BFF produces a selection of computer screens that it sells to other manufacturers. The Managing Director has been reviewing BFF’s income statement. She is concerned about the consequences of a rise in the cost of materials. She stated: ‘Improvements in technology have made our production methods better. BFF must stay competitive because imports of computer screens are rising.’ The Managing Director must decide whether BFF should raise its prices.
(a)[2]
What does the term ‘income statement’ mean?
(b)[2]
Identify the effect of a rise in the cost of materials on each of the following:
Cost of sales:
Gross profit:
(c)[4]
Identify and explain two ways in which BFF’s managers could use the information shown in the income statement.
(d)[6]
Identify and explain two ways that changes in production technology could help BFF stay competitive.
(e)[6]
Do you think BFF should increase its prices? Justify your response.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Financial document that shows the revenue, costs and profit over a specified period of time” …