Define the term retained profit.

Using Table 1, calculate for Option B the average rate of return (ARR) (show all your working).

Using Table 1, calculate for Option B the payback period (no working required).

Explain one advantage and one disadvantage for DA of replacing the current pay system and benefits with the proposed employment package (Decision 1).

Using the Ducal Aspirateurs case study and additional information, recommend whether DA should choose Option A or Option B (Decision 2).

Profit made by the business, calculated after all deductions, including dividends. It is reinvested into the business as an internal source of finance.

Award [1] for a partial definition and [2] for a full, clear definition. This answer does not need to be in context and can be worded differently to the above.

$\text{Average rate of return (ARR)}=\frac{{\displaystyle \frac{\left(\text{total returns}-\text{capital cost}\right)}{\text{years of use}}}}{\text{captital cost}}\times 100$

$\text{ARR}=\frac{{\displaystyle \frac{\left(\left(50+150+200+300+400\right)-500\right)}{5}}}{500}\times 100=24 \%$

Award [3] for a correct answer which must include %.
Award [2] if there are no, or incorrect, units.
Award [1] if the working is not shown.

After 3 years $400m paid back so needs 4 more months
So payback = 3 years 4 months

Accept alternative formats such as “40 months” or “3 and 1/3 years” or “month 4 of year 4”

Award [1] for correct answer

Advantages include:

• More motivated workforce as a result of bonuses, higher productivity (possible link to Taylorism)
• Generous redundancy can encourage workers who are thinking about moving out of the village of Ville d’Ablet

Accept any other valid advantage.

Disadvantages include:

• Less certainty for employees in terms of pay, which may affect motivation
• Loss of current benefits will affect morale (possible link to Herzberg or Maslow)
• Likely increase in staff turnover, reduced staff retention and more difficult to recruit staff.

Accept any other valid disadvantage.

Award [1] for each relevant advantage identified and [1] for a description of how that advantage relates to DA. Award [1] for each relevant disadvantage identified and [1] for a description of how that disadvantage relates to DA.

Refer to Paper 1 markbands for May 2016 forward, available under the "Your tests" tab > supplemental materials.

Option A

Advantages include:

• Much larger market
• Some customization of products
• Lower investment cost
• Brand widely recognized so maybe strong market

Disadvantages include:

• May impact on DA's upmarket brands.
• Cheaper raw materials, lower wages, issues with outsourcing.
• DA employees may feel insecure
• Ben, Salah, Mia do not like idea

Option B

Advantages include:

• Good return (24 %) and 3 years 4 months payback and is likely to be longer than Option A payback.
• Innovative
• Increases sales, strengthens brand loyalty
• New income stream – important because of low profits
• Easy for customers and likely to be popular.

Disadvantages include:

• High investment costs
• Limited sources of finance
• Sales benefits may not last
• Only extends product life cycle – not a new product

Marks should be allocated according to the paper 1 markbands for May 2016 forward section B.

Theoretical answer or context limited to naming the business or lack of development max [4].

Discussion of only one option marks limited to [5].

Discussion but no clear balance [6].

Options considered, good use of evidence, particularly from section B, but no effective conclusion award a maximum of [8].

For [10] the answer needs to be clearly relevant to DA with good use of context and a clear and supported recommendation.

Most candidates wrote at least a partial definition of retained profit, however many answers were very short and sometimes tautological ('retained profit is the profit retained by the business'). For such definition questions, candidates should be trained to develop their ideas, and not write as concisely as possible.

The two calculations (ARR and payback period) were often correctly done, though sometimes candidates forgot the units.

The two calculations (ARR and payback period) were often correctly done, though sometimes candidates forgot the units.

The replacement of current pay system and benefits with a different employment package was understood, but many candidates tended just to copy the information given in the case study itself, without adding much in their answer.

The discussion of Option A and Option B was usually balanced, though some candidates started with their recommendation ('DA should choose Option X because...'), which should have appeared at the end of the conclusion, after weighing the advantages and disadvantages of both Options.