Gomez is the manager of a small computer repair business. Table 1 shows some costs and prices for his business. As it is a competitive market, Gomez knows it is important to maintain customer loyalty and revenue. Gomez knows that a lower break-even point would help improve profits. He thinks the best way to lower the break-even point is to raise prices. Table 1: Cost and price information Price per customer $30 Variable cost per customer $20 Average number of customers per month 140 Monthly fixed costs $1000

Mark scheme

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

1. [2] Clear understanding [2] Income/money made by the business [1] from the sale of goods or services [1] OR Quantity sold × price per unit [2]
2. [1] Some understanding [1] e.g. Income/money made by the business [1]
3. [2] Clear understanding [2] costs that change [1] with the level of output produced/sales made [1]
4. [1] Some understanding [1] e.g. costs that change [1] or costs that vary with sales/output [1]
5. Do not accept examples of variable costs
6. Do not accept the phrase 'costs that vary' as this is re-wording the question
7. [1] Accurately plotted TR line [1]: start at 0, at 100 units is $3000
8. [2] Accurately plotted TC line [2] in total: start at $1000 [1] $3000 at 100 units [1]
9. [1] Labelling: TR and TC [1] only if layout is correct. TR must start at zero and lines must cross
10. Notes:
11. • Accurately drawn unlabelled break-even chart [3].
12. • For 4 marks TR [revenue] and TC must be clearly labelled.
13. • Max 1 mark for inaccurately plotted break-even chart with TR and TC correctly labelled.
14. [6] Knowledge [2 × 1] - award one mark for each method identified [max 2]
15. Application [2 × 1] – award 1 mark if relevant reference made to Gomez's business
16. Analysis [2 × 1] - award 1 mark for each relevant explanation
17. Relevant points might include:
18. • Communicate with customers e.g. newsletters, social media [k] so that they remember your business [an] when they next need computer repaired [app]
19. • Offer good quality service [k] so that customers want to return [an] rather than go to one of its many rivals [app]
20. • Extra services [k] e.g. delivery/credit facilities/after sales/training
21. • Offer rewards [discounts] to existing customers/loyalty card [k] such as free software [app] so consumers have an incentive to return [an]
22. • Train staff [k] so they are able to offer a good quality service [an]
23. • Ask for feedback e.g. surveys [k] to provide the repairs/service [app] that customers require [an]
24. • Resolve complaints quickly [k] so that customers don't go to rivals [an] to repair their computer [app]
25. Application marks may be awarded for appropriate use of the following: competitive market/many rivals, computer repairs, software, small business.
26. Each application to be awarded only once.
27. [6] Knowledge [1] – award 1 mark for identification of relevant issue(s) [max 1]
28. Application [1] – award 1 mark if relevant reference made to Gomez's business
29. Analysis [2] – award up to 2 marks for relevant development of point(s)
30. Evaluation [2] – justified decision made as to whether raising prices is the best way lowering the break-even point. Candidate's final decision can be either for or against the statement.
31. Relevant points might include:
32. • raise in price will increase revenue [k] so need to do less repairs [app]
33. • effect of elasticity [k] if demand price elastic, increasing prices will see a greater fall in demand [an]
34. • depends on actions of competitors [k] as it is a competitive market [app]
35. • is the business able to lower costs [k]
36. • lower costs [k] might mean quality of work is reduced [an] so lose customer loyalty [app]
37. Application marks may be awarded for appropriate use of the following: use of break-even information, competitive market, small computer shop, customer loyalty.