PAPER 2

1. Cracking Eggs (CE)

a.i) Fixed costs are costs that do not vary with the number of output
produced.​Examples of fixed costs are monthly rental paid for
accommodation,or salary paid to an employee. Fixed cost is a
component that is used to find the total cost.

a.ii) ​A ​distribution channel​ is a chain of businesses or intermediaries

through which a good or service passes until it reaches the final buyer or
the end consumer. ​Distribution channels​ can include wholesalers,
retailers, distributors

b.ii) CE’s allocation of fixed costs would not be equal as production line
A and B have different target customers, different prices of eggs and
different variable costs. CE would be allocating a higher fixed cost for
production line B compared to production line A as there is a $3.10
difference in price.

b.i) Revenue: ($150,000 x $0.90) = $135,000

Total cost: ($150,000 x $0.45) + $10,000 = $40,375

Hence, the profit is $94,625 ($135,000 - $40,375)

c) Value added is the ​difference between the price of product or service and
the cost of producing it. It can be considered as an extra special feature added
by a company or producer to increase the value of a product or service.

CE might be able to build a strong brand image by increasing value just by

adding attractive, durable packaging to the eggs. This may increase the
perceived value among customers. As a result, customers might be willing to
pay more for the eggs compared to eggs produced by another firm that has a
regular packaging. The packaging would add value to the eggs as customers
might be willing to pay a higher price for eggs if they perceive them to be of a
higher quality compared to eggs from other companies.
Moreover, CE could offer better customer service and free delivery services
which would be a value-added feature. CE can also add value to services they
perform, such as bringing advanced skills into the workforce who would be
able to assure strict quality control. This could differentiate CE from its
competitors and customers may perceive CE to have a better reputation, and
therefore, be more likely to buy eggs from CE rather than brands.

Therefore, value addition could help enhance a company’s brand image, and
doing so may result in higher sales.

d) Stakeholders are groups of people who take an interest in the operations of

a company. Affected stakeholder groups of CE could include employees and
the government.

Employees might be affected as they might have to transfer to the new factory
or work at a location that is located far away from their houses. They may be
concerned about their salary, whether or not they would be offered a raise if
their workload increases. Employees may also face a change in their jobs as
they may have to perform different tasks than they are normally assigned
while the ne emp;oyyess are trained. Furthermore, existing employees may
have to increase their skills if the expansion leads to them having to specialise
in a task that they are not well experienced in. For example, an employee who
usually delivers eggs might have to assist with packaging eggs.

Additionally, the government might want to view tax documents of CE and

their licence to operate in the new location. CE would have to abide by the
local laws and regulations imposed. Failing to do so, could result in penalties
which may harm CE’s reputation and hurt their sales. CE may also have to be
transparent about all their operations and ensure that they are according to
the local laws, such as,paying employees above the minimum wage and not
polluting nearby areas.

Thus, multiple stakeholder groups may be affected indirectly or directly if CE

decides to expand its operations, whether or not they would be impacted in a
positive manner might depend upon how well CE runs the new production
line.
 2. Fantastic Flowers (FF)
a.i) Overdraft ​financing is provided when businesses make payments
from their business current account exceeding the available cash
balance. An overdraft enables businesses to obtain short-term funding.
They are generally meant to cover short-term financing requirements -
they are not generally meant to provide a permanent source of finance.

a.ii) ​The maturity stage of the product life cycle shows that sales will
eventually peak and then slow down. During this stage, sales growth has
started to slow down, and the product has already gained recognition
and generated sales for the business.

b.i) Total current liabilities: Overdraft + Trade payables

$31,000 - $5,000 = $26,000

Therefore, the value of trade payables is $26,000

b.ii) A decreasing working capital would mean ​FF has a negative cash
flow, meaning its current assets are less than its liabilities. This may
mean that FF is likely to have difficulty paying back its creditors and may
have serious financial trouble, such as the business becoming illiquid.
Moreover, FF would not be able to continue trading or pay its day-to-day
expenses, as suppliers would be less likely to sell to FF on credit if the
business is unable to pay back on time and is already in debt.

c) Job production involves producing custom products for specific

customers, or usually a niche market. This method of production
requires highly skilled labour, and could be costly to carry out.

Job production ensures that customers’ exact needs are met as each
flower arrangement would be made by taking their exact wants into
account. Customers may be more likely to pay a higher price for special
flower arrangements that are customised to their requirements, rather
than mass produced flowers. This could help FF reach out to a larger
customer base and provide their flower arrangements for different
occasions to new customers. This could also act as the brand’s USP as
these flowers could give FF a competitive advantage against rival firms.

However, job production may also have drawbacks. Job production

could be expensive, and FF may not be able to sustain it if they are not
consistently earning a high amount of revenue to pay its skilled workers,
as their production process would be mostly labour-intensive. FF would
have to assure that its working capital is not decreasing and the
business is not making a loss. As higher cash outflows might eventually
result in illiquidity.

Therefore, using job production could have more benefits compared to

drawbacks if FF is able to maintain a positive cash flow.

d) Non-financial motivators could include non-wage factors that could

improve job satisfaction. For instance, rewarding employees with
recognition for their work.

Workers could be motivated by using job enlargement. Where workers

switch from one job to another, so a worker is doing different jobs at
different times. Usually these jobs are of the same type and do not
involve any extra responsibility or skills. The idea is to give variety to the
worker. ​By widening the range of tasks that need to be performed,
hopefully employees will experience less repetition and monotony.

Additionally, workers could be motivated by using job enrichment. Where

employees are given greater depth to their range of tasks rather than
simply a wider variety of tasks of a similar level. They take part in
decision making and problem solving. They help set targets and accept
responsibility for the organisation and the quality of their own work. ​It
motivates by giving employees the opportunity to use their abilities to the
fullest. Successful job enrichment almost always requires further
investment in employee training.

Therefore, FF could use different forms of non-financial motivators to

motivate workers producing low-price arrangements. Job enrichment
might be more effective as a possible negative effect is that job
enlargement can be viewed by employees as a requirement to carry out
more work for the same pay. Whereas, job enrichment could encourage
workers to complete challenging work by increasing the range and
complexity of tasks they are asked to do and giving them the necessary
authority.

Hence, FF might be able to motivate employees using job enrichment as

In job enlargement, the job itself remains essentially unchanged and
workers would not be less likely to face challenging tasks.