Refer to Table 1.2. Calculate the accounting rate of return (ARR) of automating production.

Mark scheme

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

1. 4(a) Calculation of ARR: 0.4 / 1.75 × 100 = 22.86(%) OR 22.9 OR 23 [4]
2. Calculation of average profit and average investment: 0.4 OR $0.4 m AND 1.75 OR $1.75 m [3]
3. An incorrect answer with one mistake allowing OFR for final stage: 0.9/1.75 x 100 = 51.43% [3]
4. Not subtracted capital cost: e.g. 22.83 [3]
5. Incorrect rounding: 0.4/1.25 x 100 = 32% [3]
6. Subtracted residual value rather than adding (OFR) [3]
7. Calculation of average profit: 2.4 / 6 = 0.4 OR $0.4 m [2]
8. Calculation of profit and average investment: $2.4m AND $1.75 m [2]
9. Calculation of profit and statement of ARR equation: $2.4m AND ARR = Average profit / average investment X 100 [2]
10. Calculation of average investment and statement of ARR equation: $1.75m AND ARR = Average profit / average investment × 100 [2]
11. 0.9 and statement of ARR equation: 0.9 AND AND ARR = Average profit / average investment × 100 [2]
12. Calculation of profit: (0.3 +0.5 + 0.8 + 1.0 + 1.1 + 1.7) – 3.0 = 2.4 OR $2.4 m [1]
13. Calculation of average investment: (3.0 + 0.5) / 2 = 1.75 OR $1.75 m [1]
14. ARR equation: ARR = Average profit / average investment × 100 [1]
15. Attempt to calculate mean yearly profit without deducting capital cost: 5.4/6 = 0.9 [1]
16. Automation will reduce the relative number of employees.
17. Other factors in decision: Cost
18. Availability of finance
19. Impact on employees
20. ARR
21. Payback results and NPV
22. Control over quality
23. Benefits/limitations of alternatives such as outsourcing
24. Production may/should increase
25. Less mistakes made
26. ARR is above criterion rate of 20%.
27. Payback is 4 years and 4 months (4.36 years). Allow within 5 years. Allow 132.7 days.
28. Sales forecast data shows clear upward sales trend of ice cream.
29. Capacity utilisation is 90%.
30. Plans to export to country D.
31. Possible impact of joining free trade area.
32. Reduction in number of employees will reduce unit labour costs of production AN. This will help reduce unit costs and could result in a higher profit margin L2AN or a lower selling price leading to increased sales L2AN.
33. Outsourcing could reduce control over quality and increase chance of poor-quality food reaching customers and consumers resulting in dissatisfaction AN and therefore a loss of sales L2AN.
34. Joining free trade area in January 2025 may lead to increased exports increasing pressure on capacity AN therefore SF need to increase capacity to meet expected demand L2AN.
35. The capital investment cost required for automating would mean sacrificing alternative investment decisions AN.
36. Elements that the evaluation/judgement might depend on: Accuracy of the data over 6 years.
37. Significance of retaining control over quality for food products.
38. Depends on whether the increase in demand is long-term.
39. Reaction of employees and consideration of duty to them.
40. Availability of finance.
41. How long will it take to implement?
42. Impact on quality.
43. Availability of appropriately trained/skilled labour.
44. Supported identification of most important factor or consequence.