Keila owns a successful small bakery shop. Keila would like to expand her business. She could open a café selling cakes and drinks in a popular tourist location. Keila plans to give out free samples as her main method of promotion. She has prepared some customer and cost information as shown in Table 1. Keila used primary market research to find out some of the information. Table 1: Forecast customer and cost information for the new café Average amount spent per customer: $4 Average number of customers per week: 325 Variable costs per customer: $2 Fixed costs per week: $500

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [2] Clear understanding [2]: e.g. costs that do not change [1] as the level of activity / output / sales changes [1]
2. [2] Costs which have to be paid whether the business produces any products or not
3. [2] Some understanding [1]: e.g. costs that stay the same
4. [2] Do not award examples as this does not explain the term.
5. [2] Good application [2]: $1300
6. [2] Some application [1]: 325 × 4 OR number of customers × average spend (price)
7. [2] $ sign not needed to award full marks
8. [2] Knowledge [2 × 1] - award 1 mark for each advantage identified
9. [2] Application [2 × 1] - award 1 mark for each explanation in context
10. [4] Points might include: Increases awareness of her products [k] with tourists [app]
11. [4] Encourages customers to try her products [k] and visit the café [app]
12. [4] Tempt customer to buy more [k] helping her remain successful [app]
13. [4] Way to get feedback [k] so she improves her cakes [app]
14. [4] Can test out new product ideas [k] identified from research [app]
15. [4] Customers understand the quality of the product [k]
16. [4] Application marks may be awarded for appropriate use of the following: successful bakery, small shop, cakes / drinks OR related words e.g. taste, popular tourist location, correct use of numbers and information from Table 1 e.g. 325, $1300, café, (primary market) research
17. [2] Knowledge [2 × 1] - award 1 mark for a relevant advantage / disadvantage
18. [2] Application [2 × 1] - award 1 mark for each relevant reference made to this business
19. [2] Analysis [2 × 1] - award 1 mark for each relevant explanation
20. [6] Relevant points might include: Advantages: Up-to-date [k] so able to make more accurate decisions [an] such as whether to open the café [app]
21. [6] Specific to her purpose [k]
22. [6] Information is not available to other competitors [k] so may provide a competitive advantage [an] for this small shop [app]
23. [6] Disadvantages: High cost [k] to find out views on her bakery [app] which will increase her expenses [an]
24. [6] Takes long time to collect [k]
25. [6] Can be bias in questions or how questions are asked [k] leading her to make the wrong decisions [an]
26. [6] Application marks may be awarded for appropriate use of the following: cakes / drinks OR related words e.g. taste, small shop, successful bakery, popular tourist location, correct use of numbers and information from Table 1 e.g. 325, $1300, free samples, café, expansion
27. [1] Knowledge [1] - award 1 mark for identification of relevant point(s)
28. [1] Application [1] - award 1 mark for a relevant reference made to this business
29. [2] Analysis [2] - award up to 2 marks for relevant development of point(s)
30. [2] Evaluation [2] - justified decision made as to whether Keila should open the new café
31. [6] Points might include: She expects to attract enough customers to cover her fixed costs [k] as she predicts 325 [app]
32. [6] TR-TC [k] $1300 [app] - $1150 [an] leaving a profit of £150 [an]
33. [6] TVC = VC x Output [k] $2 × 325 [app] = $650 [an + an]
34. [6] TC = TFC + TVC [k] $500 + $650 [app + an] = $1150 [an + an]
35. [6] Has relevant business experience [k] as runs a successful bakery [app]
36. [6] Spreads risk [k]
37. [6] Cost of shop and labour to run the café [k]
38. [6] How reliable is the data gathered [k] from her primary research [app]
39. [6] Does she have time / finance to run both businesses [k]
40. [6] Application and analysis can be awarded for calculation of: total variable costs $650 [app + an], total costs $1150 [app + an + an], gross profit $650 [app + an + an], profit $150 [app + an + an], break-even output 250 [app + an + an], 75 more customers [app + an + an]
41. [6] OFR applies if candidate uses incorrect total revenue figure calculated in 3b to do subsequent calculations
42. [6] Application marks may be awarded for appropriate use of the following: successful bakery, small shop, cakes / drinks, free samples, popular tourist location, primary market research, correct use of numbers and information from table 1 e.g. 325, $1300