Refer to Table 1.2. Calculate for 2023–24, the operating profit margin.

Mark scheme

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

1. [4] Correct answer 0.5/10.8 x 100 = 4.63% OR 4.6% OR 4.629%
2. [3] Calculation of operating profit AND statement of equation for operating profit margin ($0.5 m AND Operating profit margin = operating profit / revenue × 100)
3. [3] Incorrect rounding (e.g. 4.62% OR 4.7%)
4. [3] Operating profit margin for 2022-23 (0.6/10 × 100 = 6%)
5. [3] Statement of equation for operating profit margin AND OFR for answer including an error in calculating operating profit (4.4/10.8 × 100 = 40.74% (GPM) OR 0.2/10.8 × 100 = 1.85% (NPM))
6. [2] Calculation of operating profit (10.8 – 6.4 – 3.9 = $0.5 m OR 10.8 – 10.3 = $0.5 m)
7. [1] Equation for calculating operating profit (Operating profit = Revenue - (cost of sales + expenses))
8. [1] Equation for operating profit margin (Operating profit margin = operating profit / revenue × 100)
9. [1] Error in calculating operating profit (4.4 m (GP) OR 0.2 m (NP))
10. [K] Profitability measures the relationship between profit and sales, or profit and capital employed.
11. [K] Need to increase revenue with a less than proportionate increase in costs.
12. [K] Reducing costs without a corresponding loss of sales or reduction in price.
13. [K] Possible methods: Increasing price/Adding value.
14. [K] Possible methods: Reducing cost of sales (direct costs) e.g. cheaper materials.
15. [K] Possible methods: Reducing expenses e.g. reducing indirect employees.
16. [K] Possible methods: Reduce promotion costs.
17. [K] Possible methods: Reduce long-term borrowing.
18. [K] Possible methods: Increasing sales through promotion.
19. [APP] ROCE has decreased by 0.4%.
20. [APP] OPM in 2023/24 is 4.6% (reduced from 6% in 2022/23).
21. [APP] Revenue has increased $0.8 m but COS as increased by $0.85 m.
22. [APP] Premium recycled materials used for CookBag.
23. [APP] HR policy increasing direct labour costs – ‘pay is good’.
24. [APP] HCC is a social enterprise.
25. [APP] Increased competition.
26. [AN] The increase in COS has caused profitability to decrease, this could be linked to the human resources approach indicating that HCC should take a harder HR approach to control costs.
27. [AN] Increasing price to customers to increase profit margin as HCC may have good branding and therefore sales would be largely unaffected.
28. [AN] Switching from premium recycled materials to reduce material costs to reduce COS and therefore increase gross profit margin.
29. [AN] Reducing wages to reduce COS and therefore increase profit however this could result in higher labour turnover and lower productivity and therefore cause profits to decrease.
30. [AN] Set higher productivity targets to increase output per employee and therefore reduce unit costs which would result in higher profit.
31. [AN] Expand product range to increase revenue by targeting new market segments.
32. [AN] Target a higher income market so that HCC can increase prices and therefore increase the profit margin.
33. [EVAL] A judgement about how to increase profitability.
34. [EVAL] Evaluation of the relative advantages/disadvantages of different methods of increasing profitability.
35. [EVAL] Elements that the evaluation/judgement might depend on – impact on workers, alignment with social objectives of HCC, ease and speed of implementation, impact on branding of HCC impact on customers, price elasticity of demand.
36. [EVAL] As a social enterprise HCC should consider impact of any change on customers. Higher prices may be unacceptable as key objective is to help customers cut cooking costs.
37. [EVAL] Although a reduction in material costs by using non-recycled materials will be beneficial this might be at the expense of HCC's concerns for reducing CO2 emissions.
38. [EVAL] In the short term reducing costs through a reduction in material costs by using non-recycled materials might be the quickest way to improve profitability.
39. [EVAL] However, this may be at the expense of HCC's long term aims for reducing CO2 emissions which as a social enterprise is important.
40. [EVAL] Overall, HCC must decide whether increasing profit is important as a social enterprise or whether their current profit levels allow them to achieve their aims and objectives successfully without making any changes.