GCSE Business StudiesUnit 8Mr Goodacre
CASE STUDY: Charlie’s cupcakes
Charlie began her cupcake business six years ago, working from her kitchen at home. She has been extremely successful so far and now supplies businesses wholesale across the whole of East England and London from an industrial unit in Romford.
She has a very simple strategy when selling her cupcakes, the raw materials cost £0.20 per cake and she sells at £1.50 per cake. And with record sales of 90,000 cupcakes this year the business looks set to expand even further.
Charlie has asked you to analyse the business’s finances and advise her accordingly.
Financial records for Charlie’s Cupcakes as of 27th November 2012
Wages for staff £18,000
Salary for Charlie £45,000
Gas £8,000
Electricity £14,000
Insurance £2,000
Maintenance £1,000
To help with your analysis Charlie has also included some information about one of her competitors as well as from her previous year’s finances.
Charlie’s Cupcakes 2011GPM = 60%
NPM = 25% / County Cupcakes 2012
GPM = 50%
NPM = 35%
1. Calculate the gross profit margin for Charlie’s business (6)
2. Calculate the net profit margin for Charlie’s business (6)
3. What could Charlie do to improve the profitability of her business? Justify your answer (9)
Extension task
Delta Electric is a computer manufacturer supplying hi-tech PCs to industry. They only sell business to business at the top end of the market. They have a very good customer retention rate and claim their customers stay loyal as they only supply the latest technology and they can supply faster than any of their competitors.
The MD of Delta Electric has asked you to look into the liquidity of the business and assess their position with justification for your judgements. The company’s finances are listed below:
Cash £20,000
Payables (creditors) £30,000
Receivables (debtors) £5,000
Stock £115,000
Overdraft £5,000
HELPSHEET: Ratios
Profitability ratios
Gross profit margin = gross profit / revenue X 100
Net profit margin = net profit / revenue X 100
Liquidity ratios
Current ratio = current assets / current liabilities
Acid test = current assets – stock / current liabilities
Components of ratios
Revenue = price X sales
Cost of sales: The costs directly involved with supplying the good or service, e.g.
· Wages
· Raw materials
· Energy bills
Gross profit = revenue – cost of sales
Overheads are costs that do not alter when production changes, e.g.
· Salaries
· Insurance
· Interest on loans
· Building maintenance
Net profit = Revenue – cost of sales – overheads / revenue
Current assets include:
· Cash in bank
· Receivables
· Stock
Current liabilities include:
· Payables
· Overdraft