disadvantage of implementing stricter cost controls in
Heartfelt Greetings’ printing cost centre.

(6 marks)

A recent budget variance analysis revealed favourable revenue variances due to

Describe two factors Heartfelt Greetings should consider when addressing adverse cost
variances in its printing budget.

(4 marks)

Case Study
Oceanic Cruises operates a fleet of luxury cruise ships offering tailored
experiences for high-end customers. The company uses profit centres to
measure the financial performance of its different cruise routes and cost centres
for onboard operations, such as catering, housekeeping, and entertainment.

A recent variance analysis revealed adverse revenue variances for its North
Atlantic route due to increased competition, while the catering cost centre
showed favourable variances thanks to bulk purchasing discounts. Management
is considering ways to optimise performance on this route while managing cost
eﬃciencies across its operations.

Explain one advantage and one disadvantage of using proﬁt centres to manage Oceanic
Cruises’ individual routes.

(4 marks)

Analyse two advantages and one disadvantage of using variance analysis to manage
Oceanic Cruises’ catering cost centre.

(6 marks)

Case Study
Summit Adventure Parks operates indoor facilities featuring climbing walls,
trampolines, and obstacle courses. The company uses cost centres to manage
maintenance, safety, and marketing expenses, while its individual parks function
as proﬁt centres.

A recent variance analysis revealed favourable revenue variances for its flagship
park due to increased foot traffic during holiday periods, but adverse cost
variances in the safety cost centre due to unexpected equipment repairs.
Management is exploring ways to standardise safety processes across all
locations to improve cost efficiency and customer trust.

Explain one advantage and one disadvantage of using proﬁt centres to manage Summit
Adventure Parks’ individual locations.

(4 marks)

Describe two factors Summit Adventure Parks should consider when investigating
adverse cost variances in its safety cost centre.

(4 marks)

Case Study
UrbanChic Ltd. is a retail clothing business operating in major cities. The
company allocated a budget of $200,000 for raw material costs in 2024. Due to
ﬂuctuating fabric prices, the actual expenditure exceeded the budgeted amount.
UrbanChic also spent $25,000 on marketing, which was within its budget.

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Budget vs. Actual Costs (2024) Budgeted ($) Actual ($)

Raw Material Costs 200,000 230,000

Marketing Costs 30,000 25,000

Calculate the cost variance for raw materials (show all your working).

(2 marks)

Case Study
SolarGlow Ltd. produces solar-powered garden lights. For 2024, the company
estimated a proﬁt of $180,000, based on expected revenue and cost forecasts.
However, actual sales exceeded expectations, leading to higher proﬁt. SolarGlow
also overspent on distribution costs due to increased demand.

Budget vs. Actual Financials (2024) Budgeted ($) Actual ($)

Total Revenue 500,000 550,000

Total Costs 320,000 340,000

Estimated Proﬁt 180,000 ?

Calculate the proﬁt variance for SolarGlow Ltd. (show all your working).

(2 marks)

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