Professional Documents
Culture Documents
Advanced Business
Calculations
Level 3
Model Answers
Series 4 2009 (3003)
Model Answers have been developed by EDI to offer additional information and guidance to Centres,
teachers and candidates as they prepare for LCCI International Qualifications. The contents of this
booklet are divided into 3 elements:
(2) Model Answers – summary of the main points that the Chief Examiner expected to
see in the answers to each question in the examination paper,
plus a fully worked example or sample answer (where applicable)
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EDI provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade. EDI
accepts that candidates may offer other answers that could be equally valid.
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Page 1 of 9
QUESTION 1
(a) How much interest will Natalia have earned after 2 years and 3 months?
(3 marks)
Natalia deposits a further £45,000 in another account at 2.85% per annum compound interest, also
for a period of 2 years and 3 months. Interest is added annually and at the end of the period, and is
calculated as compound interest throughout.
(b) How much less interest will Natalia have earned from this account than from the simple interest
account?
(5 marks)
Natalia invests a further amount at compound interest of 3.1% per annum for 3 years. At the end of
the period, the amount (principle plus interest) is £30,137.60.
(d) Calculate the rate of simple interest that would give the same interest on this initial amount over 3
years.
(3 marks)
(Total 14 marks)
3003/4/09/MA Page 2 of 9
QUESTION 2
Andy buys unit trusts and invests for income. He invested £50,000 in a unit trust with an offer price of
£125 per unit, and sold the units after 5 years at £162 per unit. During this period he received income
from the units of £6,200. This income was not reinvested in units.
(a) Calculate
(iii) the percentage yield per annum represented by this figure. (2 marks)
(b) Calculate the total cost of the units including initial charge.
(3 marks)
Beatrice invested her income from the units in purchasing more of the same units.
5 years later, the number of units had grown to 2,532, and the total value of the units was £215,220.
(c) Calculate
(ii) the percentage increase per annum in the price per unit. (2 marks)
(Total 14 marks)
(ii) Increase per annum in unit price = 100% x (£85 - £69) / (£69 x 5) = 4.6%
3003/4/09/MA Page 3 of 9
QUESTION 3
Product P has variable costs per unit of product of £150, and fixed costs of £1,952,000 per period.
Unit costs of production during a trading period are as follows:
£
Components 57
Labour 80
Production overheads 75
Distribution expenses 60
The cost of components varies directly with the number of units produced.
60% of the labour costs vary directly with the number of units produced.
The production overheads do not vary irrespective of how many units are produced.
(a) Calculate the percentage of distribution expenses that vary directly with the number of units
produced.
(4 marks)
Product P breaks even on production and sales of 12,800 units per period.
(Total 13 marks)
(b) Fixed costs per unit = £57 + £80 + £75 + £60 - £150 = £122
Selling price = Variable cost + contribution = £150 + £152.50 = £302.50 per unit
(e) Total cost of production at break even = (12,800 x £150) + £1,952,000 = £3,872,000
3003/4/09/MA Page 4 of 9
QUESTION 4
A retailer’s balance sheet at the end of a trading year shows current assets of £35,260 and current
liabilities of £17,200.
The current assets include stock of £12,040, bank account of £7,700, cash of £532 and an amount
owed by debtors.
(a) Calculate:
(b) State whether or not you would judge the liquidity of the business to be healthy.
(1 mark)
The stock held at the start of the trading year was £10,750, and the net purchases during the year
were £138,030.
(d) Calculate:
(Total 13 marks)
(a) (i) Amount owed by debtors = £35,260 – (£12,040 + £7,700 + £532) = £14,988
(c) The acid test ratio is above the recommended ratio of 1. The business can pay its liabilities
without selling stock.
(ii) Cost of goods sold (CoGS) = stock at start + net purchases - stock at end
3003/4/09/MA Page 5 of 9
QUESTION 5
Colin is considering whether to invest in an investment project with an initial cost of £550,000 and an
estimated revenue return of £150,000 per annum for 5 years.
Discounting factor
Year 1 0.901
Year 2 0.812
Year 3 0.731
Year 4 0.659
Year 5 0.593
(b) Advise Colin whether the project is a worthwhile investment at the discount rate used.
(1 mark)
(d) Explain what the net present value calculated in (a) represents.
(1 mark)
At a discount rate of 10% the project has a net present value of £18,500.
(Total 11 marks)
(a) Present value of revenue = £150,000 x (0.901 + 0.812 + 0.731 + 0.659 + 0.593)
(d) The positive net present value in (a) means that the project is expected to earn more than 11%.
3003/4/09/MA Page 6 of 9
QUESTION 6
(a) Calculate:
(ii) the amount paid to an unsecured creditor who is owed £11,000 (2 marks)
(b) Calculate the amount owed to unsecured creditor C who is paid £1,072.20.
(4 marks)
(Total 11 marks)
(ii) Paid to unsecured creditor who is owed £11,000 = 0.42 x £11,000 = £4,620
3003/4/09/MA Page 7 of 9
QUESTION 7
Equipment E is depreciated over a period of 7 years, with an initial cost of £65,000 and an estimated
scrap value after 7 years of £2,000.
The depreciation is calculated separately by two methods, the equal instalment method and the
diminishing balance method.
Calculate:
(a) using the equal instalment method, the percentage of the initial cost to be written off each year.
(3 marks)
(c) the year in which the two methods give amounts of depreciation that are closest to each other.
show your working.
(3 marks)
(d) using the diminishing balance method, the amount of depreciation in year 7.
(2 marks)
(Total 12 marks)
7
Over one year = 0.03076923 = 0.608158
(c) Depreciation in each year using the equal instalment method = £9,000
3003/4/09/MA Page 8 of 9
QUESTION 8
An index of production has the following values, based on year 2005 = 100.
(a) Explain the change that occurred between 2005 and 2008.
(3 marks)
(b) Write the indices for 2007 and 2008 as a chain base index.
(3 marks)
(d) Calculate the index for 2005, with 2004 as the base year.
(2 marks)
(Total 12 marks)