WG is owned by Tomas who is a sole trader. He used to own part of a large wedding business which failed and went into administration. Tomas started up WG two years ago using all his savings. WG is profitable but there are no retained profits. It has a positive cash flow and no debts. Tomas manufactures personalised gifts using the factors of production. WG's target market is people who are getting married. Each gift can be personalised with the names of the married couple and their wedding date. These gifts (favours) are given to wedding guests by the married couple. The gifts are made to each customer's specifications using a 3D printer owned by Tomas. Table 2.1 shows the data for a recent order enquiry from Jo who is getting married soon. Table 2.1 Jo's order details | Design | Small star with personalisation | |---|---| | Quantity | 250 | | Variable costs (per star) | $1.20 | | Allocated fixed costs | $150 | Tomas prepared a quote to send to Jo. He used cost-based pricing to add a 50% mark-up to the cost of the order and sent the quote to Jo. Tomas received an email reply from Jo (see Fig. 2.1). Fig. 2.1 Email from Jo Hey Tomas Thanks for the quote. I am a social media influencer, and my wedding will be streamed on the internet for lots of people to see. I have 0.2m followers on social media and I know that they will love your products. I think you should give me the order for free! Thanks, Jo The demand for Tomas' products is high, especially during the peak (busiest) wedding season. He would like to purchase an additional 3D printing machine so that he can meet demand throughout the year. He has found the ideal machine which will cost $60000. Tomas knows that there are many factors which will influence his choice of sources of finance for the new machine.