Y2M is a bus operating company in the public sector. One of its objectives is to break even on every bus route. Most of its competitors are in the private sector. Y2M wants to increase the number of customers using its buses. The Finance Director has been looking at some cost data shown in Table1. This is because Y2M plans to review its pricing methods. She is worried other businesses pay workers a higher wage rate and some of its drivers may leave. She said: 'To pay the same wage rate would increase variable cost to $2.20 per passenger per journey.' Table 1: Cost and price data for one Y2M route Number of passengers per day: 90 Price per passenger per journey: $2.50 Fixed costs per week: $300 Variable cost per passenger per journey: $2

Mark scheme

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

1. [2] Clear understanding: Where total costs equal total revenue; Where business makes neither profit or loss; Some understanding [1]: Revenue same as costs; Accept the formula Fixed costs / contribution [2]
2. [2] Good application: 90 × $2.50 = $225; Some application: Correct method but incorrect answer; $ not required for [2]
3. [4] Knowledge [2] award 1 mark for each objective identified; Application [2] award 1 mark for each explanation in context; Relevant point might include: profit [k] so prices for journeys could be set higher [app]; reduce costs [k] as it is more concerned about profit than providing bus services [app]; increased returns to shareholders [k]; survival [k]; growth / increase sales [k]; increased market share [k]; improved service [k]; Do not accept – Break even on all bus routes as this is their current public sector objective.
4. [6] Knowledge [2 × 1] - award 1 mark for each relevant method; Application [2 × 1] - award 1 mark for each relevant reference to this business; Analysis [2 × 1] - award 1 mark for each relevant explanation; Points might include: competitive pricing [k] charging similar prices will retain existing [an] passengers [app]; cost plus pricing [k] as Y2M aims to break even [app] so price must cover costs [an]; promotional pricing [k] lower prices encourages more people to use [an] its bus services [app]; penetration [k]; skimming [k]; Accept dynamic pricing and psychological pricing as these are appropriate pricing methods for transport
5. [6] Knowledge [1] – award 1 mark for identification of relevant issue(s); Application [1] – award 1 mark for a relevant reference made to this business; Analysis [2] – award up to 2 marks for relevant development of point(s); Evaluation [2] – justified decision made as to whether Y2M should pay its workers the same wage rate as its competitors; Points might include: Help retain employees [k] so fewer drivers leave [app] saving on recruitment costs [an]; Increase labour costs [k] leading to a higher break-even point [an] so need to attract more passengers [app] to be able to cover its costs [an]; Total costs may rise [k] which may lead to higher prices [an] which could reduce demand [an] for its buses [app]; Employees may be happy with their current pay [k] in the public sector [app] because they receive other benefits [an]; Higher pay may lead to reduced services [k]; Increasing pay may motivate workers [k]