Business (AS & A Level) · May / June 2024 · Paper 23 · Question 2

Festival Wear (FW) FW is a partnership started by two friends, Maz and Jane. FW manufactures and sells high quality T-shirts at $40 each. The business can manufacture 35 000 T-shirts per month using mass customisation. The T-shirts are only sold at music festivals and concerts and are customised to each event. FW has never advertised the T-shirts, relying on a sales team to attend a festival or concert and personally sell the T-shirts. Current costs: • variable: $10 per T-shirt • fixed: $200 000 per month. Sales average 27 000 T-shirts per month. Currently the sales team is paid a monthly salary, but Maz is proposing a new payment method in order to increase sales volume. This will mean a lower monthly salary but a commission of $2 per T-shirt will be paid. Maz estimates that sales volume would increase to 30 000 per month. Costs if the new payment method is introduced: • variable: $12 per T-shirt • fixed: $182 000 per month. This proposal has been discussed with the sales team. Some members of the team are enthusiastic about the proposal, but others are not happy with what they see as a reduction in their pay. The business is expanding and considering moving to a bigger factory. This would require a $4 million investment in new machinery and staff training. Jane would also like to consider methods to increase sales volume. She has suggested that FW should expand its product portfolio to manufacture other items such as baseball caps. 5 10 15 20

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