Refer to Table 1.1.

Mark scheme

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

1. [1] (a) All in $000; (150) + 20 + 40 + 80 = (10); 10/100 × 12 = 1.2 so 3 years and 1.2 months/3 years 2 months/3.1 years/3 years and 36.5 or 37 days
2. [K] (b) ARR = average profit/average investment x 100
3. [1] (b) OR where the average investment = (initial capital cost + residual capital value) / 2 (Maximum 1 mark, if no valid calculation)
4. [1] (b) Average investment = (150m + 0) / 2 = 75m
5. [1] (b) OR Total net cash flow (all $m) = 240 – set-up costs 150 = 90.
6. [2] (b) 90/4 = 22.5.
7. [2] (b) OR 22.5 / 75 x 100
8. [3] (b) 22.5 / 75 × 100= 30%
9. [2] (b) Common error – forget to deduct original cost = 240 / 4 = 60 60 / 75 × 100 = 80%
10. [K] (b) % not needed for full marks
11. [K] (b) Alternative formula: average profit / initial investment x 100
12. [2] (b) 22.5 / 150 = 15%
13. [K] (b) % not needed for full marks
14. [2] (b) Incorrect units, e.g. $30
15. [K] (c) Knowledge of IA methods, such as payback, ARR, but also net present value (NPV).
16. [K] (c) The new production unit will increase capacity so generic knowledge of capacity utilisation.
17. [K] (c) Knowledge of other relevant quantitative or qualitative factors.
18. [APP] (c) The new production unit will increase capacity for bespoke items.
19. [APP] (c) Factories currently operating at 85%.
20. [APP] (c) The new production unit will also be used to develop the new products made from recycled textile materials.
21. [APP] (c) There will be a need for more trained employees to make the clothing and these are in short supply.
22. [APP] (c) It may be possible to promote some trained employees from the original two factories.
23. [APP] (c) Payback (year 4) and ARR is quite high (30%) (OFR here).
24. [APP] (c) Relies on demand for bespoke items increasing as well as successful market entry into market for clothing made from recycled textiles.
25. [APP] (c) SCC are intending to take a bank loan to finance the new unit, which will attract interest payments/increase gearing.
26. [AN] (c) Development of application points, in terms of the likely advantages and disadvantage to SCC of the new production unit, including impact on costs, reliance on future sales and revenue.
27. [AN] (c) An increase in capacity is needed if demand increases, as they are working at 85% currently. This will enable SCC to produce more clothing. This should lead to higher sales and revenue, as suggested by the forecast figures.
28. [AN] (c) However, it may be difficult to staff the new unit with specialist workers, as they may be hard to find in Country Z. This may mean that Sunil needs to set up his own training sessions, which could be costly.
29. [AN] (c) Wage rates may also need to be higher, given the scarcity of skilled workers, adding to costs and potentially decreasing profits if prices cannot be increased.
30. [AN] (c) Given SCC's current product portfolio, the main products being mass-produced clothing, the marketing mix will need to be changed to target 'environmentally aware' customers, this could add to marketing costs possibly decreasing profits if it takes time to reach these customers and increase sales.
31. [EVAL] (c) Either conclusion rewardable as long as it is justified.
32. [EVAL] (c) In the short term, this will be costly ($150000) and will the bank be willing to lend?
33. [EVAL] (c) How secure may the sales forecasts be, given the economic situation in Country Z and the other export countries.
34. [EVAL] (c) There is considerable risk involved, especially in the untried market for recycled clothing. Is Sunil (and family) willing to take the risk?
35. [EVAL] (c) Accept all valid responses.