A-Level Business: Decision-Making

Five of these ten questions are calculations, because that is where marks are lost to a method that is nearly right rather than to a gap in knowledge. Payback divides the outlay by the annual inflow. The current ratio puts assets over liabilities and not the other way round. Capacity utilisation uses actual output over maximum capacity, not the idle share. Break-even divides fixed costs by contribution per unit, not by the selling price. Net present value discounts each year's inflow before the outlay is taken off. Each explanation sets out the working line by line and names the slip most often made.

The other five ask what the figures mean. A firm reports a profit of forty-eight thousand pounds and still cannot pay its suppliers — and the question is not whether that is possible but how three facts — ninety-day credit terms, a machine bought outright and timber piling up in the yard — each take cash out without taking the same amount out of profit. A luxury watchmaker with an elasticity of minus nought point five raises prices by ten per cent, and the point is that inelastic demand means quantity falls by less than the price rises, not that it does not fall at all. A highly geared firm meets rising interest rates. A call centre manager monitoring staff and paying by performance is doing hard HR, whatever anyone calls their leadership style.

Every firm named here is invented, so nothing depends on facts about a real company that may have changed since. All money is in pounds sterling.

Nothing is taken from any exam board specification, past paper, mark scheme or textbook.

Zestly is an independent study tool. It is not affiliated with any exam board and it is not an exam centre.

• Calculate a payback period, a current ratio, capacity utilisation and a break-even output, and recognise the wrong answer each common slip produces
• Explain how a profitable firm can run out of cash, and identify which transactions drain cash without touching profit
• Say why a highly geared firm is exposed when interest rates rise
• Apply a price elasticity figure to a proposed price change and read inelastic demand correctly
• Identify hard HR from what a manager actually does, and separate Herzberg's motivators from his hygiene factors
• State the trade-off a firm accepts when it moves from high-cost, high-quality production to mass production

Harrow Joinery, an invented firm, reported a profit of £48,000 for the year, but by December it could not pay its suppliers. All its sales are on ninety-day credit, it bought a new machine outright in November for £60,000, and its stock of timber has doubled since the summer. Which statement best explains how both of those things can be true at the same time? — one of ten questions written for this set.