Bob's Furniture (BF) Bob is a carpenter who uses job production to make furniture using premium materials. Each item of furniture is priced using cost-based pricing with a 50% mark-up. He is a sole trader. Due to poor economic activity in country X, Bob has fewer customers for his designs. To keep his cash flow positive he is considering two different options. Both options have an opportunity cost. Option 1: Make garden benches. Bob is thinking about making garden benches from lower quality materials. Customers will be able to customise some elements of the bench, such as colour. The bench would be delivered to their home. Promotion of the benches would take place at craft fairs and markets. Option 2: Make small wooden ornaments. Bob has noticed other businesses selling lots of low-priced small wooden ornaments. Bob could produce similar ornaments, using the premium wood left over after making his job-produced furniture. Table 1.1: Financial summary of the two options | | Option 1 Garden benches | Option 2 Ornaments | | :-------------------------- | :--------------------- | :----------------- | | Cost of raw materials ($ per unit) | 50 | 5 | | Transportation costs ($ per unit) | 25 | 0 | | Cost of labour ($ per unit) | 25 | 1 | | Forecast sales (units per month) | 5 | 40 | Whichever option Bob chooses, he will continue to use cost-based pricing and make premium furniture when customers demand it.

1. (a)(i)Define the term 'job production' (line 1).[2]
2. (a)(ii)Explain the term 'opportunity cost' (line 4).[3]
3. (b)(i)Refer to Table 1.1. Calculate the forecast profit margin for option 1.[4]
4. (b)(ii)Explain one way in which Bob could increase the forecast profitability of option 1.[2]
5. (c)Analyse two benefits to Bob of using cost-based pricing.[8]
6. (d)Refer to Table 1.1 and any other relevant information. Recommend which of the two options Bob should choose. Justify your recommendation.[11]