Refer to Appendix 2 and lines 53–57. Calculate:

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [1] Formula for Capacity Utilisation: current capacity / maximum capacity × 100
2. [1] Calculation of Current Capacity Utilisation: 32000 / 44000 × 100 = 72.7%
3. [1] Calculation of New Capacity Utilisation with special order: 42000 / 44000 × 100 = 95.45%
4. [1] Change in Capacity Utilisation: 22.8% points (allow range 22-23% or 31.4% change relative to current CU)
5. [1] Total contribution = contribution per unit × extra output for special order OR Contribution per unit = selling price – variable cost per unit
6. [1] Variable unit cost = $4 + $1 + $1.50 = $6.50
7. [1] Contribution per unit = $7 – $6.50 = $0.50
8. [1] Total contribution = $0.50 × 10000 = $5000 (change to profits)
9. [1] Meaning of capacity utilisation and why it is important
10. [1] Meaning of total contribution and importance in profit calculations
11. [1] Relevant points about special orders
12. [1] Reference to results (e.g., increase in CU from 72.7% to 95.45%, profit increase of $5000)
13. [1] Application of changes to capacity and profits in context of CSP
14. [1] Reference to other points from the text, including nature of special order (e.g. X Tours, 10,000 lamps, $7 per lamp)
15. [1] Reasons for and against acceptance of special order
16. [1] For acceptance: addition to profit, better use of resources, could lead to more orders in future.
17. [1] Against acceptance: capacity utilisation over 95%, no spare capacity for other orders that may be at full price, will it dilute present sales of lamps from other retailers?
18. [1] If another order comes in this will put the company over capacity
19. [1] Accept or decline order?
20. [1] Short/long term impacts?
21. [1] Is it a 'one off' order?
22. [1] Management objectives?