Frank grows fruit, including oranges, on his farm in country J. He sells his fruit at a market in a local city one day a week. Frank is a sole trader and operates in the primary and tertiary sectors. He set up FF using all of his redundancy money from a previous job with a large company. Frank's business objective is to increase profit by 10% by the end of 2026. He also has a target profitability of 25% by the same date. He uses the data from break-even analysis to make business decisions. Table 1.1 shows forecast data for the sale of oranges in July 2025. [Table 1.1] Frank has two main competitors: • a national supermarket with stores locally • a shop in the local city selling fruit. Frank's business is very successful as the fruit he sells is fresher than products sold by his competitors. This is Frank's USP. His fruit is sold only a few hours after it is picked. However, the fruit sold by Frank's competitors is grown hundreds of kilometres away. Customers also enjoy the range of fruit sold by Frank as it varies throughout the year. Frank currently uses competitive pricing but is thinking of introducing price skimming in the future.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2025). The mark or mark type is shown in brackets.

1. [1] Identification of a method may include: Capital employed / Market capitalisation / Market share / Revenue (allow sales, sales turnover or turnover) / Quantity sold / Value of output / Number of employees / Area/space / Number of outlets / Number of customers
2. Do not allow profit – which is a measure of success or performance, but not size.
3. If more than one answer is given, only mark the first, reading from top left to bottom right.
4. Accept all valid responses.
5. [1] AO1 Knowledge and understanding: Natural resources / raw materials OR An example of the processes involved in the primary sector, such as extraction/agriculture/farming/growing/fishing/mining etc.
6. [2] AO2 Application: Explanation of primary sector will include Natural resources / raw materials AND an example of the processes involved in the primary sector, such as extraction/agriculture/farming/growing/fishing/mining etc.
7. Context applied to primary sector, including any example of primary sector, including a valid example of a primary sector business (do not allow FF as an example, unless it is clear that it is focussed on the farming element of the business (because it is in the primary and tertiary sectors)) or a valid example of a primary sector product, such as 'fruit', 'oil' or 'metal' etc.
8. Accept all valid responses
9. Exemplar: Businesses in the primary sector are involved in natural resources. For example, Frank farms oranges. (3 marks)
10. [1] Formula to find the break-even quantity: Fixed costs / (price per unit – variable cost per unit) OR Fixed costs / Contribution.
11. [1] Variable cost per unit = $2825 / 5650 = $0.50
12. [1] Contribution per unit = $0.80 – $0.50 = $0.30
13. [1] Final answer = 1350 / ($0.30) = 4500
14. ALT 1: 0.80 × 5650 = 4520 (total revenue), 4520 – 2825 (TVC) = 1695 (total contribution), 1695/5650 = 0.30 (contribution per unit), 1350/0.3 = 4500.
15. Answer: 4500 oranges or 4500 (3)
16. OFR applies for final answer and contribution per unit
17. 3 marks: Correct answer 4500 oranges or 4500
18. 2 marks: BOTH of the following: Correct formula AND Correct calculation of variable cost per unit (0.50) OR Correct calculation of contribution per unit (0.30) OR An incorrect answer with one mistake allowing OFR for final stage.
19. 1 mark: One of the following: Correct formula OR Correct calculation of variable cost per unit.
20. [1] AO1 Knowledge and understanding: Knowledge of a limitation of break-even analysis: Fixed costs may not be constant / Assumption that output equals sales / Assumption that unit variable costs remain constant / Assumption that price will remain constant / Only useful for individual (or limited number of) product lines / Does not take into account external changes / Only a forecast/estimate / Difficult to allocate fixed costs.
21. [2] AO2 Application: Explanation of a limitation of using break-even analysis, including: Fixed costs may not be constant – may change in long run OR Assumption that output equals sales – but not all output may be sold OR Assumption that unit variable costs remain constant – but may not be at all output levels OR Assumption that price will remain constant – but may not be at all output levels.
22. Context applied to FF, including: Frank is a sole trader / Frank grows the fruit sold on his farm / Frank sells the fruit from a market / Competitors are a national supermarket and fruit seller who sells from a shop / Freshness is Frank's USP / fruit is a perishable product / Competitive pricing / Objective is to increase profit by 10% by the end of 2026.
23. Accept all valid responses.
24. Exemplar: A limitation is that it assumes that only one product is sold because break-even analysis has to be done for each product. Frank sells oranges and lemons on his farm. (3 marks)
25. Level 2 (3-4 marks AO3): Developed analysis that identifies connections between causes, impacts and/or consequences of two points. OR Developed analysis that identifies connections between causes, impacts and/or consequences of one point.
26. Level 1 (1-2 marks AO3): Limited analysis that identifies connections between causes, impacts and/or consequences of two points. OR Limited analysis that identifies connections between causes, impacts and/or consequences of one point.
27. AO1 Knowledge and understanding (max 2 marks): Keep all profit made / no sharing of profit / Can make all business decisions without having to consult other owners / no consultation / Total control / Freedom to choose own work hours / Can employ staff / Relatively low start-up costs / Financial data is private / Easy to set up / less administration.
28. AO2 Application (max 2 marks): Application of knowledge of benefit of operating as a sole trader to Frank/FF, including: Frank grows the fruit sold on his farm / Frank sells the fruit from a market / Frank used all of his redundancy money from his job with large company to set up the business / Competitors are a national supermarket and fruit seller who sells from a shop / Freshness is Frank's USP / Competitive pricing / Objective is to increase profit by 10% by the end of 2026.
29. AO3 Analysis: Limited analysis: candidate shows one link in the chain of analysis. Developed analysis: candidate shows two or more links in the chain of analysis or a two-sided analysis. Analysis points: Frank is able to make all decisions. No time is wasted consulted with other owners which enables the decisions to be implemented quicker/before competitors and therefore generate more profit. / The sole trader can keep a larger amount of profit as it doesn't have to be shared with other owners. / The costs of setting up a sole trader are typically less than other forms of ownership so less capital will be needed to start the business. / The owner can choose their own working hours and so enjoy a better work-life balance. This can help the sole trader make better business decisions and increase its market share. As a sole trader, there is no separate legal identity for FF. Therefore, any financial impact on the business, is also an impact on Frank and can be awarded as analysis and developed analysis.
30. Accept all valid responses.
31. Exemplar: Frank can keep all of the profit made as a sole trader. This was his own redundancy money that he used to set up FF. Which increases Frank's income and could lead to a better lifestyle for him. (K + APP + DEV)
32. Level 3 (5-6 marks AO4): Developed evaluation in context. A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context.
33. Level 2 (3-4 marks AO4): Developed evaluation. A developed judgement/conclusion is made. Developed evaluative comments which balance some key arguments.
34. Level 1 (1-2 marks AO4): Limited evaluation. A judgement/conclusion is made with limited supporting comment/evidence. An attempt is made to balance the arguments.
35. AO1 Knowledge and understanding (max 2 marks): Knowledge of price skimming, including: Price skimming is where a product is priced at a higher price than competitors / Maximises the selling price / May create a luxurious/exclusive product image / Often used for a new product to the market or where a producer has a strong USP (so a high price can be charged) / Price may need to be reduced as the market becomes more competitive / Low price elasticity of demand (inelastic PED, so high price can be charged).
36. AO2 Application (max 2 marks): Application of knowledge of cost information to OFD. Developed application applies knowledge of cost information to OFD twice. Context for Frank: Frank is a sole trader / Frank grows the fruit sold on his farm / Frank sells the fruit from a market / Frank used all of his redundancy money from his job with large company to set up the business / Competitors are a national supermarket and fruit seller who sells from a shop / Freshness is Frank's USP / Competitive pricing / Objective is to increase profit by 10% by the end of 2026.
37. AO3 Analysis (max 2 marks): Limited analysis shows one link in the chain of analysis. Developed analysis shows two or more links in the chain of analysis. Analysis for the introduction of price skimming, including: Price skimming means that a higher price will be charged for the oranges. Assuming that the costs remain the same, Frank will make a higher profit per orange sold. / Frank has a USP for freshness which gives his products an advantage over competitors. This quality may mean that demand for the product will be retained at current levels despite the increase in price. Customers may be less sensitive to increases in price. / Increase in price may mean that demand reduces by a larger proportion so Frank's profitability will reduce. / Competitive pricing means that Frank's products will not have an advantage/disadvantage compared to the prices charged by competitors. Currently uses competitive pricing so demand will remain the same. Frank sells his products from a market so overheads likely to be lower than those of the supermarket and shop so Frank's profitability is likely to be higher than his main competitors.
38. AO4 Evaluation (max 6 marks): Developed evaluation in context. A developed judgement/conclusion is made in the business context. Developed evaluative comments which balance some key arguments in the business context. Evaluation points: The impact on profitability depends on the price elasticity of demand. / Frank has a USP for freshness which gives his products an advantage over competitors. This quality may mean that demand for the product will be retained at current levels despite the increase in price. Customers may be less sensitive to increases in price. / Impact of other external factors / A judgement that other factors are more important than price alone.
39. Accept all valid responses.
40. Exemplar L3: He should introduce price skimming because this will allow him to have a much higher level of profitability for his products and meet his objective of increasing profit by 10%. It depends upon the reaction of Frank's customers to the price skimming. If customers are price elastic, then he should not introduce it because customers will simply choose to shop at the national supermarket.