4.1 Production of Goods and Services (pages 361-397) without sec

First Attempt 2 Nancy wants to be an entrepreneur. She has analysed market research data and decided to start up a book shop. Nancy has identified a suitable location and prepared a business plan. Nancy is calculating her total costs. She will use this information to help her complete a break-even chart as shown in Figure 2.1. Nancy is also considering using e-commerce. (a) Identify X and Y. X: Y: [2] Page 435

MARK SCHEME Identify X and Y. Award 1 mark for each correct answer. X: (Total) revenue / total value of sales Y: Margin of safety

First Attempt 3 CHW manufactures electrical products including cameras. The business is developing new products. The Managing Director knows that the stage of the product life cycle can influence CHW's marketing decisions about promotion. He is analysing data for one of its products. An extract is shown in Table 3.1The business would also like to introduce flow production into the factory. (b) Calculate the break-even level of output for 2021. Show your working. [2] Page 431

MARK SCHEME Calculate the break-even level of output for 2021. Show your working. Correct answer: 2500 [2] Correct method but incorrect answer e.g. 200 000 / 80 [1] OR 200 000 / (120-40) [1] OR Total fixed costs / selling price (per unit) – variable cost (per unit) [1] OR Fixed costs / contribution (per unit) [1] If correct answer given with no working shown, award 2 marks. Award only 1 mark if 2500 is written as part of the answer but is not given as the final answer.

First Attempt 3 CHW manufactures electrical products including cameras. The business is developing new products. The Managing Director knows that the stage of the product life cycle can influence CHW's marketing decisions about promotion. He is analysing data for one of its products. An extract is shown in Table 3.1. The business would also like to introduce flow production into the factory. (c) Outline two ways CHW could increase its margin of safety. Way 1: Way 2: [4] Page 433

MARK SCHEME Outline two ways CHW could increase its margin of safety. Award 1 mark per way (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include: • Lower fixed costs [k] from $200 000 for the year [app] • Lower variable costs / variable cost per unit [k] from $40 [app] • Increase price [k] of cameras [app] Other appropriate responses should also be credited.

First Attempt 1 GKA is a food retailer. It has 300 shops located in areas where average consumer incomes are low. GKA sells a limited range of own-label products including breakfast cereal and toothpaste. GKA does no promotion or market research. The Managing Director said: 'Last year our market share increased to 5%. Profit increased by 40%. Keeping costs low means GKA can offer customers quality products at low prices.' GKA is planning to open 100 shops in areas with high average consumer incomes.The Managing Director must decide whether GKA should change its pricing strategy (method) as the business expands. (d) Identify and explain two ways in which GKA could keep costs low. Way 1 : Explanation: Way 2: Explanation: Page 424

MARK SCHEME Identify and explain two ways in which GKA could keep costs low. Award 1 mark for each relevant way Award 1 mark for each relevant reference made to this business Award 1 mark for each relevant explanation Relevant points might include: • choose low cost locations [k] for all 100 sites [app] leading to lower fixed costs [an] • pay minimum wage [k] to shop workers [app] keep variable costs low [an] • economies of scale [k] (only once) for its limited range of products [app] leading to lower average costs [an] • set lower marketing budget [k] as no money spent on market research [app] • replace workers with machinery / automation / reduce workforce [k] • cheaper supplier [k] • close some locations [k] which would reduce electricity cost [an] • set up online [k] • reduce waste [k] • Buy direct from manufacturer [k] so lower cost than buying from wholesaler [an]

First Attempt 1 PLK is a social enterprise which offers training to young people who leave school with no qualifications. The young people are trained by PLK chefs to prepare food which is sold at local markets or sporting events. Choosing the right method of promotion is important. The manager of PLK thinks that to increase profit it is better to raise prices rather than use cheaper food ingredients. (e) Do you agree with PLK's manager that to increase profit it is better to raise prices rather than use cheaper ingredients? Justify your answer. [6] Page 426

MARK SCHEME Do you agree with PLK’s manager that to increase profit it is better to raise prices rather than use cheaper ingredients? Justify your answer. Knowledge [1] Award max. 1 mark for identification of relevant issue(s) Application [1] Award 1 mark for a relevant reference made to this business Analysis [2] Award up to 2 marks for relevant development of point(s) Evaluation [2] Justified decision made as to whether PLK should increase its prices or use cheaper ingredients. Points might include: Raise prices • could lead to fewer customers (as cannot afford it) [k] resulting in lower revenue [an] of food [app] • lower break-even point [k] so need to sell less to cover costs [an] • People could be willing to pay higher price as they think it’s for a good cause [k] as it’s a social enterprise [app] • Higher price may suggest better quality [k] Cheaper ingredients • will lower the variable cost [k] which will lower total costs / improve profit margin [an] • could lower quality [k] damaging reputation [an] leading to fewer sales [an]