LCT manufactures cooking pots. It has 16 employees. As a small business LCT uses social media as its method of advertising. The owner, Carole, knows having a good brand image is important. She is analysing LCT's break-even chart. This is shown in Fig. 2.1. Carole is considering possible ways to lower LCT's break-even level of output. [Figure 2.1]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] Assumes that all costs can be represented by straight lines
2. [1] It is not easy to separate costs into fixed and variable
3. [1] Assumes that all output is sold/does not allow for inventory (stock) holding costs
4. [1] Assumes only one type of product sold
5. [1] Assumes selling price remains unchanged for all products sold
6. [1] Concentrates on break-even point/ignores other aspects of operations such as how to reduce wastage/increase sales
7. [1] It is a prediction/forecast/does not include unexpected costs.
8. [2] Correct answer e.g. $2000
9. [1] Correct method but incorrect answer e.g. Profit = total revenue – total cost
10. [1] OR 8000 – 6000
11. [1] Encourage/maintain (customer) loyalty [k] for this small business [app]
12. [1] Can help increase sales/customers/market share [k] of cooking pots [app]
13. [1] Aids recognition/awareness/advertising [k] on social media [app]
14. [1] May be able to charge high price (than for unbranded products) [k] which can help lower its break-even output [app]
15. [1] Helps differentiate product from competitors [k] so may be able to sell more than 800 units [app]
16. [1] Helps launch new products in the market (as customers already know and trust the brand) [k]
17. [1] May attract investors [k]
18. [1] Helps with employee recruitment [k]
19. [1] Increase price [k] higher than $10 [app] which would increase revenue [an]
20. [1] Lower rent or other example [k] below $2000 [app] so lowering fixed costs/expenses [an] OR lower fixed costs [k] lead to lower total costs (TC) [an]
21. [1] Buy cheaper raw materials or other example [k] for its cooking pots [app] reducing variable cost [an] OR lower variable costs [k] lead to lower total costs (TC) [an]
22. [2] Award up to 2 marks for identification of relevant points.
23. [2] Award up to 2 marks for relevant development of points.
24. [2] Award up to 2 marks for a justified decision as to whether social media is the best method of advertising for a small business to use.
25. Social media: [k] Cover wide area/seen by many people [an] leading to an increase in sales[an] more revenue [an]
26. Social media: [k] Low-cost method of advertising [an] so fewer cash outflows [an]
27. Social media: [k] Easy/quick to update [an] so can spend time on other tasks [an]
28. Social media: [k] Can target specific groups [an] could encourage brand loyalty [an]
29. Social media: [k] Way to build relationship/communicate with customers/gain direct customer feedback [k]
30. Social media: [k] Risk of hacking/fraud/virus [k]
31. Social media: [k] Bad reviews can be seen by everyone [an] could lead to a bad reputation [an]
32. Social media: [k] No internet access/not everyone uses social media/easy to lose message among many messages on social media [k]
33. Social media: [k] Takes time to continually post/monitor messages [k]
34. Other methods: Newspapers [k] can contain lot of information [an] but fewer people read newspapers these days [an]
35. Other methods: Leaflets [k] can be kept for future reference [an] but may not be read/thrown away (as seen as junk) [an]
36. Other methods: Posters/billboards [k] can be seen by anyone when passing [an] but cannot include detailed information [an]
37. Other methods: Website [k] more information can be added [an]
38. Other methods: Pop-up adverts [k] can be expensive [an]
39. Other methods: Television [k] can be high cost [an]
40. Other methods: Radio [k]
41. Justification might include: Social media is low-cost [k] reducing cash outflow [an]. Another method is leaflets [k] which may only reach a limited number of people [an]. Social media is the best way, for a small business, because it is unlikely to have a large marketing budget [eval]. Therefore the cost is likely to be important as it allows the business to have funds available for other purposes [eval].