The table below shows financial information collected by MME, a small manufacturer of reusable water bottles. The business sells its bottles to sports studi...
Question 1 Report
The table below shows financial information collected by MME, a small manufacturer of reusable water bottles. The business sells its bottles to sports studios and direct to customers through its website. Its manager is considering an additional $6 000 social media campaign. MME has a good product design, but several new businesses now sell similar bottles at lower prices. The manager wants to improve market awareness without damaging cash flow.
Table 1 shows MME's financial results for the year ended 31 December 2026.
(a) State two costs from Table 1 that are likely to vary when MME produces more bottles. [2]
(b) Calculate MME's net profit for 2026. Show your working. [3]
(c) Analyse how a social media campaign could help MME compete in its market. [6]
(d) Discuss whether MME should use its available cash for the social media campaign. [9]
Answer Details
(a) Materials and production wages are costs likely to vary as more bottles are produced. Packaging and delivery would also be valid because these costs normally rise with output or sales. [2]
(b) Add all costs:
\[$31\,000+$24\,000+$12\,000+$5\,000+$4\,000=$76\,000\]
Net profit is sales revenue less total costs:
\[$96\,000-$76\,000=$20\,000\]
MME's net profit is $20,000. [3]
(c) Social media can make more potential customers aware of MME [1], particularly people interested in sport, fitness studios or reusable products [1]. Greater awareness may increase website visits [1], which can lead to more sales [1]. Campaign content can emphasise the bottle's design and quality as a USP [1], differentiating it from lower-priced rivals [1]. Customer posts and reviews can provide low-cost word-of-mouth promotion, while clicks, discount-code use and conversion rates allow the campaign's success to be measured. If demand rises sufficiently, greater output may also lower unit costs through economies of scale. [6]
(d) The $6,000 campaign is affordable from $14,000 cash [1] and could increase demand, sales revenue and market share [1]. Targeted online promotion may be cheaper and more measurable than mass advertising [1], helping MME respond to new competitors [1].
Against this, cash would fall to \($14,000-$6,000=$8,000\) [1]. If customers pay late, this could make it harder to pay wages or suppliers [1]. Advertising may not overcome competitors' lower prices [1], and the $6,000 has an opportunity cost: it could instead improve design or help reduce price [1].
The strongest decision is to test a smaller, targeted, measurable campaign first, provided sufficient operating cash is retained [1]. Awareness is needed, but committing the full amount before evidence of extra sales creates unnecessary cash-flow risk [1]. [9]
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