| Date | November 2019 | Marks available | 4 | Reference code | 19N.2.HL.TZ0.2 |
| Level | Higher level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Construct | Question number | 2 | Adapted from | N/A |
Question
Mutombo Window Fans (MWF)
Mutombo Window Fans (MWF) manufactures and sells window fans to wholesalers across eastern Africa. Although the business began small, it experienced rapid internal growth through aggressive, commission-based sales.
Currently, MWF sells 300 window fans per month. Each fan sells at an average price of $100.
Table 1: Forecasted fixed costs for 2020 (all figures in $)
Table 2: Variable costs per fan for 2020 (all figures in $)
Define the term internal growth.
Calculate, for MWF, the break-even level of output for 2020.
Construct a fully labelled, to scale, break-even chart for MWF for 2020.
Calculate the profit if MWF sells 3600 window fans in 2020.
Markscheme
Internal growth occurs when a business expands existing operations rather than growing by merging or acquiring other businesses. Typically, internal growth occurs when a business expands its capacity and sells to a wider market.
Candidates do not have to have wording exactly as above.
Award [1] for some understanding of internal growth (such as “expands existing operations”) and [1] for additional wording that gives precision (“rather than growing by merging or acquiring other businesses” or “internal growth occurs when a business expands its capacity and sells to a wider market”).
N.B. the question is about internal growth and not about growth generically. Do not award beyond [1] mark if the response does not make this distinction.
Total fixed costs: $130 000
Contribution: $100 − $60 = 40
Break-even point: = 3250 units
Award [2] for correct answer and workings. Award [1] for correct process but with a mathematical error.
Award marks as follows:
[1] for both appropriately labelled axes – y-axis must include both costs and revenue. The x-axis can be any suggestion of quantity: units, fans. Responses should be penalised if using $ sign in x-axis. If x or y axes show no units or scale is inaccurate then it follows that TR and TC must also be inaccurate
[1] for accurately drawn and labelled total cost line.
[1] for accurately drawn and labelled total revenue line.
[1] for indication of break-even point. OFR applies from part b(i). The breakeven value does not need to be stated but the diagram must be consistent with the value in b(i) Do not award lines simply drawn from the BEP to the x and y axes without further annotation.
Award a maximum of [2] if the chart is not neat, not drawn with a straight edge, or is not to scale.
If a candidate produces a table rather than a chart, award [0].
N.B. The Fixed Cost (FC), Variable Cost (VC) and Margin of Safety do NOT need to be shown as in diagram.
Total revenue − Total cost = Profit
(3600 × 100) − (130 000 + 3600 × 60) = 360 000 − (130 000 + 216 000)
= 360 000 − 346 000 = $14 000 Net profit
Alternatively, profit can be calculated using the total contribution – fixed costs.
Total contribution = 3600 × 40 = 144 000
Profit is (3600 × $40) − $ 130 000 = $14 000
Or
Profit = Contribution per unit X Margin of safety
= ($100 − $60) × (3600 −3250)
= $14 000
Award [2] for correct answer and workings. Working does not need to be as extensive as shown above. Award [1] for correct process but with a mathematical error.
