IB Business Management SL 3.1.2 Capital and revenue expenditure Question Bank

Red Squirrel Apple Juice (RS)
Red Squirrel Apple Juice ( RS) is a cooperative of apple farmers. RS was named after the red squirrel, whose population is declining because of growing numbers of grey squirrels. Originally from North America, grey squirrels are aggressive and take over red squirrels' habitats. RS's founders thought that the red squirrel would be a good symbol to reverse the declining popularity of traditional apple juice due to consumer preference for high-sugar American-style beverages. With the symbol, R S aimed to appeal

to environmentally aware and health-conscious consumers.

Originally, R S only sold apple juice in bulk to beverage companies. These companies bottle the juice and sell it under their own labels. R S requires these companies to place R S 's logo of a red squirrel on their labels. Although R S only sells to a small number of beverage companies, its logo is on juice bottles in stores across the country.

Awareness of the R S brand grew. The cooperative's managers recently opened another channel of distribution: direct sales of bottled juice to consumers at the cooperative's processing plant. R S charges lower prices than stores. The new channel of distribution required capital expenditure for bottling equipment and additional revenue expenditure. R S experienced increased labour and promotion costs, which some farmers complained about.

In recent decades, R S 's home country has experienced rising anti-immigrant sentiment. Some politically motivated organizations have begun to use images of red squirrels to symbolize this sentiment, so some beverage companies no longer want to use R S's logo on their labels.

Some of RS's stakeholders are concerned.

With reference to R S, explain the difference between capital expenditure and revenue expenditure.