Refer to Table 2. Calculate the difference between the annual cost of outsourcing the transport of fuel in country X and the existing annual cost of transport.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. [8] (a) Cost saving 89-78 = $11m Correct
2. [8] (a) Cost saving 85-78 = $7m Alternative correct
3. [8] (a) Cost saving 89-82 = $7m Allocated overheads included for both outsourcing and existing
4. [7] (a) Cost saving $6m or $2m Ignores depreciation. Relevant calculation must be shown.
5. [2] (a) Outsourcing cost $78m
6. [2] (a) Outsourcing cost 78 + 4 = $82m
7. [1] (a) Outsourcing cost 600m x 0.13
8. [5] (a) Existing cost 29 + 60 = $89m All relevant costs included.
9. [5] (a) Existing cost 25 + 60 = $85m Allocated overheads not relevant to cost saving.
10. [4] (a) Existing cost $84m or $80m Ignores depreciation
11. [2] (a) Total annual fixed cost 20 + 4 + 5 = $29m
12. [2] (a) Total annual fixed costs 20 + 5 = $25m
13. [1] (a) Total annual fixed costs $24m Ignores depreciation
14. [2] (a) Existing variable cost $60m
15. [1] (a) Existing variable cost 600m x 0.1
16. [Knowledge] (b) Understanding variable/fixed cost savings; allocated overheads; depreciation; one-off gains from disposal of assets; risk of unreliable transport with outsourced business.
17. [Application] (b) Use of result to a) and other data/information.
18. [Application] (b) PED for fuel is price elastic
19. [Application] (b) Raise $5m from sale of trucks and $8m from sale of distribution centre
20. [Analysis] (b) Cost savings fits in well with the trend in the industry; private sector business more worried about profits than potential job losses; if country X outsourcing of transport increases profit than this strategy can be used in other countries that PGP operates in.
21. [Analysis] (b) Reduces admin costs – may fit in with plan to delayer
22. [Analysis] (b) Disposal of assets raises finance for other projects e.g. option A/B
23. [Analysis] (b) 'Outsourcer' might increase cost once depot/trucks are sold
24. [Analysis] (b) Less control over assets/deliveries, etc.
25. [Analysis] (b) Will allocated overheads really be saved? Disposal of site/trucks just a one-off benefit.
26. [Evaluation] (b) Cost difference is not that great – is it better to pay a little more for control over own transport assets?
27. [Evaluation] (b) How reliable are the asset valuations?
28. [Evaluation] (b) How reliable is the transport company? It's a potentially dangerous product - is it better to control the transport of it?