Figure 1 shows the sales revenue and total costs for a small online clothing retailer, 'FashionFlare', over three months. **Figure 1: FashionFlare's Financial Performance** | Month | Sales Revenue (£) | Total Costs (£) | |---------|-------------------|-----------------| | May | 30 000 | 25 000 | | June | 35 000 | 28 000 | | July | 40 000 | 32 000 |

Mark scheme

Marking points from the official mark scheme. The mark or mark type is shown in brackets.

1. **(a) Calculate the total profit for 'FashionFlare' over the three months shown in Figure 1. You must show your working. (3 marks)**
2. M1 for correctly calculating total revenue for three months: (£30 000 + £35 000 + £40 000) = £105 000
3. M1 for correctly calculating total costs for three months: (£25 000 + £28 000 + £32 000) = £85 000
4. A1 for correct final answer of £20 000 with working shown.
5. Alternatively, M1 for calculating monthly profit for all three months (May: £5 000, June: £7 000, July: £8 000), M1 for summing these monthly profits, A1 for correct final answer of £20 000.
6. Full marks require correct calculation and showing of all relevant working.
7. **(b) Analyse two reasons why 'FashionFlare' might experience a fall in profit margin despite an increase in sales revenue. (4 marks)**
8. Award 1 mark for identifying a valid reason, and 1 mark for developing the analysis for each reason (2 reasons x 2 marks each). The analysis should explain *how* the identified reason leads to a fall in profit margin even with increased revenue.
9. e.g. **Reason 1: Increase in cost of goods sold (COGS) / Purchase price of stock** (1). If FashionFlare's suppliers increased prices for materials or finished clothing per unit, their total variable costs would rise (e.g., a dress now costs more to buy), reducing the profit generated from each sale even if more items are sold (1).
10. **Reason 2: Increase in operating expenses not directly proportional to sales** (1). FashionFlare might have invested more in marketing or new staff to achieve higher sales, or faced rising rent/utility costs. These increased fixed or semi-variable costs could grow faster than revenue, leading to a smaller percentage profit on each sale (1).
11. Accept other valid reasons such as: increased discounts offered to boost sales (reducing average selling price), increased returns/refunds (costly processing), a shift in product mix towards lower-margin items.
12. Application to 'online clothing retailer' or 'FashionFlare' is implicitly demonstrated through the nature of the reasons (e.g., cost of clothing, marketing for an online store, delivery costs).