Core Essentials

Question 1

Price Elasticity - 10

Answer 1

1. Increased Substitutes
2. Increase Price Elasticity
3. Customers are less loyal
4. If they increase the price there will be significant fall in demand
5. Pressure to keep prices low
6. Reduced Revenue
7. Reduced Gross Profit
8. Reduced Operating Profit
9. Reduced Retained Profit
10. Reduced Total Equity

Question 2

Price Inelastic - 8

Answer 2

1. Positive Publicity develops a strong brand image
2. Differentiate from competitors
3. Customers are more loyal
4. More price inelastic
5. If they increase the price demand won’t fall significantly
6. Increase Revenue
7. Increased Gross Profit margin
8. Increase Operating and Retained Profit and Total Equity

Question 3

Balance Sheet (Liquidity) - 7

Answer 3

1. Increase Outflows leads to a negative net cash flow
2. Reduced cash reserves
3. Reduced current assets
4. Reduced current ratio
5. Putting business at risk and may not be able to pay current liabilities
6. Leading to the sale of Non Current assets
7. Disruption of Business operations…

Question 4

Purchasing EOS - 9

Answer 4

1. Increase Sales Volume
2. Increase Orders to Suppliers
3. Potential Discount in bulk buying
4. Lower Variable cost per unit
5. Higher Gross Profit Margin
6. Higher Gross Profit
7. Higher Operating Profit
8. Higher Retained Profit
9. Higher total equity

Question 5

Marketing EOS - 11

Answer 5

1. Increase Sales
2. Increase Sales Volume
3. Fixed costs such as advertising
4. Can be spread over more units
5. Lower unit fixed costs
6. Making advertising more affordable so can do more of it
7. Increase Brand Awareness
8. Increase Sales
9. Increase Gross Profit
10. Increase Operating Profit
11. Increase ROCE

Question 6

Income Statement - 6

Answer 6

1. Increase in Sales
2. Increase Gross Profit
3. Increase Operating Profit
4. Increase Net Profit
5. To be retained
6. And reinvested into..

Question 7

Income Elastic - 4

Answer 7

1. Good is Luxury / Inferior
2. Change in income leads to a significant fall in demand
3. Leading to Increased / Decreased Sales Volume
4. Link to EOS, Liquidity or Income statement

Question 8

Income Inelastic - 5

Answer 8

1. If good is normal
2. A change in income leads to an insignificant fall in demand
3. Constant sales
4. Consistent Cash Inflows
5. Link to Liquidity