Business (AS & A Level) · May / June 2021 · Paper 24 · Question 1

Apple Farm (AF) AF is owned by Desi. Desi is a sole trader. AF specialises in growing and packaging apples which the business sells to a supermarket chain. AF specialises in one type of apple. The apples are sold to the supermarket chain in packs of six. AF sells each pack to the supermarkets for $1. The variable cost of growing, picking and packaging each pack of apples is $0.50. AF has fixed costs of $5000 per year. A high proportion of AF’s apples are of poor quality. These are mainly apples too small for the supermarket or apples which have been damaged but are still good to eat. Desi would like to find a profitable use for these poor-quality apples. Desi has an idea to use the poor-quality apples to produce an apple juice which he could sell to the same supermarket chain. This would require the purchase of new machinery to make the juice and to package it into individual containers. The machinery would cost $10 000 if Desi purchased it, but there is an option to lease it for $4000 per year. Desi wants the juice product to be different from the competition. He plans to package the juice using recycled materials and make it clear on the label that AF’s apple juice is 100% organic with no added chemicals. The supermarket chain is insisting that the packaging must be strong enough for the apple juice to be transported from its warehouse to individual supermarkets. 5 10 15

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