- Mark Scheme /

Question Answer Marks AO Element Notes Guidance

1 Identify two limitations of 2 Only award the first two

break-even analysis. responses given.
Award 1 mark per limitation (max
2).
Points might include:
• Assumes that all costs can be
represented by straight lines It
is not easy to separate costs
into fixed and variable
• Assumes that all output is
sold/does not allow for
inventory (stock) holding
costs
• Assumes only one type of
product sold
• Assumes selling price remains
unchanged for all products
sold
• Concentrates on break-even
point/ignores other aspects of
operations such as how to
reduce wastage/increase sales

• It is a prediction/forecast/does
not include unexpected costs.

Other appropriate responses should

also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

2 Calculate the following values 2

using the chart:
Award 1 mark for each correct
answer.
Break-even output: 500 (watches)
[1]
Break-even revenue: $60 000 OR
60 000 [1]

3 Calculate total variable cost per 2 Award only 1 mark if

month. Show your working. $960 000 is written as
part of the answer but is
Correct answer: $960 000 [2] not given as the final
Method e.g. Variable cost per unit answer.
times output [1] $ sign not required.
OR

$80 × 12 000 [1]

If correct answer given with no
working shown award 2 marks.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

4 Identify two examples of fixed 2 Only award the first two

costs. responses given.
Award 1 mark per example (max
2).
Points might include:
• Rent/rates
• Electricity / gas / heating and
lighting / water
• Insurance
• Loan repayments/interest
payments
• Storage costs
• Marketing costs
• Salaries
Other appropriate responses should
also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

5 Calculate the margin of safety for 2

CTF’s children’s beds. Show your
working.
Correct answer: 4000 [2]
Current output − break-even output
[1]
OR 18 000 −14 000 [1] = 4000
[1]
If correct answer given with no
working shown, award 2 marks.
Award only 1 mark if 4000 is
written as part of the answer but is
not given as the final answer.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

6 Calculate the break-even level of 2 Max 1 where include $

output for 2021. Show your sign as it is not a
working. financial value.
Correct answer: 2500 [2]
Correct method but incorrect
answer e.g. 200 000 / 80 [1]
OR 200 000 / (120-40) [1]
OR Total fixed costs / selling price
(per unit) - variable cost (per unit)
[1]
OR Fixed costs / contribution (per
unit) [1]
If correct answer given with no
working shown, award 2 marks.
Award only 1 mark if 2500 is
written as part of the answer but is
not given as the final answer.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

7 Outline two ways CHW could 4 To use words from the

increase its margin of safety. stem as application, the
reference must be
Award 1 mark per way (max 2). appropriate (i.e. make
Award 1 mark for each relevant sense) in relation to the
reference to this business (max 2). point being made.
The following words are
Points might include: likely to be appropriate
for this question:
• Lower fixed costs [k] from
$200 000 for the year [app] • Factory
• Lower variable costs / • Cameras/electrical
variable cost per unit [k] from products
$40 [app] • 500 (margin of
• Increase price [k] of cameras safety)
[app] • 2500 (break even
Other appropriate responses should output)
also be credited. • Flow production
• 200 000 (fixed
costs)
• $120 (selling
price)
• $40 (variable cost
per unit)
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

8 Identify X and Y. 2
Award 1 mark for each correct
answer .
X: (Total) revenue / total value of
sales
Y: Margin of safety

9 Define ‘total cost’. 2

Award 2 marks for a full definition.

Award 1 mark for a partial

definition.
Fixed costs and variable costs
(combined) [2]
OR All the variable and fixed costs
of producing the total output [2]
OR Fixed costs + (total) variable
cost [2]
Partial definition e.g. all costs
added together [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

10 Identify two limitations of 2 Only award the first two

break-even analysis. responses given.

Award 1 mark per limitation.

Two from:
• Assumes all costs can remain
constant / be represented with
straight lines • Not easy to separate
some costs into fixed or variable. •
Assumes all output is sold / does
not allow for inventory being held
• Assumes selling price will remain
same for all products sold •
Assumes only one type of product
is sold
Other appropriate responses should
also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

11 Outlinetwowaysthatbreak- 4 Note: To use words from

eveninformationcanhelpJerome’s the stem as
business. application, the reference
must be appropriate
Award 1 mark for each relevant
(i.e. make sense)
way.
in relation to the point
Award 1 mark for each relevant being made.
reference to this business.
Points might include: The following
wordsarelikelytobeappropriate
• Heknowsthelevelofoutputneededtomakeaprofit/covercosts
for this question:
[k] for his (low sugar) drink [app]
• (low sugar) drinks
• Helpsplanning/forecasting/decision-making[k]suchwasbheostto
increase added value [app] • 200unitsabovebreak-even
• Helpapplyforfinance[k]aarsosnolyfbowrroedfromfriendsand • 10 000 / 9800 units
family [app] sold

• Canseewhatwillhappenifcosts/priceschange[k] • Added value

• Helpsidentifytheexpectedlevelofprofit/lossatdiferentlevelsof• Family and friends
output [k] Otherappropriateexamplesincontext
• Help identify the margin can still be credited. Do
of safety [k] based on the 10 000 units not award points such as
sold [app] shows
costs/sales/revenue/profitonownasthisistoo
Otherappropriateresponsesshouldalsobecredited. vague.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

12 Define ‘variable costs’. 2 Do not accept

examples.
Award 2 marks for a full definition.

Award 1 mark for a partial

definition.
Costs that change with the level of
output produced / sales made [2]

Costs which vary directly with the

number of items sold or produced
[2]
Costs that change in direct
proportion to output [2]
Partial definition e.g. costs that
change [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

13 Explain one advantage and one 6 Note: To use words from

disadvantage to VDN of the stem as application,
introducing Kaizen. the reference must be
appropriate (i.e. make
Award 1 mark for identification of
sense) in relation to the
each relevant
point being made.
advantage/disadvantage (max 2).
The following words are
likely to be appropriate
Award 1 mark for each relevant
for this question:
reference made to this business
(max 2). • Factory • Office
equipment or examples
Award 1 mark for each relevant
such as pens/ paperclips
explanation (max 2).
• 380 employees •
Points might include: Reduce average costs •
Ethical (objective)
Advantages:
Other appropriate
• Increase productivity [k] which
examples in context can
helps lower average costs [app] and
still be credited.
could improve its profit margin [an]
• Work in progress is reduced [k]
reducing inventory costs [an] • Can
reduce amount of space needed for
production [k] decreasing rent costs
[an] • Improved layout / combining
of jobs [k] in the factory [app] can
release some employees to do other
jobs [an] • Help motivate
employees (as involved in change)
[k] leading to less absenteeism /
higher productivity [an] of its 380
employees [app]
Disadvantages:
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

• Only designed to produce small

changes / no radical changes [k]
so
will not gain any significant
increase in output [an] of office
equipment [app] • Over time it is
difficult to identify (extra)
improvements [k] which can
demotivate employees [an] •
Workers may need training [k]
which increases costs [an] • Not
all
employees may want/able to
implement Kaizen [k] • Meetings
take time [k] which could
decrease
output [an]
Other appropriate responses should
also be credited.

14 Calculate the total variable cost 2 Award 1 mark for correct

for product X. Show your method butincorrect
working. answer.
Award 2 marks for a correct Award only 1 mark if
answer. $450 000 is written aspart
of the answer but is not
Correct answer: $450 000[2] given as thefinal answer.
Partial calculation e.g. variable cost
per unit x number of output [1] $ sign not required.
OR 18 000 25 [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

15 Define ‘fixed cost’. 2 Do not accept examples.

Award 2 marks for a full definition.
Award 1 mark for a partial Do not award also
definition. ‘known as overhead
costs’ as this does not
Costs that do not change with the
define the term.
level of output/sales [2]
OR Costs that do not vary in the
short run with the number of items
sold or produced. [2]
Partial definition e.g. costs that do
not change [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

16 Outline one 4 Note: To use

benefit and one words from
limitation to the stem as
CTF of using application,
break-even the reference
analysis. must be
appropriate (i.e.
Award 1 mark
make
for each
sense) in
relevant
relation to the
benefit/
point being
limitation.
made.
Award 1 mark
The following words are
for each
likely to be appropriate
relevant
for this question:
reference to this
business.
Points might
include:
Benefits: • Toys
• Shows the expected level of • Import raw
profit/loss at different levels materials
of output[k] of toys [app] • Ethical
• Shows the margin of safety [k]
• Competitive market
of 4000 [app]
• Helps planning / forecasting /
• $40 (price)
decision-making [k] such as
whether to import raw • 18 000 (output)
materials [app]
• $25 (variable cost
• Can see what will happen if per unit)
costs/prices change [k] such
as lower price from $40 [app] • $210 000 (fixed
costs)
• 14 000 units
• Helps apply for finance [k]
 (break-even)
Easy to construct/interpret [k]
• 4000 (margin of
Provides useful information about safety)
output that must be sold to cover
costs [k] Other appropriate
examples in context can
Limitations: still be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

Assumes all output sold / sales not

always the same as output [k] so
may have sold less than 18 000
[app]
Variable costs do not always stay
the same / ignores effect of
purchasing economies of scale /
assume all costs can be represented
bystraight lines [k]
Not easy to separate costs into fixed
and variable [k]
Hard to calculate when sell many
products [k]
Other appropriate responses should
also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

17 Define ‘break-even’. 2
Award 2 marks for a full definition.

Award 1 mark for a partial

definition.
When total costs is the same as total
revenue [2]
Total revenue (TR) = Total cost
(TC) [2]
The level of output at which Total
revenue = Total Cost [2]
Fixed costs/contribution per unit [2]
Partial definition e.g. no profit or
loss [1] or revenue covers costs [1];
revenue equals total cost [1]; total
revenue equals costs [1]; point
where start making profit [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

18 Define ‘average cost’. 2

Award 2 marks for a full definition.

Award 1 mark for a partial

definition.
Total cost of production divided by
total output [2]
OR The cost of producing a single
unit of output [2]
Partial definition e.g. cost per unit
[1]

19 Calculate the break-even number 2

of customers for a typical NWA
flight. Show your working.
Award 2 marks for correct
calculation.
Break-even: 125 [2] Correct
formula and incorrect answer e.g.
2000 / (40 – 24) [1]
OR fixed cost/selling price –
variable cost per unit [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

20 Calculate the average cost of one 2

motorcycle. Show your working.

Award 2 marks for a correct

calculation: 400
Award 1 mark for correct method
e.g. 1 200 000/3000 OR total cost
/ total output

21 State two economies of scale. 2

Award 1 mark per economy of
scale.
Two from: • Purchasing/bulk
buying • Marketing • Technical •
Financial • Risk bearing •
Managerial
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

22 Outline two possible ways ALB 4

can try to reduce its costs.
Award 1 mark for each relevant
way.
Award 1 mark for each relevant
reference to this business.
Points might include:
• Reduce number of employees [k]
by making some of the 5000
employees redundant [app] • Close
number of branches [k] from 300
[app] • Reduce amount of wastage
[k] by using less paper when
dealing with business customers
[app]
Other appropriate responses should
also be credited.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

23 Define ‘economies of scale’. 2 Do not award examples.

Award two marks for a full
definition. Do not award answers
which refer to price.
Award one mark for a partial
definition.
Factors that lead to lower average
costs as a business increases in size
[2]
OR
Reduction in average costs as a
result of increasing the scale of
operations [2]
Partial definition e.g. benefit of
increasing in size/growth/expansion
[1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

24 Identify four ways break-even 4

analysis can be useful to a
business.
Award one mark for each way
(maximum of four)
• Predicts how many sales the
business needs to make to
break-even
• Predicts how much sales could fall
by and still make a profit
• Shows potential profit/loss for the
business at different levels of output

• Shows possible effect of change

in price on the break-even level of
output/profit
• Shows possible effect of change
in costs on the break-even level of
output/profit
• May be useful to show to the bank
manager to indicate a profit is
predicted and therefore more likely
to gain a bank loan
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

25 Calculate the margin of safety for 2

BW using the information
provided.
Two marks for correct calculation.
One mark for correct method but
wrong answer. OFR applies.
Margin of safety = Actual output –
break-even output (1)
225 – 125 (1) = 100 (1)
Note: If answer is only 100 with
no working then award two
marks.

26 Calculate the break-even level of 2

output for BW using the
information provided.
Two marks for correct calculation.
One mark for correct
method/formula but wrong answer.

Break-even output = Fixed costs +

Price − Variable cost per unit (1)
$1250 ÷ ($11−$1)(1) = 125 (1)
Note: If answer is only 125 with
no working then award two
marks.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

27 Identify and explain two 6 Application marks may

diseconomies of scale that NBV be awarded for
might experience. appropriate use of the
following:
Knowledge [2 × 1] – award 1 mark
for each diseconomy of scale • multinational company
identified
Application [2 × 1] – award 1 mark • capital employed OR
for each relevant reference made to $144 bn
this business
• 18 countries
Analysis [2 × 1] – award 1 mark for
each relevant explanation • 400 000 (workers)
• building products OR
Points might include:
bricks
• Low morale/motivation/lack of
commitment [k] for its 400 000 • raw materials (are
bought in country of
employees [app] leading to higher
operation)
labour turnover/more workers
leaving [an] • factory
• poor communication [k] in factory Accept slow decision
[app] leading to the wrong products making as [k] as stated in
being made [an] textbook
• lack of/weak co-ordination/control
[k]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

28 What is meant by ‘total cost’? 2

Clear understanding [2]: Sum of
(total) fixed cost plus (total)
variable costs
Sum of (total) direct and (total)
indirect costs
Some understanding [1]: All the
costs of the business.

29(a) What is meant by ‘fixed costs’? 2 Note: Must link answer

to idea of level of sales
OR output / activity to
Clear understanding [2] e.g. costs
gain both marks.
that do not change with output /
sales / level of activity Do not award alternative
words such as overheads
OR Costs which have to be paid
or examples of fixed
whether produce any products or
costs
not [2]
Some understanding [1] e.g. costs
that stay the same
OR costs that do not change [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

30 What is meant by Do not accept examples

‘variable cost’? 2 of variable costs
Clear understanding [2] e.g. Do not accept the phrase
costs ‘costs that vary’ on its
which change directly with OR own as this is re-wording
in the question
proportion to the number of
items
sold or produced.
Some understanding [1] e.g. costs
which change OR costs that vary
with sales / output [1]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

31 Identify and explain two ways in 6 Application marks may

which GKA could keep costs low. be awarded for
appropriate use of the
following:
Award 1 mark for each relevant
way • use of numbers such as
300 or 100 (shops) • food
Award 1 mark for each relevant
retailer • food / breakfast
reference made to this business
cereal • toothpaste • high
Award 1 mark for each relevant income / low income
explanation Relevant points might areas • limited range (of
include: products) • no promotion
• low prices • quality
• choose low cost locations [k] for
products • own-label •
all 100 sites [app] leading to lower
market share increased
fixed costs [an] • pay minimum 5% • profit increased by
wage [k] to shop workers [app]
40%
keep variable costs low [an] •
economies of scale [k] (only once) Do not award analysis
for its limited range of products for answers that clearly
[app] leading to lower average costs refer to manufacturing
[an] • set lower marketing budget such as Lean production.
[k] as no money spent on market
research [app] • replace workers
with machinery / automation /
reduce workforce [k] • cheaper
supplier [k] • close some locations
[k] which would reduce electricity
cost [an] • set up online [k] • reduce
waste [k] • Buy direct from
manufacturer [k] so lower cost than
buying from wholesaler [an]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

32 I dentify and explain two ways in 4 Application marks may

which break-even information be awarded for
could help FlyAway. appropriate use of the
following:
Knowledge [2 × 1] – award 1 mark
for each relevant way • passengers • (ticket)
shops OR website OR
Application [2 × 1] – award 1 mark
e-commerce • routes •
for each explanation in context
extra for luggage and
Possible points might include: food • airlines • flights
OR trip • correct use of
• Shows the expected level of profit
numbers • competitive
OR loss at different levels of output
market • bookings or
[k] to show which routes to expand tickets • low cost
(airline)
or cut [app] • Shows the margin of
safety [k] if sell over 70 OR 90
tickets [app] • Helps planning OR Do not award points
forecasting OR decision making [k] such as shows costs OR
about passenger numbers [app] • sales OR revenue OR
Can see what will happen if costs profit on own as too
OR prices change [k] to see if vague. Do not award
should close its (ticket) shops [app] show break even output
• Help apply for finance [k] or examples such as
know how many tickets
to sell as this information
is already known.
Question is asking why it
is used.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

33 What is meant by ‘economies of 2 Do not award answers

scale’? such as 'benefit of being
big' as this does not
Clear understanding: [2] factors that
explain the term
lead to lower average costs as a
business increases in size.
Some understanding:[1] benefit of
increasing in size

34 Identify what will happen to each 2 Do not award ‘fixed

of the following when a business’s costs will change’ as this
shop rent increases is too vague.
Knowledge [2 × 1]: award 1 mark
for each correct answer.
(i) Variable cost: No change / same

(ii) Fixed cost: Increase

 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

35 Explain two ways in which LWM 6 Application marks may

might respond to increased be awarded for
competition. Recommend which appropriate use of the
way LWM should choose. Justify following: correct use of
your answer. numbers e.g. 60 or 40
million, 15 (different)
Knowledge [1]: award 1 mark for
sizes, correct use of data
each relevant way(s) identified
from the Table, tyres or
Application [1]: award 1 mark for related words such as
a relevant reference made to this wheels or rubber,
business liquidity is important,
batch production.
Analysis [2]: award up to 2 marks
for relevant development of point(s) Do not award the same
analysis twice. E.g.
persuade OR encourage
Evaluation [2]: award up to 2 marks
OR attract are the same
for justified decision made as to
analysis points, as is
which is the best option for LWM create awareness OR
to choose. For second mark must inform. To be awarded
explain why choice made is better
development must be
than the other option
different in each point
e.g. attract more existing
Points might include: • Introduce
new products [k] as its main customers or different
types of customer.
product accounts for 66% of its
sales [app + an] • Lower prices [k] Note: Maximum of 4
for its 15 different sizes [app]
marks if candidates only
customers might want cheaper
discuss 1 valid way
products [an]; • Merge or takeover
[k] with another tyre company [app]
which would increase its market
share [an] • Advertise OR use
promotion [k] to raise awareness
[an] of its tyres [app] • Keep costs
low [k] so able to offer more
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

competitive prices [an] • Keep

improving existing products OR
quality [k] allowing them to stay
ahead of the competition [an] •
Provide good customer service [k]
so that customers want to keep
buying from them [an]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

36 Do you think that reducing the 6 Application marks may

number of employees is the best be awarded for
way for CFE to reduce costs? appropriate use of the
Justify your answer. following: Shipbuilding
or related words such as
Knowledge [1]: award 1 mark for
shipyards, High quality,
identification of relevant point(s)
Steel or related words
such as iron ore, Correct
Application [1]: award 1 mark for use of numbers e.g. 40%
a relevant reference made to this exported; 1200 or 2100
business Skilled employees,
Reduced demand,
Analysis [2]: award up to 2 marks
Recession in some
for relevant development of point(s)
economies, Reduce costs,
Trade unions, Equipment
old and often breaks
down
Evaluation [2]: justified decision
made as to whether reducing the
number of employees is the best
Note: candidates can
way for CFE to reduce its costs
discuss alternative ways
Points might include: to reduce costs. However
evaluation must address
• Less workers needed [k] as whether reducing
reduced demand [app] • Change employees is the best
may only be temporary [k] so if way.
demand increase can they replace
workers [an] as skilled [app] • Costs
of redundancy [k] • Save labour
costs [k] • Damage to reputation [k]
caused by possible action by trade
union [app] • Negative impact on
motivation of other workers [k]
leading to more mistakes [an] Other
options to reduce costs may
include: • Relocate [k] 40%
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

exported [app] may lower rent [an]

• Update equipment [k] so less
likely to breakdown [app] reducing
maintenance costs [an] • Buy
cheaper raw materials [k] but this
may reduce quality [an]

37(a) Calculate DCP’s average cost per 2

litre.
Good application [2] 30 c or 0.3
(per litre )
Some application [1] e.g. total cost
divided by output OR 450 000 / 1
500 000

38 What is meant by ‘break even’? 2

Clear understanding [2] – e.g. Level

of output where total costs equal
total revenue OR quantity at which
business makes neither a profit or
loss.
Some understanding [1] – e.g.
Revenue same as costs.
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

39 Identify and explain two 4 Application marks may

economies of scale from which be awarded for
Autovision could benefit. appropriate use of the
following: glass or
Knowledge [2 × 1] – award 1 mark
associated words such as
for each relevant way
windscreen, fragile or
Application [2 × 1] – award 1 mark easily break, cars, more
for each explanation in context designs, 20 fewer
workers, Asia or Europe,
Points might include:
new technology
• Technical/invest large amounts in
R&D [k] to develop range of
windscreens [app] • Managerial [k]
can afford to hire specialists like
the Operations manager [app] •
Purchasing / bulk buying [k] as get
discounts for large sand/glass orders
[app] • Financial [k] banks are more
likely to lend money to introduce
new technology [app] • Risk
bearing [k] as spread risk of
operating in Europe as also have
Asia market [app]
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

40 Explain two ways in which 6

Toddles could become more
profitable. Recommend which
way Toddles should use. Justify
your answer.
Knowledge [1] – award 1 mark for
identification of relevant way(s)
[max 1]
Application [1] – award 1 mark if
relevant reference made to this
business
Analysis [2] – award up to 2 marks
for relevant development of point(s)

Evaluation [2] – justified decision

as to which is best option to use
Note: For 6 marks must explain
why chosen method is better than
the other option
Methods could include:
Ways to increase sales:
• Advertising [k] in parenting
magazines [app] which could
increase size of target market [an]
• Lower/increase prices [k] • Widen
target market/increase ages
accepted [k] so one-year-olds can
attend [app]
Ways to cut costs:
 - Mark Scheme /

Question Answer Marks AO Element Notes Guidance

• Move location [k] but as its is

good location [app] it might lead to
fewer customers [an] • Employ
fewer workers [k] so only have 3
[app] which could help lower wage
costs [an] • Make each worker look
after more children [k] as currently
only look after 3 each [app];
Application marks may be awarded
for appropriate use of the following:
2-5 years, trained staff, good
location, financial loss, 3 children,
toys.
Note: candidates can select 2 ways
to increase sales OR 2 ways to cut
costs OR one of each way

[Total: 118]