Business Studies 0450 Oct / Nov 2023 Paper 22 Question 4

4(a) Explain four ways the break-even chart in Appendix 3 might be helpful to SSE. Award 1 mark for each relevant use of the breakeven chart in Appendix 3. Award a maximum of 1 additional mark for each applied explanation of the use of the break-even chart to SSE. Relevant uses might include…

Business Studies · Oct / Nov 2023 · Paper 22 · Question 4

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4(a)[8]
Explain four ways the break-even chart in Appendix 3 might be helpful to SSE. Award 1 mark for each relevant use of the breakeven chart in Appendix 3. Award a maximum of 1 additional mark for each applied explanation of the use of the break-even chart to SSE. Relevant uses might include:
Shows the total costs – is $45 000 per week / shows the total revenue – is $50 000 per week / shows fixed costs – is $15 000 per week
Shows the break-even output – that SSE needs to sell 750 helmets per week
Shows the margin of safety – shows that 250 helmets are predicted to be sold above the break-even output
Helps in decision-making – whether to increase or decrease price from $50
Show the impact of changes in costs – if fixed cost increased from $15 000
Shows the areas of profit or loss – managers at SSE can read off the expected profit at maximum output of 1000 helmets per week
Shows they make a profit at maximum output – of $5000 per week
Whether or not to go ahead and produce the new product For example: It shows the break-even output per week for SSE’s new product (1)
at 750 helmets (app). Application could include: public limited company;
playing cricket;
new factory abroad;
children’s cricket helmets;
figures from chart e.g. total costs of $45 000;
total revenue of $50 000;
fixed costs are $15 000;
margin of safety is 250 units;
break-even output is 750 units.
4(b)[12]
Consider how each of the following three changes may affect SSE. Which change is likely to have the greatest effect on SSE’s profit? Justify your answer.
A depreciation in the currency of country Z
An import tariff introduced on sports helmets imported into country Z
Quotas introduced on sports helmets in countries where SSE sells its products Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of two or more changes. Well-justified conclusion. Candidates discussing all three changes in detail, in context and with a well-justified conclusion, including why the alternative changes were rejected, should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one change. Judgement with some justification / some evaluation of choices made. Candidates discussing two or more changes in detail and applying them to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the changes with little/no explanation. Simple judgement with limited justification / limited evaluation of choices made. Candidates outlining three changes in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: A depreciation in the currency of country Z
Export of children's cricket helmets will appear to be cheaper in foreign countries – increases competitiveness – increases sales/revenue
Imports of raw materials to produce bicycle riding safety helmets will be more expensive – increases costs for SSE – may need to raise prices – reduced sales
Imported helmets will be more expensive in country Z so less competitive with SSE’s products – increases sales of SSE’s products in country Z An import tariff introduced on sports helmets imported into country Z
Tax placed on imported cricket helmets may raise the price of competitor’s products – SSE products more competitive so demand increases – sales/revenue increases
Higher price of competitor’s products may allow SSE to raise its prices – if demand remains the same – then sales/revenue will increase – profit increases Quotas introduced on sports helmets in countries where SSE sells its products
A limit is placed on the quantity of sport safety helmets that can be imported into export markets – limits the sales of SSE sports helmets – so SSE has decided to set up its own factories in these markets
Prices of sports safety helmets may rise in export markets as limited supply – may keep revenue the same/increase revenue – depends on elasticity of demand – if price elastic demand, then revenue will fall as the price rises Conclusion Justification could include:
Depreciation of the currency will have the greatest effect on SSE’s profit as the reduced price in foreign markets is likely to cause a large increase in demand leading to much higher sales of products such as the children's cricket safety helmets and hence revenue. The higher revenue will lead to an increase in profit as costs are unlikely to increase if raw materials can be sourced locally. A quota is unlikely to have much effect as long as the quantity is not too restricted, and a tariff is unlikely to have much effect on profit if there are few competitors from abroad in country Z.
A tariff on products such as skateboarding safety helmets will have the greatest effect on SSE’s profit as competitors may raise prices in response to the tariff and customers in country Z are more likely to now buy SSE's sports helmets. Demand for SSE's sports helmets will therefore increase leading to an increase in sales and revenue which will lead to much higher profit.
A quota on products such as cricket safety helmets will have the greatest effect on SSE’s profit as the number of exports of SSE’s products will be restricted and so sales and hence revenue will fall leading to much lower profit.

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