Refer to Table 2. Calculate the:

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [1] (a)(i) Break even = FC / unit contribution
2. [1] (a)(i) Unit contribution = price – AVC
3. [1] (a)(i) Unit contribution = 480 – 370 = 110
4. [1] (a)(i) Break even means zero profit or loss or formula TR=TC
5. [1] (a)(i) TR = P x q
6. [1] (a)(i) TC = FC + q × VC
7. [1] (a)(i) FC / contribution per unit
8. [1] (a)(i) 480q = 550 + 370q
9. [1] (a)(i) 110q = 550
10. [3] (a)(i) Break even number of customers = 5
11. [1] (a)(ii) Total contribution = TR – VC
12. [2] (a)(ii) 480 × 2 - 370 × 2 = $220
13. [1] (a)(iii) Profit/loss = TR – (FC + VC)
14. [1] (a)(iii) Profit = Total contribution - FC
15. [2] (a)(iii) 480 × 2 - (550 + 370 × 2)
16. [3] (a)(iii) = -$330
17. [3] (a)(iii) OR 2 × 110-550 = $-330
18. [2] (b) Definitions of contribution and profit (Knowledge)
19. [2] (b) Reasons why a positive contribution order may or may not be accepted (Knowledge)
20. [2] (b) Guides, mountain walks, foreign customers, break even 5 customers, contribution or profit/loss quoted (Application)
21. [3-4] (b) Good use of theory to answer question (Analysis)
22. [3-4] (b) Good judgment shown (Evaluation)
23. Analysis (b):
24. Contribution is positive ($220) hence will contribute to fixed costs making it advisable to take the booking. More customers may appear before tour takes place
25. Profit negative (-$330) hence a loss on this trip so not advisable to take the booking, as is against policy
26. Goodwill from villagers maintained as getting some income
27. Guides may not want to look after only two and seek work from other businesses or may like small number and want more work
28. Service industry focused on customers and their satisfaction so important not to let down customers who have booked leading to possible loss of business
29. Possible costs involved in cancelling a booking
30. Disagreement between Jan and Gorl could harm business operation
31. Taking bookings with two means less possibility of cancellation and helps planning
32. Evaluation (b):
33. Take these bookings as advantages of trip going ahead outweigh disadvantages
34. Main reason is that a contribution to fixed cost is made plus the business is generating work and customers
35. Do not take these bookings as disadvantages of trip going ahead outweigh the advantages
36. Main reason is that a loss is made plus is against policy
37. Another point is that the financial cost data may not be accurate. If costs turn out to be higher, then positive contribution may not be made or if costs turn out lower then more contribution is made
38. Need to be certain of the accuracy and reliability of the data
39. Difficult to quantify the non-financial advantages and disadvantages so better to not take these booking as only the revenue is certain