Refer to Table 2. Calculate the: contribution of the café

Mark scheme

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

1. [3] (a)(i) Contribution = revenue – direct costs (1) Direct costs = 50 000 + 120 000 = 170 000 (1) = 300 000 - 170 000 = $130 000 (3)
2. [3] (a)(ii) Profit = revenue – total cost (1) TC = 80 000 + 40 000 + 30 000 + 10 000 = $160 000 (1) Profit = 200 000 – 160 000 = $40 000 (3)
3. [Knowledge] (b) Understanding of fixed costs – costs that do not change with output
4. [Knowledge] (b) Understanding of contribution concept - represents an increase in HBG's overall profit
5. [Knowledge] (b) Understanding of full costing
6. [Application] (b) Calculation of contribution: 300 000 - 140 000 = $160 000
7. [Application] (b) Full costing gives a loss of $10 000
8. [Application] (b) Reference to specific fixed cost at Oldbury Castle / HBG e.g. national marketing
9. [Application] (b) Reference to allocation of fixed costs between the café and the gift shop.
10. [Analysis/Application] (b) Making a loss on full cost basis
11. [Analysis/Application] (b) Selling gifts is more profitable
12. [Analysis/Application] (b) Possible saving in wages as café may be more labour intensive – need for waiters and chefs
13. [Analysis/Application] (b) Only operating since 2019 as a profit centre. Is that sufficient time to make judgement?
14. [Analysis/Application] (b) A positive contribution is being made to paying fixed costs. These costs will continue to be incurred even if the café is closed
15. [Analysis/Application] (b) Impact on other employee morale if employees made redundant
16. [Analysis/Application] (b) Damage to brand if closures announced
17. [Analysis/Application] (b) Average spend per visitor of $2.86
18. [Analysis/Application] (b) Change to menu to increase sales
19. [Analysis/Application] (b) Reference to customer survey
20. [Analysis] (b) Loss of positive contribution may mean that in the short term HBG's overall profits will be reduced as fixed costs continue to be paid
21. [Analysis] (b) Impact on visitor numbers to Oldbury if café is closed. Could lead to the property being less appealing and therefore a reduction in numbers and revenue
22. [Analysis] (b) If the café were more responsive to customer feedback this could lead to an increase in sales at relatively low cost e.g. change to menu or reducing prices
23. [Evaluation] (b) Are sales likely to pick up in the future?
24. [Evaluation] (b) Price elasticity of demand significant if prices cut
25. [Evaluation] (b) Would sales at gift shop be able to compensate for the loss of café revenue?
26. [Evaluation] (b) Supported identification of most important factor in the decision
27. [Evaluation] (b) Overall argument for or against closure