IB Business Management SL Unit 3 Finance and Accounts Questions

LuxEclairage (LE)


LuxEclairage (LE) was founded by Maurice Dahman, an Electrical Engineer from Algeria. He has a degree in electrical engineering and is fluent in French. In 2007, after 12 years working for a large lighting business in Luxembourg, Maurice established LE. His business produces energy-efficient parts for various indoor and outdoor lighting.
L E has a unique selling point (USP): the lowest price in the market. Although most sales are in Europe, all production is in Algeria, where costs are much lower. As a result, growth in sales revenue has been rapid and significant, and L E has gained market share each year.
Selected financial information for L E (all figures in €m):

With the rapid growth in sales revenue since it was first established, L E has experienced some diseconomies of scale, especially in the administration of the business. Production occurs in 12 small factories located around the city of Algiers, rather than in one large factory. Coordination between factories and the administrative offices is, therefore, complicated, and the internet is sometimes unavailable. Whereas French is the language used by managers and customers of L E, the workers generally speak only basic French and prefer to speak Arabic. In addition, patterns of non-verbal communication differ widely between Europe and Algeria.

The Imperial had early problems with cash flow and liquidity management and later faced seasonal working-capital pressure and difficulty following its monthly budget. Monitoring cash flow helps Martin forecast cash inflows and outflows, avoid shortages and plan payments. The restaurant, hotel and special-events services were separate profit centres, while housekeeping was a cost centre. Global Properties required profit and loss accounts and balance sheets for financial accountability. Craig Chapman operated an orphanage near Nairobi and continued to work for non-profit organizations; non-profit objectives can include providing a social service, improving beneficiaries’ welfare and meeting humanitarian needs rather than maximizing profit. External changes affecting operations include political unrest, tourism growth, competition from newer hotels, seasonal demand, airport access, technology such as fast WiFi and changing customer interest in safaris and cultural tourism.

Describe the importance of monitoring the cash flow at The Imperial.

Visionary Toys (VT)


Visionary Toys (VT) produces highly innovative toys for children. V T began operation in January 2017 and its unique selling point/proposition (USP) is producing toy parts with a 3D printer. The financial director presented financial information for VT at the end of 2017. He was concerned about VT's liquidity.

Suparman Fish ( SF )
Gepa Suparman owns and operates four fishing boats in Indonesia. There is a growing demand for canned (tinned) food, including cans of fish. Gepa wants to enter the secondary sector by opening a small factory producing cans of fish.
Gepa's business will be called Suparman Fish ( S F ) and will be a private limited company. Gepa will own all of the shares. The factory will be located in a village three miles from the harbour. Because unemployment is high in the village, Gepa should easily find workers for the new factory. In addition to the manager's salary, workers' wages, and the cost of fish, supplies, and cans, S F will have the semi-variable cost of electricity.
Gepa has prepared a four-month cash-flow forecast based on the following information:
- opening balance month 1: $\$15000$.
- month 1 : sales revenue of $\$1000,$increasing by 20 % per month.
- manager's salary: $\$300$per month.
- workers' wages: $\$175$per worker per month.

- variable costs (fish, supplies, and cans) are equal to 40 % of sales revenue.
- semi-variable cost of electricity: fixed cost of $\$100$per month, plus a variable cost of $\$0.10$ per kilowatt hour (kwh). Month 1 usage: 100 kwh , increasing by 10 % each month.

Although S F would create several jobs in the village, many residents are not happy about the new factory. The new factory would use chemicals, which cause pollution. Residents are concerned about the unpleasant smells from the factory. A representative from the local employment office is concerned whether Gepa's factory will provide a safe working environment.

Prepare a monthly cash-flow forecast for S F for the first four months of operation.