Festival Wear (FW) FW is a partnership started by two friends, Maz and Jane. FW manufactures and sells high quality T-shirts at $40 each. The business can manufacture 35000 T-shirts per month using mass customisation. The T-shirts are only sold at music festivals and concerts and are customised to each event. FW has never advertised the T-shirts, relying on a sales team to attend a festival or concert and personally sell the T-shirts. Current costs: • variable: $10 per T-shirt • fixed: $200000 per month. Sales average 27000 T-shirts per month. Currently the sales team is paid a monthly salary, but Maz is proposing a new payment method in order to increase sales volume. This will mean a lower monthly salary but a commission of $2 per T-shirt will be paid. Maz estimates that sales volume would increase to 30000 per month. Costs if the new payment method is introduced: • variable: $12 per T-shirt • fixed: $182000 per month. This proposal has been discussed with the sales team. Some members of the team are enthusiastic about the proposal, but others are not happy with what they see as a reduction in their pay. The business is expanding and considering moving to a bigger factory. This would require a $4 million investment in new machinery and staff training. Jane would also like to consider methods to increase sales volume. She has suggested that FW should expand its product portfolio to manufacture other items such as baseball caps.

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [1] rent
2. [1] interest
3. [1] salaries
4. [1] wages
5. [1] Mass customisation is the use of flexible computer-aided technology on production lines to make products that meet individual customers' requirements for customised products.
6. [1] Bulk production
7. [1] Flexible
8. [1] Made to order
9. [1] Customer preferences
10. [2] Lower unit costs combined with personalisation / Increased product choice
11. [2] Higher customer retention/loyalty
12. [2] Customers prepared to pay a higher price
13. [2] Higher profit margins
14. [1] Relevant example of mass customisation (including the T-shirt market)
15. [1] Application can be made to FW or any other scenario/context/business/person.
16. [1] FC/contribution = BE
17. [1] FC = 182 000, VC = 12
18. [1] Contribution = 40 – (12) (1) = 28
19. [3] 182 000/28 = 6500 (OFR)
20. [1] Payment made according to number of sales – commission
21. [1] Possibility of higher monthly pay
22. [1] Incentive so motivating
23. [2] If sales forecast correct employees would earn more
24. [2] Can choose to work harder/longer for increased pay
25. [2] Investment could expand sales possibilities so higher pay
26. [2] Rewards successful selling
27. [1] Maz estimates sales volume to increase to 30 000 per month
28. [1] Commission $2 per T-shirt
29. [1] Business is expanding
30. [1] Diversification of product portfolio – baseball caps
31. [1] OFR from Q2(b)(i)
32. [2] bank loan
33. [2] another partner
34. [2] convert to a limited company
35. [2] venture capital
36. [2] leasing
37. [2] hire purchase
38. [2] bank loans
39. [2] mortgages
40. [2] debt factoring
41. [2] trade credit
42. [2] micro-finance
43. [2] crowd funding
44. [2] government grant
45. [2] $4m needed
46. [2] Low break-even so good contribution to help get a loan
47. [2] Good business attractive to shareholders
48. [2] Required for expansion
49. [2] New product could be risky
50. [2] Market research needed to assess viability
51. [2] Partnership
52. [4] Long term loan may be suitable – would banks lend to a partnership?
53. [4] Venture capitalist will want quick returns so less time to make returns
54. [4] Probably no debts to factor – so unavailable source
55. [4] Government grant unlikely – unless help available to help (small) businesses to expand
56. [4] Too much for micro-finance
57. [4] Loss of ownership if convert – danger of takeover
58. [4] Effect on liquidity – depending on length of time involved
59. [4] Cost of finance – could be high interest rates
60. [4] Analysis must relate to a suitable source for financing machinery. For example, a mortgage is an external source so would get a K mark but not realistic for financing machinery unless linked by, e.g. saying a mortgage on the factory building to get finance to purchase the machinery.
61. [2] Range of products in one business
62. [2] Product diversification
63. [2] Meet customer demand for more product choice
64. [2] Could relate to product life-cycle, Boston matrix
65. [2] Could consider impact on the 4ps/4cs e.g. Price, Product, Promotion, Place
66. [2] Reliance on one product is risky so maybe should diversify into baseball caps
67. [2] May need to change distribution method - sell at music festivals only – maybe could sell elsewhere e.g., other retailers, online
68. [2] Other products more suitable e.g., posters
69. [2] Move to a bigger factory provides opportunity
70. [2] Requires $4m investment
71. [2] FW is expanding
72. [6] Requires research to establish demand
73. [6] Single product portfolio – is the market saturated?
74. [6] Satisfy more customers – increasing sales volume and increasing revenue and profit
75. [6] There is a lack of direction for the future of the business and so there is a risk to the security and stability of FW.
76. [6] Need for an integrated marketing mix to increase sales volume
77. [6] An evaluation is likely to come from candidates making a judgment and justification of expanding product portfolio.
78. [6] Any changes that might need to be made to make it more effective/less risky.
79. [6] Are there more suitable methods of increasing sales volume?
80. [6] Business expanding is now the right time to increase products.
81. [6] High investment in the new factory needs careful consideration of equipment if expand portfolio.
82. [6] Developed evaluation in context should link to sales.