TWH makes a range of toys using batch production. TWH's Managing Director, Dylan, plans to invest in new technology to reduce average costs. 'It's the only way to increase efficiency as I do not know how we can improve employees' motivation' he said. Dylan cannot decide on whether it would be better to use retained profits or a long term loan as the source of finance. Table 1: Data for 2014 Number of toys made per week 260000 Number of employees 500 Average wage per hour paid by TWH $6 Average wage per hour paid by similar businesses $6.50

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2015). The mark or mark type is shown in brackets.

1. [2] Clear understanding e.g. Total cost divided by the total number of units produced
2. [1] Some understanding e.g. cost to make one product/cost per unit
3. [2] Good application e.g. 520
4. [1] Some application e.g. total output/number of employees or 260000/500
5. Note: ignore $ sign
6. [2 × 1] Knowledge – award 1 mark for each relevant advantage [max 2]
7. [2 × 1] Application - award 1 mark for each relevant explanation in context of TWH
8. Relevant points might include:
9. • some variety in workers' jobs [k] leading to better motivation [app]
10. • allows more variety of products to be made [k] so can respond to changes in demand for different toys [app]
11. • if machinery breaks down other work can continue [k] so could improve efficiency [app]
12. • flexible way of working [k]
13. • economies of scale/bulk buying [k] so lower average costs [app]
14. • More output than job production [k]
15. Application marks may be awarded for appropriate use of the following: relevant use of numbers, toys, motivation, average cost, efficiency, new technology
16. Do not accept cheaper, faster, more output (if just this is stated)
17. [2 × 1] Knowledge - identification of relevant way [max 2]
18. [2 × 1] Application - award 1 mark for each way if relevant reference made to TWH
19. [2 × 1] Analysis - award 1 mark for each relevant explanation
20. Relevant points might include:
21. • Job rotation [k] swapping between making different toys [app] they are not bored doing the same thing [an]
22. • training [k] on the new technology [app] so employees feel valued [an]
23. • better communication with management [k] so workers that they are important to the business [an] so efficiency improves [app]
24. • improve pay [k] they pay $6 [app] as pay $.50 less per hour [an] OR bonuses/piece rate [k] so make more toys [app] to get paid above their usual wage [an]
25. • improved working conditions/environment [k]
26. Note: other options acceptable e.g. fringe benefits (allow only once), job enrichment, promotion
27. Do not accept work harder alone as analysis because a reason for this must be given
28. Application marks may be awarded for appropriate use of the following: relevant use of numbers, toys, average costs, efficiency, new technology.
29. [1] Knowledge – award 1 mark for identification of relevant point(s) [max 1]
30. [1] Application – award 1 mark if relevant reference made to TWH's business
31. [2] Analysis – award up to 2 marks for relevant development of point(s)
32. [2] Evaluation – justified decision as to which source of finance is best option to use
33. For 6 marks must explain why chosen source is the better option for this business
34. Points might include:
35. Retained profits-
36. • no need to repay/readily available [k] which can help keep average costs low [app] so no time wasted in trying to secure the finance [an]
37. • may not have sufficient funds available [k] so might still need a bank loan [an]
38. • no funds available for other uses [k]
39. Long term loan-
40. • can plan repayments over time/know repayments [k]
41. • interest costs to pay [k] which would increase average costs [app] which has to be repaid whether they make a profit or not [an]
42. • have retained profits available in case of need [k]
43. Note: Candidate's final decision can be for either option.
44. Application marks may be awarded for appropriate use of the following: relevant use of numbers, toys, lower average costs.