Refer to lines 60–64 and Table 1. Calculate, for Kitchen 2, the:

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. [1] Capacity utilisation = current output / maximum capacity × 100 (1 mark if no relevant calculation)
2. [1] 1000 / 2200 × 100
3. [2] = 45.45(%)
4. [2] 45.45, 45.5 or 45
5. [1] Other answers 0.45
6. [1] Total contribution = total sales revenue – total variable costs
7. [1] Total variable cost = ($)1.19m
8. [2] 1.4m – 0.38m – 0.80m – 0.01m
9. [3] 1.4m – 1.19m
10. [4] = ()0.21m OR ()210 000
11. [3] 0.21
12. [3] 0.19m
13. [2] 0.19
14. [1] (If fixed costs are incorrectly included then loss is ($0.01m))
15. [OFR] OFR
16. [1] Note: Allow (unit) contribution = selling price – variable cost per unit
17. [2] Knowledge: Contribution is the contribution to fixed costs of producing and selling goods.
18. [2] Knowledge: Capacity utilisation is the proportion of total capacity currently being used
19. [2] Knowledge: Rationalisation is reducing the scale of operations.
20. [2] Knowledge: Understanding of methods of costing such as full costing and contribution costing.
21. [2] Knowledge: Differentiation between fixed costs which do not change with output and variable costs.
22. [2] Application: Revenue from Kitchen 2 is lower than the average for 8 kitchens for a 6-month period (25.4/2 = $12.7m, then 12.7/8 = $1.59m)
23. [2] Application: Reference to calculations e.g. capacity utilisation seems low at 45%
24. [2] Application: Reference to low income area and lower spend per order.
25. [2] Application: On full cost basis, including head office and marketing costs, the kitchen has made a loss of $0.01m over the last six months.
26. [2] Application: TK has strategy of growth so rationalisation would be a backward step.
27. [2] Application: If TK close Kitchen 2, other kitchens would need to cover the $0.02m head office costs.
28. [2] Application: Kitchen 2 makes a contribution of $0.21m to fixed costs.
29. [4] Analysis: Falling sales in Kitchen 2 may be a drag on the company if it continues, leading to lower profits.
30. [4] Analysis: Low capacity utilisation suggests inefficient use of resources with fixed costs being spread over a limited quantity of output resulting in higher unit costs.
31. [4] Analysis: Rationalisation may negatively impact staff motivation in other kitchens leading to higher labour turnover.
32. [4] Analysis: Marketing and further research may reveal a way in which sales can be increased.
33. [4] Analysis: Objectives will influence decision – if growth is an objective, then closure would work against this, impact on shareholder confidence.
34. [4] Evaluation: Supported decision – to close or not to close?
35. [4] Evaluation: As Kitchen 2 makes a positive contribution (OFR) it should be kept open, to close would result in a reduction in profit.
36. [4] Evaluation: Closure will benefit profits in the long term as if falling sales continue then profits will decrease.
37. [4] Evaluation: Limited data – only six months figures, is it a trend or an exception?
38. [4] Evaluation: Is the area where Kitchen 2 is located slower in coming out of the recession? In which case things could get better.
39. [4] Evaluation: Other evidence needs to be taken into account e.g. attitude of Thierry and Board of Directors
40. [4] Evaluation: Need for far more research into consumer tastes and competition in the area before decision is made.
41. [4] Evaluation: Is marketing mix appropriate for this area?