Practise Edexcel Business questions on costs, revenues, profits and financial performance, using calculations and case evidence to judge management choices.
Extract A
Etsy
Etsy is an e-commerce business, started in 2005 and based in New York. It is a global online marketplace where people come together to make, sell, buy and collect unique items. Etsy sells a wide variety of handmade products. The range of products includes jewellery, bags, clothing, furniture, toys and art. The handmade products are made by creative people who are trying to turn their hobbies into a business. The products are individual to the person making them and are aimed at niche markets. Etsy does not have a warehouse, just creative people worldwide, selling the products they have made. Etsy connects these creative people directly with customers who are looking for something special. Etsy charges a low fee to those selling their products on the Etsy website. This is lower than the fee charged by eBay and Amazon to sell on their websites. Most customers spend between $15 and $20. Etsy sells a wide range of products but relies on the diversity offered to differentiate itself from the hundreds of available similar sites online. Etsy targets a specific segment of the market by only selling handmade products on its website. Growth of Etsy has led to challenges for sellers who find it difficult to keep up with demand and at the same time maintain a personal touch. Etsy recently changed its terms of business to allow original designs to be made by someone else so that production of items can be increased. However, this has led to the question of whether the items can still be called handmade.
Extract B
Third quarter 2020 financial summary for Etsy
Extract B Third quarter 2020 financial summary for Etsy
Using the data in Extract B, calculate the operating profit for Etsy in the third
quarter of 2020. You are advised to show your working.
Discuss whether Etsy is likely to be affected by internal causes of business failure.
Extract B Traditional restaurant with a difference George's Tavern is located in an old house, in the pretty and traditional village of Yeroskipou in Cyprus. The village is only 5 km away from the coastal city of Paphos, which is popular with tourists. The restaurant serves Mediterranean and Greek food. It is unique because there is no menu, instead it serves a set selection of food prepared with locally grown and seasonal ingredients. The small portions of different food only include what is in season, so you might get hand-picked asparagus, wild mushrooms with fresh herbs, aubergines and potatoes in tomato, or tender kleftiko (oven-baked lamb) from local farmers. Even the drinks are home-made, using ingredients from the family's vegetable garden. Evening diners must reserve a table, due to high demand. At lunchtime it is often much quieter. For example, in September George's Tavern could have catered for 1,500 lunchtime customers but only served 1,110. Once seated, diners can then stay for the whole afternoon (noon until three o'clock) or evening (seven until eleven o'clock), as dishes are served until diners can eat no more. The restaurant is open Tuesdays to Saturdays and charges a fixed price of €25 per person for all food served during the sitting. Damien and Benedict are the sons of the founder, George. They now run the restaurant and are eager to make sure George's Tavern continues to follow the original business plan and be successful.
Extract C
Cyprus rate of inflation August 2017 to July 2018
Assess how Damien and Benedict might improve profitability.
Sources for use with Section A
Extract A
What is Zwift?
Millions of people around the world enjoy cycling. However, the weather or road
conditions can sometimes make it difficult or even impossible to take part in this activity.
Zwift created a solution to this by introducing a virtual reality computer program, which
combines cycling with computer gaming. The cyclist rides their bicycle indoors while it is
attached to a fixed frame, so the bicycle does not actually move. This allows the cyclist to
watch their progress on a virtual road on a computer screen. People of all cycling abilities
can improve their fitness at the same time as enjoying social interaction with fellow
cyclists from around the world.
By paying Zwift a $10 fee every month to use the game, the cyclist’s efforts can be
displayed in a virtual world on the computer screen, complete with maps, roads,
landscapes and other riders to interact with.
Jon Mayfield and Eric Min, both keen cyclists, launched Zwift as a private limited
company in 2014, with an initial investment of $3m, followed by venture capital of $27m
in 2016. The statistics are certainly impressive. In October 2017, Zwift had more than
300,000 riders from over 150 countries. Between them they had collectively logged
218,128,291km. There are currently no direct competitors to Zwift and with several
additions to the game being planned its success looks set to continue.
Extract B
Selected financial information for Zwift for year ending 31 December 2017
| $ | |
|---|---|
| Revenue | 36,000,000 |
| Cost of sales | (21,000,000) |
| Gross profit | 15,000,000 |
Extract B
Selected financial information for Zwift for year ending 31 December 2017
| $ | |
|---|---|
| Revenue | 36,000,000 |
| Cost of sales | (21,000,000) |
| Gross profit | 15,000,000 |
Using the data in Extract B, calculate, to two decimal places, the gross profit margin for Zwift in 2017. You are advised to show your working.
Extract A
Etsy
Etsy is an e-commerce business, started in 2005 and based in New York. It is a global online marketplace where people come together to make, sell, buy and collect unique items. Etsy sells a wide variety of handmade products. The range of products includes jewellery, bags, clothing, furniture, toys and art. The handmade products are made by creative people who are trying to turn their hobbies into a business. The products are individual to the person making them and are aimed at niche markets. Etsy does not have a warehouse, just creative people worldwide, selling the products they have made. Etsy connects these creative people directly with customers who are looking for something special. Etsy charges a low fee to those selling their products on the Etsy website. This is lower than the fee charged by eBay and Amazon to sell on their websites. Most customers spend between $15 and $20. Etsy sells a wide range of products but relies on the diversity offered to differentiate itself from the hundreds of available similar sites online. Etsy targets a specific segment of the market by only selling handmade products on its website. Growth of Etsy has led to challenges for sellers who find it difficult to keep up with demand and at the same time maintain a personal touch. Etsy recently changed its terms of business to allow original designs to be made by someone else so that production of items can be increased. However, this has led to the question of whether the items can still be called handmade.
Extract B
Third quarter 2020 financial summary for Etsy
Extract B Third quarter 2020 financial summary for Etsy
Using the data in Extract B, calculate the operating profit for Etsy in the third
quarter of 2020. You are advised to show your working.
Extract A Żabka Polska Żabka is a chain of shops in Poland. The business started in 1998 and now has over 8,000 shops in Poland. Most of these shops are run by people who have paid for one of the franchising opportunities offered by Żabka. As well as selling a variety of groceries, the shops sell hot drinks and snacks that include hot soup and hot sandwiches. It is also possible to send parcels from the shops, saving customers time from having to visit post offices. More than 15 million Polish consumers live within 500 metres of the nearest Żabka. It prides itself on being close to its customers and understanding their needs. Żabka shops are developed with customers in mind. The shops are not only in the centre of large cities but in smaller towns too. Żabka's head office is in Poznań, where the six members of the Management Board are based. They make the decisions for Żabka, such as whether to use zero based budgeting for marketing the stores.
Extract B Sales revenue data in Polish złoty (zł) from a Żabka shop January-March 2022
Extract C Polish Government announces plans for lower income tax In 2022, the Polish Government announced plans to reduce income tax (the tax paid on personal income from paid and self-employment). It has presented the plans as part of its measures to protect Poles from the economic consequences of higher costs of living.
Analyse two possible reasons why the cash a Żabka shop holds may differ from its profit.
Extract C
smol
smol is a UK-based private limited company (ltd) that produces and sells laundry, washing and cleaning products. It was started in 2018 by Paula Quazi and Nick Green, former employees of a multinational public limited company (plc), Unilever, which is now one of smol's main competitors. smol uses lean production to achieve efficiency. It sells quality products which are environmentally-friendly and its packaging is made from sustainable material. The products are conveniently delivered to the customer's home at a competitive price. Customers typically set up a subscription for repeat purchases of smol products, which are only available via the smol website. Customers can try smol's products by requesting a free 'starter pack' but they pay a small charge to cover postage. The starter pack contains a reusable bottle for liquids, such as for cleaning spray, washing-up liquid or fabric conditioner. The bottles are made using 100% recycled plastic and can easily be refilled.
Extract D
Selected information for smol from the 30th June 2022 statement of financial position (balance sheet)
Extract D
Selected information for smol from the 30th June 2022 statement of financial position (balance sheet)
Using the data in Extract D, calculate to two decimal places, the current ratio for
smol on the 30th June 2022. You are advised to show your working.
Sources for use with Extract A Brooke Downs Vennard Partnership (BDVP) BDVP is a firm of solicitors located in British Columbia, Canada. Established in 1980, it has grown into one of the most respected legal businesses in the area. This is important because there are over 10,000 qualified solicitors competing for clients in British Columbia. As well as providing clients with assistance when buying property or making a will, the partners specialise in business, contract and commercial law. Clients are allowed either 30 or 60 days to pay on completion of legal work provided by the partnership. This has helped BDVP increase its client base. However, it can make cash flow more difficult to manage. Communication is very important to BDVP and the partners try to replace computers whenever they become out‑of‑date and slow. They also make sure employees are trained in the use of technology. As well as employing five solicitors, BDVP has a team of other employees in legal occupations such as secretaries, administrative assistants and junior associates. Employees currently work from 8.30 am – 5 pm with a 30 minute lunch‑break. All employees are encouraged to take responsibility for their work and are often consulted about changes affecting the office. The latest example of a consultation was a discussion about changes to employee protection legislation and how it would affect the partnership.
Extract B British Columbia Employment Standards Act British Columbia employers can expect significant amendments to the Employment Standards Act to be introduced in 2019. Some of the more significant recommendations for amendment include:
allow alternative working hours within the 40‑hour week to the standard eight‑hours per day
allow employees the right to refuse overtime in circumstances where overtime would conflict with significant family‑related commitments, scheduled educational commitments, or other employment obligations
the existing five days per year unpaid family responsibility leave would be replaced with seven days per year of unpaid leave, which could be taken for reasons of the employee’s own illness or for the care, health, or education of a child in the employee’s care.
Discuss whether this is a suitable way to improve liquidity for BDVP.
Extract A
Etsy
Etsy is an e-commerce business, started in 2005 and based in New York. It is a global online marketplace where people come together to make, sell, buy and collect unique items. Etsy sells a wide variety of handmade products. The range of products includes jewellery, bags, clothing, furniture, toys and art. The handmade products are made by creative people who are trying to turn their hobbies into a business. The products are individual to the person making them and are aimed at niche markets. Etsy does not have a warehouse, just creative people worldwide, selling the products they have made. Etsy connects these creative people directly with customers who are looking for something special. Etsy charges a low fee to those selling their products on the Etsy website. This is lower than the fee charged by eBay and Amazon to sell on their websites. Most customers spend between $15 and $20. Etsy sells a wide range of products but relies on the diversity offered to differentiate itself from the hundreds of available similar sites online. Etsy targets a specific segment of the market by only selling handmade products on its website. Growth of Etsy has led to challenges for sellers who find it difficult to keep up with demand and at the same time maintain a personal touch. Etsy recently changed its terms of business to allow original designs to be made by someone else so that production of items can be increased. However, this has led to the question of whether the items can still be called handmade.
Extract B
Third quarter 2020 financial summary for Etsy
Discuss whether Etsy is likely to be affected by internal causes of business failure.
Sources for use with
Extract E
Amazon to close China Kindle store
Amazon will close its Chinese e-book store in 2023, the latest retreat of western technology companies reducing their operations in the world’s largest consumer market. Airbnb said it would close its China business and Microsoft’s LinkedIn announced the closure of its social networking site in the country in 2022. Kindle users in China will no longer be able to purchase new e-books following the closure. Amazon said that it had stopped supplying dealers with Kindle e-books and offered a refund for customers who purchased a device in 2022. Amazon did not give a reason for leaving the Chinese market, which was once an important source of sales. In 2016, three years after Amazon started selling its devices in China, the country became the largest market for Kindle devices. It has since lost market share to domestic rivals that launched their own e-reader devices, including Xiaomi, iFlytek and Huawei. Amazon will leave behind a growing customer base of digital book lovers. According to research, more than 500 million Chinese users listened to or read books on a digital device in 2021. China’s digital reading market generated more than $6bn of sales revenue in 2021, an increase of more than 18% from 2020.
Extract F
How the Kindle lost China
Reactions to the announcement that Amazon Kindle is to leave China have ranged from indifference to confusion. Many joked that they only learned the Kindle e-reader was for sale in China by reading Amazon’s leaving notice. However, for many Chinese, the Kindle was the introduction to the world of e-books. One of the platform’s key selling points in the early days was Amazon’s good relationship with Chinese publishing houses, such as the CITIC Press Group and Commercial Press. With its industry-leading hardware, good service, and publisher support, the Kindle seemed likely to succeed in China but Amazon was never able to build on its early lead. The Kindle did not suddenly fail in China but declined slowly over 10 years. As the Chinese e-book market changed and evolved, the Kindle did not. The Kindle remains an excellent e-reader but the Chinese market is highly competitive and saturated with niche brands. The competition includes desktop-sized screens, lightweight, iPhone-sized e-readers, and even colour e-ink screens for reading comics. The Kindle neglected online fiction, with popular titles such as the ‘Harry Potter’ series either incomplete or missing altogether. Support from Amazon is poor and the Kindle also failed to win over price-sensitive readers. Unlike in the US, print books in China are often cheap and easy to order online, leaving retail e-books with limited price advantages.