A-LevelBusiness StudiesFinance and accounting9609/33 · May/June 2018 · Q218 Marks

Refer to [Table 1] and line 39. Calculate:

(a)(i)profit margin of bicycle sales for 2017–18[4]
(a)(ii)contribution per unit for the new university order[2]
(b)Refer to your results to 2(a) and any other information. Discuss whether RW should accept the new university order.[12]

This question uses a diagram from the original paper, which isn't shown here. Open the full paper from the past papers archive to see it.

Mark scheme

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

[1] (a)(i) Profit margin = profit/revenue × 100% (or implied by use of correct formula)
[1] (a)(i) Revenue = 300 × $350 = $105(000)
[1] (a)(i) or Costs = 60 + 30 = $90(000)
[1] (a)(i) Profit = 105 – 90 = $15(000)
[3] (a)(i) Profit margin = 15/105 = 14.3% (allow 14%)(% not essential)
[3] (a)(i) 1 error, e.g. incorrectly calculated figure
[4] (a)(i) OFR applies
[4] (a)(i) If calculate GPM allow full marks. i.e. 45/105 × 100 = 42.85%
[1] (a)(ii) Contribution p/u = selling price - direct cost (per unit)
[1] (a)(ii) or selling price – AVC
[1] (a)(ii) 260 – 200 = $60
[K] (b) Significance of the calculation of loss using full cost method
[K] (b) Significance of positive contribution to indirect costs
[App] (b) RW are in a position to source cycles but possible difficulty in assembly
[App] (b) Limited storage space
[App] (b) Competitive market context
[App] (b) Possible loss of goodwill from university
[App] (b) Offer price of $260 for 80 cycles – use of calculation of loss and contribution
[App] (b) 25.7% reduction in price
[App] (b) Contribution on the order is $90 lower per unit, so $7200 in total
[App] (b) Additional profit is 80 × 60 = $4800
[App] (b) Current profit from bicycles is $15 000
[An] (b) Development of calculations, in terms of impact on RW
[An] (b) Possible need for more employees and space might increase costs
[An] (b) Opportunity costs – storage space limited and use of employees might mean other business not carried out
[An] (b) Sale of 80 bicycles may clear storage space for new stock
[An] (b) Failure to accept might lead to offer to competitors and loss of advantage
[An] (b) Status of goodwill from university – would rejecting order prejudice this or encourage university to offer more below cost contracts
[An] (b) Possibility of negotiating on the offer price of $260?
[Eval] (b) A supported recommendation should follow consideration of pros and cons of accepting the order
[Eval] (b) Is RW certain that the costings are accurate?
[Eval] (b) Assumptions made in calculation of indirect costs may not be accurate