BUSINESS ANALYSIS IN PURCHASING & SUPPLY
FOUNDATION STAGE
SAMPLE PAPER 2001
Instructions to candidates
·  Ensure you have been handed the correct examination paper.
·  Section A – answer all questions. (20 marks)
·  Section B – answer all questions. (40 marks)
·  Section C – answer two questions. (20 marks each)
·  The use of silent battery operated calculators is permitted. All calculations must be
shown. The use of logarithm tables is not permitted.
·  All answers must be written in ink. Pencil should only be used where graphs/diagrams are
required.
·  Rough paper is not provided. You should use the answer booklet to make notes.
Cross out any work that you do not wish to be examined.
·  Time allowed: 3 hours.
SECTION A – Answer ALL questions. You should spend approximately 30 minutes on this
section.
1. Explain the difference between direct and indirect costs. (2 marks)
For questions 2 and 3 write down the missing words in your answer booklet.
2. A margin is calculated as a percentage of _________________ . (1 mark)
3. Price = __________ plus__________ . (1 mark)
Questions 4, 5 and 6 are multiple choice questions. In your answer booklet indicate which of
the four choices (a,b,c or d) is the correct one for each question.
4. What is the definition of the break-even point?
a) Where fixed costs equal variable costs.
b) Where sales equal fixed costs.
c) Where sales equal total costs.
d) Where contribution equals total costs. (1 mark)

SECTION B
11. a) Comparisons should be made between the two years figures and the industry standard.
A good answer should include the following points.
The profit in the first year was low and below average for the industry. In the second
year the company’s profit has increased and it is now higher than the industry average.
Other indicators of past profitability would be reserves in the balance sheet.
The current ratio has remained the same over both years and although it is below the
usual 2:1, it is only slightly below the industry average. The liquid ratio however has
decreased and is below the industry standard and it is also below the 1:1 norm. This
could indicate that the company may have difficulty in paying their debts. This is
probably due to the increase in current liabilities and highlighted by the increased
creditor payment period.
The gearing is low, that is, less than 50% and is below the industry average. The
company has paid off part of the long-term loan during the second year, but their
current liabilities have increased.
1 mark will be given for each relevant point, up to 6 marks
b) A brief description is required and not just one word answers. Any of the following
criteria can be mentioned; any other suitable comments will be awarded marks.
§ The company should have sufficient physical assets and adequate capacity for
fulfilling the new order and as well as their existing orders.
§ The company should also have sufficient, well-trained staff to carry out the
work.
§ The company should have sufficient liquid resources to carry out their business.
They should be financially sound so that they will be able to carry on their
business into the foreseeable future.
§ The company should have experience and expertise in this field. They should
have a good track record.
§ They should be committed to quality and the continuous improvement. They
should have a quality policy, TQM and perhaps be ISO certified.
§ The management should have good control over stock and working capital to
ensure efficiency in these areas. Bad control could lead to stock-outs and
insufficient liquid funds throughout the year.
§ What is the company’s environmental and recycling policy? This is particularly
important if they have any hazardous waste that has to be disposed of.
§ The cost of acquisition should be competitive. All elements of cost should be
analysed, not just the price alone.
§ The companies will need to be able to work together; do they share a mutual
culture and complimentary working practices?
1 mark will be awarded for each of the criteria up to 7 marks