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Question 4

From Business Management SL Paper 2 (November 2024, TZ2)

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  1. AkvoBotelo (AB)

AkvoBotelo (AB) manufactures reusable water bottles. For every water bottle that AB sells, it plants a tree. The business is a cooperative owned by its 30 employees, who are also environmental activists.

(a) State two features of a cooperative. [2]

AB’s mission statement is, “To reduce the use of plastic and to make the world greener by planting a tree for every bottle we sell”. All of AB’s packaging has this mission statement printed on it.

(b) Explain one advantage for AB of having a mission statement. [2]

Table 3 shows forecasted figures for AB.

Table 3: Forecasted figures for AB for the year ending 31 December 2025

Table 3 showing forecasted figures for AB, including fixed costs, variable cost per water bottle, cost of planting a tree, selling price per water bottle, and number of water bottles produced.
Table 3 showing forecasted figures for AB, including fixed costs, variable cost per water bottle, cost of planting a tree, selling price per water bottle, and number of water bottles produced.

(c) Using Table 3:

(i) comment on the effect on fixed costs if the number of bottles produced decreases to 300 000; [2]

(ii) calculate AB’s margin of safety for 2025 (show all your working); [2]

(iii) comment on the effect on the break-even quantity if the selling price of each water bottle increases to )21. [2]

AB’s management team includes a chief executive officer (CEO), a chief financial officer (CFO), and a chief personnel officer (CPO). Table 4 shows their annual salaries.

Table 4: Annual salaries of AB’s management team

Table showing the annual salaries of the CEO, CFO, and CPO of AB's management team.
Table showing the annual salaries of the CEO, CFO, and CPO of AB's management team.

Three factory supervisors are paid $21 000 per year. All remaining factory employees are paid $20 000.

The CEO has some concerns about the next two years (2025–2026):

  • Because of high inflation, AB’s employees have complained that an annual salary of 20000isnolongerenoughtopayforbasicnecessities,suchasfoodandrent.−Supervisorshavecomplainedthattheyarenotbeingrewardedenoughfortheirextraresponsibilities.−Onesupervisorandfiveemployeesareplanningtoretire.−In2026,ABwillhavetomake20 000 is no longer enough to pay for basic necessities, such as food and rent. - Supervisors have complained that they are not being rewarded enough for their extra responsibilities. - One supervisor and five employees are planning to retire. - In 2026, AB will have to make 600 000 in capital expenditure in order to increase capacity.
  • Increased competition has made the reusable water bottle market more price competitive.

(d) Using the information in the stimulus, recommend a plan of action to address the CEO’s concerns for the next two years (2025–2026). [10]