| Date | May 2021 | Marks available | 2 | Reference code | 21M.2.SL.TZ0.1 |
| Level | Standard level | Paper | Paper 2 | Time zone | Time zone 0 |
| Command term | Explain | Question number | 1 | Adapted from | N/A |
Question
Hafs
Hafs is a new cooperative. It plans to manufacture wastepaper bins for the household market.
Hafs has forecast its sales in 2021 as 25000 units. Its forecasted break-even chart is shown in Figure 1.
Figure 1: Forecasted break-even chart for Hafs for 2021
State two features of a cooperative.
Using Figure 1 explain what the y axis shows.
Using Figure 1 calculate forecasted profit if sales are 25 000 units in 2021 (show all your working).
Using Figure 1 calculate the total contribution in 2021 if Hafs only sells 20 000 units (show all your working).
Explain whether an increase in total fixed costs has an impact on unit contribution.
Markscheme
Co-operatives are businesses owned and run by and for their members. The members may be customers, employees or residents. All members have an equal say in what the business does and a share in the profits.
Award [1] for each feature identified – no reference to Hafs is needed:
- Profits are shared amongst members
- Members share decision making
- Each member has the same voting rights on decisions
- Members are owners of the business
- Operate in the private sector
N.B. If a candidate states that a cooperative is a social enterprise, accept that point as one feature for [1].
PLEASE NOTE: This content is not included in the syllabus for 2024 exams onward. Related parts of this multi-part question may be used.
Award [1] for a correct label or naming of revenue and costs and a second mark for a full explanation, such as “The y-axis represents both the forecasted cost and revenue figures for Hafs. As its sales or output or activity increases (x-axis), Hafs has higher revenue and higher total costs, which can be determined by their relationship to the y-axis and its scale. Wording does not have to be exactly as above. Maximum award: [2].
The level of profit if sales are 25 000 units in 2021 is
TR = $250 000 TC = $175 000 [1]
= $75 000 [1]
Candidates that do not show any working and simply write 75 000 can only be awarded [1].
Total contribution is the difference between total sales revenue and total variable costs.
At an output of 20 000 units TR = $200 000
TVC = $100 000 (TC = $150 000; TFC = $50 000)
= $200 000 − $100 000
= $100 000
To calculate TVC, take total costs and subtract fixed costs, as follows
$150 000 minus $50 000 = $100 000
Candidates that do not show any working and simply write 100 000 can only be awarded [1].
Award [1] for a statement such as “it will have no impact”.
Award a further [1] for an explanation such as “unit contribution is the difference between the selling price and its variable cost, therefore an increase in fixed costs will have no impact on unit contribution”.
Examiners report
Many candidates could not state two features of a cooperative.
Most candidates earned at least one mark explaining the y axis.
Many candidates could correctly calculate the forecasted profit.
In some instances, candidates provided the unit contribution instead of the total contribution.
This question, explaining whether an increase in total fixed costs has an impact on unit contribution, was challenging for many candidates.
