| Date | May 2017 | Marks available | 2 | Reference code | 17M.2.SL.TZ0.1 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Define | Question number | 1 | Adapted from | N/A |
Question
Sotatsu Electronics (SE)
Sotatsu Electronics (SE) manufactures electronic products and is famous for its innovative televisions. In late 2015, SE introduced a new high-definition television with twice the quality of the best-selling television of its chief competitor. Determining that it would be two years before its competitors could have a similar product, SE adopted a price skimming strategy.
Table 1: Select financial information for SE for 2015 and 2016.
Figures in $000 000.
Define the term price skimming.
Calculate the values of X and Y in Table 1 (no working required).
Construct a profit and loss account for SE for 2015 and 2016.
Calculate net current assets (working capital) for 2016 (show all your working).
Markscheme
Price skimming is setting prices high when introducing a new product to the market. This strategy typically works only for a limited time, as competitors will respond to the new product with innovations to their own products. As competitors introduce new products in response, demand for the original company’s product (the company price skimming) falls, and prices must be lowered.
Candidates are not expected to word their definition exactly as above.
Award [1] for a basic definition conveying the idea that price skimming involves setting a high price for a new product. Award and additional [1] mark for extra relevant information, such as the idea that the product is unique or differentiated from competitors’ products or that the price will fall over time. Maximum award: [2].
X = $2200 (millions of dollars)
Y = $1500 (millions of dollars)
Award [1] mark for each correct answer up to a maximum of [2].
Award [4] if both profit and loss accounts are correct. Award [3] if the candidate correctly formats both profit and loss accounts, but has one mathematical error.
If a candidate does not correctly format the profit and loss accounts or has two mathematical errors, award [2]. Award [1] if the candidate demonstrates some understanding of a profit and loss account but otherwise has numerous errors.
Own figure rule applies. Many candidates will probably rough out a P & L on scratch paper to produce answers for 1(b)(i) and then neatly reproduce the P & L on the examination paper. If a candidate makes a mathematical error in (b)(i) and makes the same error in (b)(ii), apply the OFR.
Net current assets (working capital) is calculated by subtracting current liabilities from current assets (all in millions of dollars):
Current assets − Current liabilities = Net current assets
$700 − $300 = $400
Writing out “current assets – current liabilities = net current assets” is not sufficient for getting the [1] for correct working. Candidates must write out $700 – 300 = 400.
Award [1] for the correct working and [1] for the correct answer. Award up to a maximum of [2].
Examiners report
Responses varied. Some students had no understanding, some partial, and some gave strong definitions
Many students attempting this question produced correct answers.
Most students who answered question 1 (b) (i) correctly also were able to produce accurate profit and loss accounts.
Most students attempting this question answered it correctly.
