Using the information in Appendix 2: Refer to Appendix 2 and Appendix 3 and other information.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. [2] (a)(i) (Break-even = fixed costs/contribution per unit) Contribution (Selling price per unit $250 – Variable cost per unit $125) = $125 Fixed cost per month $10000/ $125 (1) Break-even level of sales = 80 (1)
2. [2] (a)(ii) (Margin of safety = Actual sales – break-even level of sales) Forecast sales per month 100 – 80 (1) = 20 (1)
3. [1] (a)(iii) Assumes no inventories
4. [1] (a)(iii) 'Straight line' assumptions about costs and revenue
5. [1] (a)(iii) Fixed costs are not always constant
6. [1] (a)(iii) Assumes all products are actually sold / it is only an estimate/forecast
7. [1] (a)(iii) Only focuses on break-even when there are many other factors to consider when running a business
8. [1] (a)(iii) Assumes single product
9. [1] (a)(iii) Hard to split costs between fixed and variable
10. [1] (a)(iii) May be hard to split fixed costs if produce several products
11. [1] (b) Only use raw materials from sources that replace what they have used Advantages: Gives FO a good reputation for selling wooden furniture
12. [1] (b) Only use raw materials from sources that replace what they have used Advantages: Increase sales from ethically minded consumers
13. [1] (b) Only use raw materials from sources that replace what they have used Advantages: Able to charge a premium price for the furniture
14. [1] (b) Only use raw materials from sources that replace what they have used Disadvantages: Variable costs will increase by 20% – $25 per item of furniture
15. [1] (b) Only use raw materials from sources that replace what they have used Disadvantages: At current sales level, profit would be zero so would need to increase the selling price or units sold
16. [1] (b) Only use packaging that can be recycled Advantages: Makes product packaging sustainable and is in line with sustainable objectives of FO
17. [1] (b) Only use packaging that can be recycled Advantages: Reputation increased amongst ethical consumers – more sales
18. [1] (b) Only use packaging that can be recycled Disadvantages: Selling price may be more 10% expensive which may lower sales
19. [1] (b) Only use packaging that can be recycled Disadvantages: May not be suitable for large items of furniture
20. [1] (b) Only use packaging that can be recycled Disadvantages: Selling price may increase by $25
21. [1] (b) Only use electric vehicles to deliver products Advantages: Cheaper running costs by 5%
22. [1] (b) Only use electric vehicles to deliver products Advantages: USP for FO
23. [1] (b) Only use electric vehicles to deliver products Advantages: Variable costs may fall by $6.25
24. [1] (b) Only use electric vehicles to deliver products Advantages: Costs increase in short run, but cost savings in long run
25. [1] (b) Only use electric vehicles to deliver products Advantages: Contributes to reduced air pollution – meets FO's objective of sustainability
26. [1] (b) Only use electric vehicles to deliver products Disadvantages: More expensive to purchase initially then cheaper to run
27. [1] (b) Only use electric vehicles to deliver products Disadvantages: Higher capital cost for new vehicles than petrol or diesel vehicles which requires higher investment by FO
28. [1] (b) Recommendation: Using wood from sustainable sources would enhance the image of FO and make it more attractive to ethical consumers leading to much higher sales and revenue leading to maximising profit. However, as furniture are large items then packaging will be less important. Electric vehicles will require too large a capital investment.
29. [1] (b) Recommendation: Recycled packaging will have the greatest effect on maximising profit as very little packaging is used for furniture and this packaging can be reused for future customers. The increase in costs is likely to be less than the 20% increase from the use of raw materials from sustainable sources.
30. [1] (b) Recommendation: Electric vehicles is the only option which results in a fall in variable costs – by 5% and therefore the reduction in running costs delivering its furniture to all parts of the country would be significant hence reducing total costs and maximising profit.