LCCI International Qualifications

Business Calculations Level 2

Model Answers
Series 4 2011 (2003)

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Business Calculations Level 2

Series 4 2011

How to use this booklet 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: (1) (2) Questions Model Answers reproduced from the printed examination paper 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) where appropriate, additional guidance relating to individual questions or to examination technique

(3)

Helpful Hints

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. 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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QUESTION 1 Company A buys a van for cash and pays 28,000 for it. It decides to borrow money to cover part of the cost. Company A borrows 12,500 at 4.25% per annum compound interest, and repays the principal and interest at the end of three years. Calculate: (a) (b) (c) how much Company A repays (4 marks) the average interest per year (3 marks) the annual rate of simple interest that would earn the same total interest over 3 years. (2 marks) The company borrows a further sum at 4.5% per annum simple interest, and repays a total of 2,160 interest at the end of three years. (d) Calculate how much Company A borrowed (3 marks) (e) Convert the interest of 2,160 into pounds at a conversion rate of 1.20 = 1. (2 marks) (Total 14 marks)

MODEL ANSWER TO QUESTION 1 Syllabus Topic 1: Simple and compound interest (1.3) (a) Amount = Principle (1 + Rate)
Number of years 3

= 12,500 (1 + 0.0425) Syllabus Topic 9: Averages (9.2) (b)

= 14,162.44

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Interest = 14,162.44 - 12,500 = 1,662.44 Average interest per year = 1,662.44 / 3 = 554.15

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Syllabus Topic 1: Simple and compound interest (1.2) (c) (d) Rate of simple interest = 554.15 / 12,500 = 0.04433 = 4.4% Annual interest = 2,160 / 3 = 720 Principal borrowed = 720 / 0.045 = 16,000 Syllabus Topic 6: Foreign currencies (6.3) (e) Interest = 2,160 = 2,160 / 1.2 per = 1,800
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(Total 14 marks)

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QUESTION 2 Company B buys a van priced at 28,000 on hire purchase. Loan Company C offers the following terms: 3,000 deposit plus 24 monthly payments, for a total cost of 32,250 Calculate: (a) the amount of a single monthly payment to Loan Company C (3 marks) (b) the rate of simple interest on the amount borrowed after payment of deposit. (5 marks) Loan Company D offers the following terms: An initial deposit plus monthly payments, of 850 each for 3 years, for a total cost of 34,600. (c) Calculate the amount of the initial deposit. (4 marks) (Total 12 marks)

MODEL ANSWER TO QUESTION 2 Syllabus Topic 7: Hire purchase (7.2), (7.3) and (7.4) (a) To be paid in monthly instalments = 32,250 - 3,000 = 29,250 Each monthly instalment = 29,250 / 24 = 1,218.75 (b) Amount of loan = 28,000 - 3,000 = 25,000 Amount of interest = 32,250 - 28,000 = 4,250 Interest per year = 4,250 / 2 = 2,125 Rate of interest = 2,125 / 25,000 = 0.085 = 8.5% (c) Number of monthly payments = 3 x 12 = 36 Total of monthly payments = 36 x 850 = 30,600 Initial deposit = 34,600 - 30,600 = 4,000
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(Total 12 marks)

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QUESTION 3 (a) Company E receives an electricity bill. The company pays a standing charge of 53.90 and 22.1p per unit. The company used 3,850 units.

Calculate: (i) (ii) the amount of the electricity bill (3 marks) the average cost per unit. (2 marks) (b) Company E uses 28 company cars in its business. The monthly fuel usage per car in litres is estimated to be as follows: Number of cars 3 17 6 2 Calculate: (i) (ii) The total estimated monthly fuel usage for the 28 cars (3 marks) The average (mean) estimated monthly fuel usage per car. (2 marks) (c) Company E borrows 520,000 for 2 years at 4.7% per annum compound interest. Calculate the total interest over the two years. (3 marks) (Total 13 marks) Estimated fuel usage (litres) 100 120 140 160

MODEL ANSWER TO QUESTION 3 Syllabus Topic 2: The small business (2.4) (a) (i) Total cost of units = 3,850 x 22.1p = 850.85 Amount of the electricity bill = 850.85 + 53.90 = 904.75 (ii) Average cost per unit = 904.75 / 3,850 = 0.235 = 23.5p
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Syllabus Topic 9: Averages (9.3) (b) (i) Total fuel usage by the 3 lowest usage cars = 3 x 100 = 300 litres Total fuel usage = 300 + (17 x 120) + (6 x 140) + (2 x 160) = 3,500 litres (ii) Average fuel usage per car = 3,500 / 28 = 125 litres
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Syllabus Topic 1: Simple and compound interest (1.3) (c) Amount after 2 years = 520,000 x 1.047 = 570,028.68 Interest = 570,028.68 - 520,000 = 50,028.68
2

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(Total 13 marks)

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QUESTION 4 Company Fs total sales in a year were 1,540,000. The cost price of goods sold was 1,180,000. During the year the following overheads were paid: 86,500 9,370 13,800 7,010

Wages Heat, light, telephone Rent of premises Office expenses (a)

Calculate the net profit as a percentage of the total sales. (5 marks)

In that year, there were 308 days on which Company F traded. (b) Calculate the average sales per trading day. (2 marks) Peter sends an invoice to Company F for the following work: Computer parts: 177 Travel: 18 miles at 0.75 per mile Labour: 3 hours at 42.50 per hour (c) Calculate the invoice total before any discount. (3 marks) A discount of 12% is allowed. (d) Calculate the invoice total after discount. (3 marks) (Total 13 marks)

MODEL ANSWER TO QUESTION 4 Syllabus Topic 2: The small business (2.3) (a) Gross profit = 1,540,000 - 1,180,000 = 360,000 Total overheads = 86,500 + 9,370 + 13,800 + 7,010 = 116,680 Net profit = 360,000 - 116,680 = 243,320 Net profit percent = 243,320 / 1 540,000 = 15.8% Syllabus Topic 9: Averages (9.2) (b) Average sales per trading day = 1,540,000 / 308 = 5,000
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Syllabus Topic 4: Buying and selling (4.3) (c) Cost of labour = 3 x 42.50 = 127.50 Cost of travel = 18 x 0.75 = 13.50 Total before discount = 177 + 127.50 + 13.50 = 318 (d) Discount = 12% x 318 = 38.16 Invoice total after discount = = 318 - 38.16 = 279.84
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(Total 13 marks)

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QUESTION 5 Quinn returned from holiday and received a statement from his credit card company. Part of the information is shown below: Company S (Spain) Company P (Portugal) Company I (Italy) Calculate: (a) (b) (c) (d) the rate of exchange in euros per 1 when Quinn was in Spain (2 marks) the rate of exchange in pounds per 1 when Quinn was in Portugal (2 marks) the amount in euros paid to Company I (2 marks) the statement total in pounds. (2 marks) Quinn pays 550 to the credit card company before the end of the month. The credit card company charges 2.5% interest on the outstanding balance at the end of the month. (e) Calculate the amount outstanding at the end of the month, after Quinns payment is made and interest is charged. (3 marks) (Total 11 marks) 302 240 250.00 194.40 (at 1.22 = 1) 310.00

MODEL ANSWER TO QUESTION 5 Syllabus Topic 6: Foreign currencies (6.2) and (6.3) (a) (b) (c) Rate of exchange = 302 / 250.00 = 1.208 per Rate of exchange = 194.40 / 240 = 0.81 per Amount paid to Company I = 310 = 310 x 1.22 per = 378.20
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Syllabus Topic 4: Buying and selling (4.4) (d) (e) Statement total = 250.00 + 194.40 + 310.00 = 754.40 Amount outstanding after payment = 754.40 - 550 = 204.40 Interest charged = 2.5% x 204.40 = 5.11 Amount outstanding after interest = 204.40 + 5.11 = 209.51
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(Total 11 marks)

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QUESTION 6 Rhonda earns commission of 2% on the first 5,000 of sales in any month, and 3.5% on any additional sales. In May, Rhonda earns 170 in commission. (a) Calculate the value of Rhondas total sales in May. (4 marks) Additionally, Rhonda earns an annual salary of 15,600. Calculate: (b) (c) (d) the value of Rhondas annual salary in euros, at an exchange rate of 1 = 0.78 (2 marks) the amount of salary () earned by Rhonda per week (2 marks) Rhondas total gross earnings () in May. (2 marks) (Total 10 marks)

MODEL ANSWER TO QUESTION 6 Syllabus Topic 3: Wages and commission (3.3) (a) Commission if Rhonda makes sales of 5,000 = 2% x 5,000 = 100 Additional commission = 170 - 100 = 70 Additional sales = 70 / 3.5% = 2,000 Rhondas total sales = 5,000 + 2,000 = 7,000 Syllabus Topic 6: Foreign currencies (6.3) (b) Rhondas annual salary = 15,600 = 15,600 / 0.78 per 1 = 20,000
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Syllabus Topic 3: Wages and commission (3.5) (c) (d) Salary per week = 15,600 / 52 = 300 Salary per month = 15,600 / 12 = 1,300 Rhondas total gross earnings in May = 1,300 + 170 = 1,470
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(Total 10 marks)

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QUESTION 7 Mari and Nigel set up a partnership business on 1 January with invested capitals of 78,000 and 52,000 respectively, and Mari is to receive a net salary of 1,640 per month. On 30 June the partners withdrew the remaining profit of 18,500 in proportion to their capital invested. (a) (b) Write the ratio of their investments in its simplest terms (2 marks) Calculate how much each partner received in total for the first 6 months of trading. (5 marks) Before payment of Maris net salary, deductions had been made totalling 18% of her gross salary. (c) Calculate Maris gross salary per month. (3 marks) On 1 July, Oleanna joined the partnership, making an investment of 81,250 at an exchange rate of 1 = 0.80. (d) Calculate the new ratio of the investments of the three partners in its simplest terms. (3 marks) At the end of the next trading period, the three partners share the remaining profits in proportion to their investments. Mari received 9,900 as her share of the profits. (e) Calculate the amount of profits received by Nigel. (2 marks) (Total 15 marks)

MODEL ANSWER TO QUESTION 7 Syllabus Topic 8: Partnerships (8.2), (8.4) and (8.5) (a) (b) Ratio of investments, Mari : Nigel = 78,000 : 52,000 = 3 : 2 Nigel received 2/5 x 18,500 = 7,400 Mari received salary of 6 x 1,640 = 9,840 Mari received in total 9,840 + 3/5 x 18,500 = 20,940 Syllabus Topic 3: Wages and commission (3.4) (c) Maris net salary represents (100% - 18% = 82%) of her gross salary Maris gross monthly salary = 1,640 / 82% = 2,000 Syllabus Topic 6: Foreign currencies (6.3) Syllabus Topic 8: Partnerships (8.2), (8.4) and (8.5) (d) Oleannas investment = 81,250 = 81,250 x 0.80 per = 65,000 New ratio, Mari : Nigel : Oleanna = 78,000 : 52,000 : 65,000 = 6 : 4 : 5 (e) Nigel received 2/3 x 9,900 = 6,600
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(Total 15 marks)

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QUESTION 8 Simone owns a delivery van, and insures it for a net annual premium of 684, which is the net cost after a deduction of 43% no claims bonus. (a) Calculate the gross annual premium. (2 marks) Simone pays the net premium in 12 equal instalments of 62.70. Calculate: (b) (c) the additional annual cost of paying in 12 equal instalments (3 marks) the additional annual cost as a percentage of the net annual premium. (2 marks) Simone has an accident and damages her van. The cost of repairing the damage is 460. The insurance company decides that the van was underinsured, and was insured for only 80% of its value. Simones gross insurance premium is increased accordingly. Simones no claims bonus is reduced to 18%. Calculate: (d) (e) the amount the insurance company pays towards the repairs (2 marks) the new net annual premium charged by the insurance company. (3 marks) (Total 12 marks)

MODEL ANSWER TO QUESTION 8 Syllabus Topic 5: Insurance (5.2) and (5.3) (a) (b) Gross annual premium = 684 / 0.57 = 1,200 Cost of 12 instalments = 12 x 62.70 = 752.40 Additional cost = 752.40 - 684 = 68.40 (c) (d) (e) Percentage additional cost = 68.40 / 684 = 0.1 = 10% The insurance company pays 80% x 460 = 368 New gross annual premium = 1,200 / 80% = 1,500 New net annual premium = 82% x 1,500 = 1,230
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(Total 12 marks)

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