Jones Sticky Labels (JS) JS is a private limited company that produces sticky labels for the industrial market. JS was set up by Lucy Jones 15 years ago. The market for sticky labels is very specialised and there are no competitors within the home country because of low demand. However, the majority of JS's customers are in other countries and the international market is much more competitive. JS owns one factory where all the sticky labels are manufactured. The business employs 300 workers on eight production lines. The sticky labels are designed using Computer Aided Design (CAD) and manufactured using batch production. When a customer wants sticky labels, JS will create a new design, send the design to the customer for approval and then order the materials required for production. Each design of sticky label is unique and will take different amounts of time and effort to produce. The typical lead time is four weeks. One of JS's customers is a supermarket chain which puts sticky labels on many of its products. These range from promotional sticky labels that are put on products that need to be sold quickly through to small sticky labels that are put on fruit to identify their variety. JS has recently received an order from the supermarket chain for 50000 sticky labels at a total price of 2750. The costs of producing these labels is shown in Table 1. Table 1: Cost data () Variable Costs: Cost of materials (per 1000 sticky labels) 5 Cost of labour (per 1000 sticky labels) 15 Fixed Costs: Administration cost 500 Other allocated fixed costs 1000 The employees at JS are currently paid an hourly wage. Many employees object to this payment method because some jobs have worse working conditions than others and those who put more effort into their work are not rewarded. The employees have threatened to take action if a more suitable payment method is not introduced.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [2] A correct definition
2. [1] A partially correct definition
3. [0] No creditable content
4. A correct definition should cover both of the following: An explanation of market(s) – sales, trade etc.. An explanation of industrial – to another business, used in the production process, purchased to change or resale
5. When a business sells (1) to another business (1)
6. [1] C Example or some other way of showing good understanding
7. [1] B To delivery/finishing production
8. [1] A Time from ordering/starting production
9. Lead time is the time between the start and a finish of a process.
10. Answers could include: Lead time is the length of time it takes for a firm to receive an order of stock (B) after it has been ordered (A). For example if a firm orders stock on a Tuesday and it arrives on Friday, the lead time is three days (C).
11. [3] Correct calculation of the profit (with or without $ and with or without correct working)
12. [2] Correct formula (can be implied by the use of figures) and correct calculation of two appropriate figures
13. [1] Correct formula or correct calculation of one figure (TVC, TFC, TC per unit)
14. [0] No creditable content
15. Formula: Total revenue - total costs
16. 50 x ($15+$5) = $1000 total variable costs
17. $1000 + $500 = $1500 total fixed costs
18. Total costs = $2500
19. Total revenue = $2750
20. $2750 - $2500 = $250
21. Profit = $250
22. [3] Level 2b APP+ APP Explanation of one problem of allocating fixed costs in context
23. [2] Level 2a APP Identification of one problem of allocating fixed costs in context
24. [1] Level 1 K Identification of one problem of allocating fixed costs – no context
25. [0] No creditable content
26. Fixed costs do not change as output changes:
27. These costs may not be directly attributable to the production process and therefore it may be difficult to know which administrative and other fixed costs are due to the supermarket order.
28. Would these costs be paid even if the supermarket order is not taken? – If so it may not be appropriate to allocate them to the supermarket order.
29. The allocation of these costs may make the supermarket order appear less profitable and lead JS to make a poor decision.
30. A problem of allocating fixed costs may be to do with the calculation or forecasting of those fixed costs
31. Good analysis of two advantages of using CAD in context [4]
32. Good analysis of one advantage of using CAD in context [3]
33. Limited analysis of two advantages of using CAD [2]
34. Limited analysis of one advantage of using CAD [1]
35. Shows understanding of using CAD in context [3-4]
36. Shows knowledge of the use of CAD [1-2]
37. Limited analysis in context: Marks limited to 4+2=6
38. Answers could include:
39. Flexibility - allows JS to design stickers and edit the designs (and allows customers to edit designs) with minimal cost implications. Designs can be sent electronically to customers for approval – this may speed up the lead time from order to production.
40. Accuracy - CAD may allow the designs to be more accurate and improve the quality of JS's stickers.
41. Reduced storage space for designs – can save JS costs.
42. Easier to find previous designs and reproduce past designs/reprints.
43. It may be quicker to produce designs using CAD than hand drawing – this can reduce costs
44. Templates can be set up to save time/costs
45. CAD can be linked with CAM to speed up the production process/less chance for errors.
46. Justified evaluation based on arguments in context [7]
47. Developed evaluation based on arguments in context [6]
48. An evaluative statement based on argument(s) in context [5]
49. Argument based on the two (or more) payment methods in context [4]
50. Argument based on the one payment method in context [3]
51. Limited analysis of two (or more) payment methods [2]
52. Limited analysis of one payment method [1]
53. Shows understanding of two (or more) payment methods in context [4]
54. Shows understanding of one payment method in context [3]
55. Shows knowledge of two (or more) payment methods [2]
56. Shows knowledge one payment method [1]
57. No creditable content [0]
58. Answers could include: Possible payment methods:
59. Time based - currently being used, rewards amount of time, but no allowance for quality of the stickers or the differing working conditions.
60. Salary - may be appropriate for administrative jobs/design jobs which are task based, but again will not take into account different working conditions or effort put into the job.
61. Piece rates - useful to motivate workers on the production line but to what extent is one worker responsible for each sticker or group of stickers? Is it possible to separate out the responsibility? Could be used to reward those who work in unfavourable working conditions and who put in more effort.
62. Commission - useful for sales staff, but to what extent are production workers likely to have any input into sales.
63. Bonuses - Could be used to reward effort but an objective system would be required otherwise could be divisive.
64. Profit sharing – Would tie in worker motivation into the bigger picture of JS's performance but how could this improve reward for effort or differing working conditions.
65. Performance related pay – Would require a system that tied in effort and working conditions to satisfy JS's workers.