O Level Accounting Topical Past Paper Solution - 7707 Paper 21 May/June 2024 -Q3 (d) Decision Making

In this video, titled "O Level Accounting Topical Past Paper Solution - 7707 Paper 21 May/June 2024 - Q3 (d) Decision Making," I delve into strategic decision-making and company expansion for Q Limited. Zahra and Panya, the directors and shareholders, are considering a 100% increase in advertising expense to boost company sales as part of their expansion strategy. In this solution, I explore both the potential benefits and risks of this decision, providing insight into how to increase sales effectively. Here’s the detailed question for reference:

Q Limited Trial Balance at 31 January 2024

Debit Side:
Purchases: $38,200
Rent and insurance: $10,600
Directors’ salaries: $19,000
General expenses: $3,420
Advertising: $5,400
Dividends paid: $2,500
Fittings at cost: $18,000
Inventory at 1 February 2023: $2,950
Cash at bank: $915

Credit Side:
Revenue: $78,000
Provision for depreciation of fittings: $5,400
Trade payables: $2,288
Ordinary share capital: $13,000
Retained earnings: $2,297

Additional Information:
1. Inventory at 31 January 2024 was valued at $4,720.
2. Depreciation on fittings is charged at 10% per annum using the straight-line method.
3. Payment for advertising, $75, is outstanding at 31 January 2024.
4. No dividends were outstanding at 31 January 2024.

Zahra and Panya would like to expand the company and increase sales. To do so, they are considering a 100% increase in the amount spent on advertising.

(d) Advise Zahra and Panya whether or not they should go ahead with the 100% increase in the amount spent on advertising. Justify your answer by providing two points in favour and two points against this increase.

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