Professional Documents
Culture Documents
Bus Man SL Bep
Bus Man SL Bep
SECTION A
1. Informatic
Informatic manufactures computers and is based in Sri Lanka. Informatic uses a method of
batch production and manufactures batches of computers according to customer specifications
such as computer speed and screen size. Production workers are paid by the hour but receive a
lower than average wage for Sri Lanka. To compensate they are offered long-term job security and
other non-financial rewards.
Informatic exports 4000 computers a year to Pakistan using local independent distributors who
have knowledge of the local market as well as experience in delivering and installing computers.
90 % of Informatic’s sales are organized through such distribution channels. Because using local
independent distributors increases the final price of the computer to the customer, senior managers
have decided to offer customers in Pakistan the opportunity to purchase computers directly from
Informatic. Customers have to telephone orders to Informatic in Sri Lanka from Pakistan because
e-commerce sales are not available.
(i) calculate the break-even quantity in units (show all your working). [2 marks]
(ii) calculate the margin of safety in units (show all your working). [2 marks]
(iii) calculate the net profit if 4000 computers are sold (show all your working). [2 marks]
(c) Examine the effectiveness of the new distribution channel for Informatic. [5 marks]
SECTION A
Award [1 mark] for a basic definition that conveys partial knowledge and
understanding.
Award [2 marks] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.
Award [1 mark] for each correct and relevant fixed cost identified up to a
maximum of [2 marks].
–6– M11/3/BUSMT/SP2/ENG/TZ0/XX/M
(i) calculate the break-even quantity in units (show all your working). [2 marks]
[1 mark]
If a candidate who has shown working provides a correct procedure
(thus, demonstrates an understanding of the underlying concepts) but has
made an error in calculation.
[2 marks]
Candidate provides the correct answer with working.
(ii) calculate the margin of safety in units (show all your working). [2 marks]
[1 mark]
If a candidate who has shown working provides a correct procedure
(thus, demonstrates an understanding of the underlying concepts) but has
made an error in calculation.
[2 marks]
Candidate provides the correct answer with working.
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(iii) calculate the net profit if 4000 computers are sold (show all
your working). [2 marks]
Method 1
Revenue 4000 computers at $1000 per computer 4 000 000
Variable costs 4000 computers at $800 per computer –3 200 000
Fixed costs –100 000
Profit 700 000
Method 2
Net profit = margin of safety × contribution
= 3500 units × $200
= $700 000
[1 mark]
If a candidate who has shown working provides a correct procedure
(thus, demonstrates an understanding of the underlying concepts) but has
made an error in calculation.
[2 marks]
Candidate provides the correct answer with working.
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Cost/revenue
4 million Total revenue
Profit
Total costs
Break-even
point
Ideally, the candidate will draw an arrow pointing to the break-even point and
label the arrow. However, accept as an “appropriately labelled” break-even point
a vertical line from the x-axis to the break-even point provided that the line is
labelled “break-even point”.
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(c) Examine the effectiveness of the new distribution channel for Informatic. [5 marks]
However:
• a lack of experience in selling through this channel and also not being able to
take advantage of the local knowledge of the Pakistani distributors
• given that orders will be taken by telephone, additional staff training will be
required to process those orders
• the new system may not be able to cope with increased orders
• the new telephone system may not be entirely reliable.
SECTION A
Asado Heaven (AH) is a traditional barbeque restaurant run by a sole trader called Roberto Vergerio
and is located in Montevideo’s city centre next to the football stadium. The restaurant serves grilled
meats and a variety of salads and fried potatoes. The meats are cooked in a traditional fashion on a
wood-fired grill that gives it a special flavour. The traditional food is very popular with local residents
and tourists alike.
AH competes with four other traditional barbeque restaurants (A, B, C, D) within the same street.
Roberto has constructed a position map to determine his position among the four main competitors
in terms of price and quality. He is planning to use some below the line promotion to attract new
customers.
Price
High
Competitor A
Competitor B
Competitor C
Asado Heaven
Competitor D
Low
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(Question 1 continued)
Currently, the restaurant serves on average 100 meals per day; it opens every day of the month
(assume 30 days) and each meal is sold at an average price of US$10. The business employs a
barbeque chef at a monthly salary of US$500 and two waiters with a monthly salary of US$350 each.
(a) Describe two below the line promotion methods that Roberto could use. [4 marks]
(b) Calculate for AH for each month (show all your working):
(i) other employee salaries (figure X) and hence the break-even level
of output. [2 marks]
(iii) the profit or loss at the current level of meals served. [2 marks]
(d) Using the position map, analyse how AH can differentiate itself from its main
competitors. [5 marks]
SECTION A
1. (a) Describe two below the line promotion methods that Roberto could use. [4 marks]
Award [1 mark] for each correct and relevant below the line promotion method
identified up to a maximum of [2 marks]. Award an additional [1 mark] for a
relevant description of each method identified up to a maximum of [2 marks].
(b) Calculate for AH for each month (show all your working):
(i) other employee salaries (figure X) and hence the break-even level
of output. [2 marks]
Award [1 mark] for the correct workings and [1 mark] for the correct
answer.
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Award [1 mark] for the correct workings and [1 mark] for the correct
answer.
(iii) the profit or loss at the current level of meals served. [2 marks]
Method 1
Revenue 3000 meals at US$10 per meal 30 000
Variable costs 3000 meals at US$8 per meal –24 000
Fixed costs –2450
Profit 3550
Profit = US$3550
Method 2
Profit margin of safety contribution
1775 meals 2
US$3550
Award [1 mark] for the correct workings and [1 mark] for the correct
answer.
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Cost/revenue in US$
30 000 Total revenue
Profit
Total costs
Break-even
point
12 250
Margin of safety
Ideally, the candidate will draw an arrow pointing to the break-even point and
label the arrow. However, accept as an “appropriately labelled” break-even point
a vertical line from the x-axis to the break-even point provided that the line is
labelled “break-even point”.
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(d) Using the position map, analyse how AH can differentiate itself from its main
competitors. [5 marks]
Roberto has constructed a position map to determine where his restaurant stands
vis-à-vis the other competing restaurants in the street. According to the position
map, AH is competing with restaurants A, B and C in the high quality high priced
segment, meanwhile restaurant D is all alone in the economy segment offering an
inferior service.
The map suggests that AH has a distinct position in the market. On the one hand,
restaurant B is perceived as offering services with the same quality than AH but at
a higher price. Restaurant C on the other hand, is perceived as offering services at
the same price than AH but with a lower quality. Restaurant A in turn, is
perceived as providing better quality services but substantially more expensive.
Another option for AH is to try to change its market position to a “less crowded”
position to differentiate more effectively from restaurants B and C. It could aim
at the premium segment such as restaurant A, or inversely, at the economy
segment like restaurant D. However, these alternatives would imply competing
with restaurants A or C which are already positioned in their market segments.
It could also entail several risks such as losing customers or drastic changes to the
restaurant’s image.
Roberto should then take advantage of AH’s current position to deepen its
differentiation over its competitors. Future promotions should emphasize AH’s
distinct position on quality service and price.
SECTION A
Brent’s accountant prepared a comparison of the current and proposed new scale of operation.
The current sales price per surfboard will remain at $1400 no matter the scale of operation.
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(Question 1 continued)
(a) (i) Identify one advantage and one disadvantage of internal recruitment. [2 marks]
(b) Prepare a fully labelled break-even chart for WS at its current actual sales of
2400 units in the current building. [5 marks]
(c) (i) Calculate the contribution of one surfboard in the proposed new building. [1 mark]
(ii) Calculate the initial forecast profit for WS for its first year of operation in
the proposed new building (show all your working). [3 marks]
(iii) Explain why Brent’s accountant forecasted lower variable costs per unit in
the proposed new building. [2 marks]
(d) Using appropriate calculations for the actual units produced (2400) in the
current building and initial forecasted units produced (3300) in the proposed
new building, analyse the impact of the proposed new expanded scale of
operation on profits and profitability. [5 marks]
SECTION A
1. (a) (i) Identify one advantage and one disadvantage of internal recruitment. [2 marks]
(b) Prepare a fully labelled break-even chart for WS at its current actual sales
of 2400 units in the current building. [5 marks]
Cost/revenue
in $000’s
3360 Total revenue
Break-even Profit
point Total costs
2426.2
Margin of safety
Number of
0 1733 2400 surfboards
[1 mark] for each appropriately labelled axis (the vertical axis must include
reference to both costs and revenue) – award a maximum of [2 marks].
[1 mark] for an accurately drawn and labelled total revenue curve.
[1 mark] for an accurately drawn and labelled total cost curve.
[1 mark] for the identification of the break-even level of output.
Ideally, the candidate will draw an arrow pointing to the break-even point and
label the arrow. However, accept as an “accurately labelled” break-even point
a vertical line from the x-axis to the break-even point provided that the line is
labelled “break-even point”.
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(c) (i) Calculate the contribution of one surfboard in the proposed new
building. [1 mark]
(ii) Calculate the initial forecast profit for WS for its first year of
operation in the proposed new building (show all your working). [3 marks]
Alternative method:
If the candidate produces the correct answer but does not show workings,
award [2 marks].
If the candidate uses the alternative method and rounds the number of
units to 762, accept the profit as $495 300 .
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(iii) Explain why Brent’s accountant forecasted lower variable costs per
unit in the proposed new building. [2 marks]
(d) Using appropriate calculations for the actual units produced (2400) in the
current building and initial forecasted units produced (3300) in the
proposed new building, analyse the impact of the proposed expanded scale
of operation on profits and profitability. [5 marks]
Using the same approach as for (c)(ii), candidates may calculate the current
profit for the existing building with actual production levels. The current profit
is ($1400 2400) – ($800 2400) – $590 000 – $450 000 = $400 000.
This shows that, when doing a simple comparison with the new building,
profit would increase significantly (from $400 000 to $495 000, so + 23.75 %),
a calculation that the accountant probably did in order to justify the expansion.
The proposed expanded scale of operation has clear impacts on both profit and
profitability, though Brent Bass would also need to take other factors into
account before deciding on the expansion, especially as financial gain
(measured through profit and profitability) does not seem to be his main
motivation.
Aravind Eye Care is the world’s largest provider of eye surgery. Founded in 1976 in India by
Dr Govindappa Venkataswamy, the non-profit organization can perform 250 000 operations
per year. At Aravind Eye Care, only 40 % of the patients pay for the operation, which costs
them US$60. The other 60 % of the patients, who would otherwise not be able to afford the
operation, do not pay.
Aravind Eye Care has transformed the process of eye surgery in developing economies.
Expensive medical equipment has been purchased but is used 24 hours a day in order to lower
the average cost for each operation. In Aravind Eye Care hospitals, surgeons perform only
the eye operation itself whereas in other hospitals, doctors also provide care before and after
the operation. At the Aravind Eye Care hospitals, each doctor can perform 4000 eye operations
per year, whereas other eye surgeons in India average 400.
With these economies of scale, in 2007 Aravind Eye Care performed 100 000 operations for
fee-paying patients. For these patients:
• the price charged per operation was US$60
• the variable cost per operation was US$20
• fixed costs including overheads were US$3 000 000.
[Source: adapted from Globality: Competing With Everyone From Everywhere For Everything,
New York and Boston: Business Plus, 2008, and http://papers.ssrn.com/sol3/papers.cfm?abstract_id=991824, 17 June 2008]
(b) Calculate for fee-paying patients in 2007 at Aravind Eye Care (Show all
your working):
(c) Prepare a fully labelled break-even chart for Aravind Eye Care in 2007. [5 marks]
(d) With reference to appropriate content theory, examine two factors that could
influence the motivation of doctors at Aravind Eye Care. [5 marks]
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Award [1 mark] for a basic definition that conveys partial knowledge and
understanding.
Award [2 marks] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.
Overheads are indirect expenses that are not chargeable to a particular part
of work or production. Typically overheads are items such as accounting
fees, advertising, depreciation, insurance, interest, legal fees, rent, repairs,
supplies, taxes, telephone bills, travel and utilities costs.
Award [1 mark] for a basic definition that conveys partial knowledge and
understanding.
Award [2 marks] for a full, clear definition that conveys knowledge and
understanding similar to the answer above.
(b) Calculate for fee-paying patients in 2007 at Aravind Eye Care (Show all your working):
Award [1 mark] for the correct workings and [1 mark] for the correct
calculation.
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The break-even quantity occurs when total costs equal total revenue.
Award [1 mark] for the correct workings and [1 mark] for the correct
calculation.
Award [1 mark] for the correct workings and [1 mark] for the correct
calculation.
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(c) Prepare a fully labelled break-even chart for Aravind Eye Care in 2007. [5 marks]
Break-even chart
Aravind Eye Care
Cost/revenue
Millions of US$
7.0
2.0
0 Output/Thousands of fee-paying
10 20 30 40 50 60 70 80 90 100
eye surgeries per year
[1 mark] for each correctly labelled axis – maximum of [2 marks]. For the
y-axis, candidates must label it “cost/revenue”, or something equivalent thereto,
to receive [1 mark]. Just labelling the axis with a US$ sign is insufficient for
a mark.
[1 mark] for either identification of the break-even level of output or the value of
the break-even level of output.
(d) With reference to appropriate content theory, examine two factors that could
influence the motivation of doctors at Aravind Eye Care. [5 marks]
Candidates should refer to and apply appropriately any of the standard content
theories addressed in a standard-level course (Taylor, Maslow, McGregor and
Herzberg) and might consider the factors below (and any other appropriate
factors).
For example, according to Maslow’s hierarchy of needs, after social needs have
been met individuals want recognition, such as the award from the Bill & Melinda
Gates Foundation, which honoured all employees but especially the doctors at
Aravind Eye Care. After the need for recognition, according to Maslow, people
have the opportunity to self-actualize (to feel complete and valid), which for
medical doctors might well be achieved by providing medical care to the poor.
To achieve the top markband the candidate must provide a thorough examination
of factors that might affect the motivation of doctors. The response reflects
detailed knowledge and understanding of motivational theory, to which the
candidate refers to explicitly, appropriately, and meaningfully.
2. Niekerk Manufacturing
To fund the proposed expansion and increase economies of scale, Niekerk Manufacturing will need
to raise a significant amount of finance. The capacity of the expanded factory with any additional
equipment will be 1 600 000 pipes per year. Jan Niekerk does not anticipate operating at full capacity
in the expanded facility for some time, but he believes it is better to expand now rather than build a
small second factory then a third in a few years.
(b) Construct a fully labelled break-even chart for Niekerk Manufacturing at the
current capacity prior to the expansion. [6 marks]
(c) Assuming Niekerk Manufacturing sells 1 200 000 pipes in the first year in the
expanded factory, calculate:
(d) Analyse two appropriate sources of finance to fund the expansion of the factory
and any additional equipment. [6 marks]
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Award [2 marks] for a full, clear definition that includes legal criteria
and general characteristics.
Award [1 mark] for a basic definition that conveys partial knowledge and
understanding.
Award [2 marks] for a full, clear definition that includes the idea of
declining average unit cost.
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4
Total costs
3.5
Break-even point
3
Fixed costs
0 T housands of pipe
100 200 300 400 500 600 700 800 900 1000
Q uantity
[1 mark] for the identification of the break-even level of output (whatever the
value) and [1 mark] for showing the correct value of the break-even level
of output.
If the break-even chart is accurately drawn but not neatly, using a ruler or
straight-edge, or out of proportion, award a maximum of [3 marks].
(c) Assuming Niekerk Manufacturing sells 1 200 000 pipes in the first year in
the expanded factory, calculate:
Profit with the expansion and assuming sales of 1 200 000 pipes in the
first year is $330 000.
[1 mark]
If a candidate who has shown wor kings provides a correct procedure
(thus, demonstrates an understanding of the underlying concepts) but has
made an error in calculation.
[2 marks]
Candidate provides the correct answer. Workings not required.
1 200 000 units per year (projected sales) minus 760 000 = margin of
safety = 440 000 units.
[1 mark]
If a candidate who has shown wor kings provides a correct procedure
(thus, demonstrates an understanding of the underlying concepts) but has
made an error in calculation.
[2 marks]
Candidate provides the correct answer. Workings not required.
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External sources of finance: more appropriate for the building and equipment
would likely be external sources of finance, of which there are several options:
issuance/sale of ordinary shares of stock
loan capital, such as a bank loan, for the equipment (and possibly the
expansion of the building), or an insurance company for the building and a
bank loan for the equipment
leasing, for the additional equipment.
For [6 marks] the candidate recognizes that the internal source of funds of
profits is probably an inappropriate source of funds and thus discusses the other
options, appropriately matching the financing need to an appropriate source of
funds. Candidates demonstrate an understanding that the financing need must
be matched with an appropriate source of funds.