forecast total contribution from the proposed special order of laptop cases

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [4(a)(i) Note] Correct units required for full marks
2. [4(a)(i)] Total contribution = Contribution per unit × total sold (1 if no relevant calculations)
3. [4(a)(i)] OR Contribution per unit = selling price – variable cost (1 if no relevant calculations)
4. [4(a)(i)] Variable cost per unit = 18000/9000 + 13 500/9000 = 2 +1.50 = 3.50 (1)
5. [4(a)(i)] Contribution per unit = 5 -3.50 = 1.50 (2)
6. [4(a)(i)] Total contribution = $1.50 × 5000 (3)
7. [4(a)(i)] = $7500 (5)
8. [4(a)(i)] 7500 (4)
9. [4(a)(i)] Alternative approach: Total revenue – total variable costs = total contribution (1 if no relevant calculation)
10. [4(a)(i)] Revenue = 5 × 5000 = ($)25 000 (1)
11. [4(a)(i)] Total variable costs = 5000(2 + 1.5) = ($)17500 (1)
12. [4(a)(i)] Total contribution = 25 000 – 17 500 (3)
13. [4(a)(i)] = $7500 (5)
14. [4(a)(i)] OFR applies
15. [4(a)(ii) Note] Correct units required for full marks
16. [4(a)(ii)] Capacity utilisation (%) = current output / max output × 100 (1 mark if no calculation)
17. [4(a)(ii)] Capacity utilisation without special order is 9000/12000 × 100 (1)
18. [4(a)(ii)] = 75% (3)
19. [4(a)(ii)] = 75 (2)
20. [4(a)(ii)] New with special order 9000 + 5000 / 12 000 = 116.67% over full capacity (1)
21. [4(a)(ii)] OFR applies
22. [4(b) Note] L1 of AN and EVAL if only use results or other information.
23. [4(b) Knowledge] Meaning of 'special order' in general, i.e. 'one-off' factors in making the decision:
24. [4(b) Knowledge] Available capacity / capacity utilisation
25. [4(b) Knowledge] Unit and total contribution to fixed costs
26. [4(b) Knowledge] Impact on profit
27. [4(b) Knowledge] Possibility of future orders
28. [4(b) Knowledge] Impact on production of other products
29. [4(b) Application] Reference to and application of results
30. [4(b) Application] Contribution is $7500
31. [4(b) Application] Additional revenue of $25 000
32. [4(b) Application] Current spare capacity 3000
33. [4(b) Application] Capacity utilisation 75%
34. [4(b) Application] Capacity utilisation with special order will be 116.67%, so over full capacity
35. [4(b) Application] Reference to nature of special order and other impacts, such as building a relationship with another company
36. [4(b) Application] Reference to other points from the text, including 'social enterprise' objectives
37. [4(b) Application] Reference to need to use resources from other departments as 116.67% capacity utilisation, but employees specialise in own departments.
38. [4(b) Analysis] Special order will add to profit, but could more have been added if products were sold at usual selling price of $7 (an additional $2 per unit)
39. [4(b) Analysis] Impact on existing customers. As order will take C4T overcapacity then may be unable to meet existing customer needs resulting in dissatisfied customers and therefore loss of future sales
40. [4(b) Analysis] Special order may lead to future orders which will increase sales and profit
41. [4(b) Analysis] Impact of need for high productivity levels different contracts needed in new factory
42. [4(b) Analysis] C4T may be able to reorganise workforce and production to meet the new order and other forecast orders, e.g. by working overtime or getting in temporary staff to increase capacity.
43. [4(b) Evaluation] Recommendation with supporting argument
44. [4(b) Evaluation] $7500 contribution will only add to profit if other forecast orders can also be met
45. [4(b) Evaluation] Short/long term impact on C4T?
46. [4(b) Evaluation] To what extent might special order lead to more sales in future?