CHW manufactures electrical products including cameras. The business is developing new products. The Managing Director knows that the stage of the product life cycle can influence CHW's marketing decisions about promotion. He is analysing data for one of its products. An extract is shown in Table 3.1. The business would also like to introduce flow production into the factory. Table 3.1 Extract from CHW's data for one type of camera (2021) Selling price per unit (): 120 Variable cost per unit (): 40 Fixed costs ($): 200 000 Margin of safety (units): 500

Mark scheme

Marking points from the official mark scheme (May/June 2022). The mark or mark type is shown in brackets.

1. [1] Provides diversification / spreads risk
2. [1] Increase revenue/sales
3. [1] Enter new markets / attracts new customers
4. [1] Allow the business to expand into existing markets / increase market share / improved competitive advantage
5. [1] Maintain customer loyalty
6. [1] Costs of carrying out (market) research
7. [1] Producing trial products
8. [1] (Cost of) raw materials/labour/equipment
9. [1] Marketing/advertising costs
10. [2] Correct answer: 2500
11. [1] Correct method but incorrect answer e.g. 200 000 / 80
12. [1] OR 200 000 / (120-40)
13. [1] OR Total fixed costs / selling price (per unit) – variable cost (per unit)
14. [1] OR Fixed costs / contribution (per unit)
15. If correct answer given with no working shown, award 2 marks.
16. Award only 1 mark if 2500 is written as part of the answer but is not given as the final answer.
17. [1] Lower fixed costs [k] from $200 000 for the year [app]
18. [1] Lower variable costs / variable cost per unit [k] from $40 [app]
19. [1] Increase price [k] of cameras [app]
20. [1] High level/amount of promotional activity [k] to help raise awareness/inform/ attract/persuade new customers [an] about its cameras [app]
21. [1] Attract/inform/persuade customers [k] to increase sales/revenue [an]
22. [1] Establish brand image [k] to make business competitive [an]
23. [1] High level/amount of promotion/promotional spending [k] to try to encourage brand loyalty [an] so it can sell 2500 to break even [app]
24. [1] Attract/inform/persuade customers [k] to increase revenue [an]
25. [1] Likely to be less promotion [k] as product is well known / business wants to use its funds for other purposes [an] such as developing new products [app]
26. [1] To remind customers about its products [k] so maintain sales/market share [an]
27. [1] Spending might increase if use an extension strategy [k] to inform people that the product is worth buying again [an]
28. [1] Limited promotion/spending [k] to reduce marketing costs [an]
29. [1] May only use to inform customers of price reductions [k] so no longer selling at $120 [app] to encourage some sales [an]
30. [1] May decide to stop promotion during this stage [k]
31. [1] To clear out inventory [k]
32. [K] High output [k] so able to meet demand (on time) [an]
33. [K] Benefit from economies of scale [k] leading to lower unit costs [an]
34. [K] More capital intensive [k] leading to lower labour costs [an]
35. [K] Lower (employee) motivation [k] leading to lower productivity [an]
36. [K] Can produce 24 hours a day [k]
37. [K] If one machine breaks down whole production line stops [k] lose output/fewer sales [an]
38. [K] Requires a large capital investment [k]
39. [K] More flexible / produce a variety of products [an]
40. [K] Unique products so able to charge a higher price [an]
41. Justification might include: Materials can be purchased in large amounts / benefit from economies of scale [k] leading to lower unit costs [an]. However, it requires a large capital investment [k] which the business might not be able to afford. [an] It might only be worthwhile if there is a large market for a standardised product [eval] which can cover the high initial costs [eval].