Zoe's Bags (ZB) Zoe's Bags (ZB) is an online retailer that makes and sells a range of luxury hand-made bags. The business was set up three years ago as a partnership by Zoe and her brother Luis and has grown each year. The bags are targeted at a niche market and made to customers' orders. The business works closely with its main supplier of raw materials. ZB operates a just in time (JIT) inventory management system. All bags have a lead time of five days from when the customer submits the order. Following a magazine advertising promotion in January, orders grew by 50% in February to 1400 bags. Zoe and Luis found it difficult to organise the larger production team. A break-even chart for February is shown in Fig. 1.1. [Figure 1.1] Due to the increase in orders, Zoe and Luis want to focus on developing the business. They recruited 2 supervisors to manage the 15 production employees. To support the new supervisors, Luis organised some off-the-job training. All production employees are currently paid a salary. However, ZB's labour turnover has increased recently. One of the new supervisors has recommended that ZB should introduce performance-related pay. Zoe and Luis are currently considering this recommendation.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2024). The mark or mark type is shown in brackets.

1. [1] (a)(i) Low/no inventory levels / Stock ordered according to production/customer demand / Reduced storage costs / Reduced risk of stock being stolen/damaged/becoming obsolete/wastage / Reduced insurance cost / decreased insurance risk / No/smaller warehouse required / Good relationship with suppliers (Accept any one valid response).
2. [1] (a)(ii) A niche market is a (small) section/part/subset of the market.
3. [2] (a)(ii) Developed application of one relevant point to a business context (e.g., targets customers with specific needs, allowing for a high profit margin or loyal customers).
4. [1] (b)(i) Formula to find margin of safety = actual output - break-even output.
5. [1] (b)(i) Read the break-even output correctly from break-even chart = 1000 units.
6. [1] (b)(i) Calculation: 1400 (actual output from text) – 1000 (break-even output from chart) = 400 (units) or 40% (Award 3 marks for correct answer of 400 with or without workings).
7. [1] (b)(ii) Knowledge of a way to use break-even analysis, e.g., To support decision making (i.e. pricing decisions, costing decisions) / To calculate useful data (i.e. break-even level of output, margin of safety, profit/loss levels at levels of output) / To consider 'what if' scenarios / To forecast costs/pricing.
8. [1] (b)(ii) Explanation of how this can be used, e.g., to decide on an appropriate marketing mix or to determine the level of output at which ZB will stop making a loss.
9. [1] (b)(ii) Contextual link to ZB, e.g., using the margin of safety of 400 or the break-even level of output of 1000, or considering the 50% growth in sales after advertising promotion.
10. [2] (c) Knowledge of two relevant benefits of off-the-job training, e.g., specialist/expert training, fewer interruptions, change of environment, leads to recognised qualifications, less production interruptions, can be safer.
11. [2] (c) Application of these benefits to ZB's context, referencing aspects like their online retail, luxury handmade bags, 15 employees, JIT system, or increasing labour turnover.
12. [4] (c) Developed analysis for two benefits, identifying connections between causes, impacts, and consequences. For example: Specialist training (AO1) ensures higher quality output and less waste (AO3) in ZB's luxury handmade bags (AO2), which helps maintain their niche market reputation and increases profit (AO3). Secondly, off-the-job training allows supervisors to concentrate without interruptions (AO1), meaning they are trained more quickly and effectively, reducing the time needed away from managing ZB's 15 production employees (AO2) and thus reducing overall training costs and boosting productivity (AO3).
13. [2] (d) Developed knowledge of performance-related pay (payment linked to meeting targets/quality/ability) and/or salary (fixed payment irrespective of hours/productivity).
14. [2] (d) Developed application to ZB's context, referencing aspects like their increasing labour turnover, the 15 production employees, luxury handmade bags, or the 50% increase in orders.
15. [2] (d) Developed analysis for and against PRP. For example: PRP offers employees an incentive to work harder, which could increase productivity and potentially reduce the increased labour turnover ZB is experiencing, thus decreasing costs. Against: Money may not be the sole motivator for all employees, and introducing PRP might lead to increased administrative costs for ZB due to the time involved in setting targets and reviewing performance. Alternatively, focusing on quantity under PRP might negatively impact the quality of ZB's luxury handmade bags, potentially harming its niche market brand image and future sales.
16. [6] (d) Developed evaluation, including a reasoned judgement whether ZB should introduce PRP or maintain salary. This should involve balancing arguments, considering factors like whether employees are motivated by pay, the benefits of increased effort outweigh the costs, the impact on product quality, and whether a basic payment alongside performance-related elements could provide stability for ZB's employees. The evaluation may also consider the local labour market and employee reaction, and the payment systems offered by other local businesses.