(a) Refer to Table 2. Calculate, for the proposed government contract, the forecast: (b) You may refer to your results from 4(a) and other information. Recommend whether SBC should accept the government contract. Justify your recommendation.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. (a)(i) Total contribution = sales revenue – total variable cost (1)
2. (a)(i) Revenue = 20 × 25 000 × 5 = 2 500 000 (1)
3. (a)(i) Variable costs = 18 × 25 000 × 5 = 2 250 000 (1)
4. (a)(i) Total Contribution = 2.5 m – 2.25 m (3)
5. (a)(i) = 0.25 m (4)
6. (a)(i) OR
7. (a)(i) Contribution = selling price – variable costs (1)
8. (a)(i) Contribution per student = $20 – $18 = $2 (1 marks)
9. (a)(i) Contribution per year = $2 × 25 000 = $50 000 (2 marks)
10. (a)(i) Contribution for 5 years = $250 000 (4 marks)
11. (a)(ii) Profit = (Total) Contribution – fixed costs OR Total revenue – total costs (1)
12. (a)(ii) $250 000 - ($90 000 + $75 000) = $85 000 (2)
13. (a)(ii) No set-up costs included in calculation: 250 000 – 75 000 = $175 000 (1)
14. (a)(ii) Revenue and/or Total cost calculation (1)
15. (a)(ii) Revenue = 2.5 m
16. (a)(ii) Total cost = 2.415 m
17. (b) Knowledge:
18. (b) Factors in the decision: Contribution, Profit, Future sales, Availability of employees, Finance needed
19. (b) General understanding of government contracts
20. (b) General benefits to business of working with the government
21. (b) Application:
22. (b) Reference to and application of results
23. (b) Comparison with contribution from business customers who pay $25 ($7 per student)
24. (b) Potential to use college graduates as trainee tutors
25. (b) Reference to other points from the text, including appendix 1 financial information
26. (b) Future possible government contracts? They are keen to promote entrepreneurship
27. (b) Financing the room set-up costs of $90000
28. (b) Analysis:
29. (b) Analysis of reasons why contract should be accepted, positive contribution, could lead to more government work, reliable income, enables new facilities to be set up.
30. (b) Analysis of reasons why not, higher contribution from business customers, will tutors be available? Might they need to pay higher rates?
31. (b) Potential to use college graduates as trainee tutors could help to reduce variable cost and hence improve the contribution.
32. (b) Development of reference to results/comparison of figures with Appendix 1 and comment
33. (b) Evaluation:
34. (b) Accept or not?
35. (b) Short/long term?
36. (b) Government stability?
37. (b) Depends on nature of contract. If the contract is at a fixed price then during the 5 years SBC's costs could rise significantly and therefore the contribution in future years could become negative.
38. (b) Will estimated numbers be reliable such as the maintenance costs of $15000? Does finance depend on this?
39. (b) Profit on the contract not very significant $17000 per year, but could lead on to more profitable contracts?