SECTION A

ANSWER THE FOLLOWING QUESTION FROM THIS SECTION

Read the Case Study on “Saint Isla Limited” and download the excel spreadsheet prior

to completing the question in this section.

1.       Costing

Ensure that you develop a functional excel spreadsheet, making use of appropriate excel formulae.

(a)     Using a tabular approach, establish the break-even point (BEP)

for Order 1 for Saint Isla Ltd; and thus explain whether it is       worthwhile accepting this order. (Complete Table 1 in the excel

workbook.)                                                                                              (30 marks)

(b)     Prepare a marginal cost statement for Order B, the enquiry from

the new customer. (Complete the relevant row of Table 2 in the

excel workbook.)                                                                                    (20 marks)

(c)     Calculate the BEP for each style in Order 2, i.e., assuming that   only one style is produced at a time. Express the BEP in each     case as sales (£ income) and number of units (output) (Complete

the relevant row of Table 2 in the excel workbook.)                              (20 marks)

(d)     For Order 2, should Saint Isla Ltd agree to produce all three       styles? If not, then suggest an alternative.  Give reasons for your answer by briefly discussing the relative contributions of styles

A, B and C, individual BEP (sales and output).                                     (30 marks)

SECTION B

Answer ONE question from this section

2.       Offshore Outsourcing: Economics vs. Ethics.

To meet an unrelenting demand for lower prices, many Fashion brands and retailers look to developing economies for products and services to reduce costs. This form of outsourcing is often challenged as unethical business practice.

(a)     One challenge frequently levelled at companies outsourcing to

developing economies is that it is exploitation.  In your opinion, is this a valid criticism?  Give reasons for your answer and        support your discussion with appropriate examples.

(b)     A further challenge often raised is that outsourcing to developing

economies damages the Economic Growth ofthe country from    which the production has been relocated.  Again, do you consider this to be a valid criticism?  Give reasons for your answer and      support your discussion with appropriate examples .

3.       Market Failures and Externalities

Mankiw remarks that “markets are usually a good way to organise   economic activity” (2009, p.8) and on those occasions where market outcomes are not ideal, governments can act to “improve market      outcomes” (2009, p. 10).

(a)     Briefly explain what an economist means by ‘market failure’ and,

using examples to support your discussion, explain why ‘external costs’ and ‘market power’ are instances of market failure.

(b)     As voluntary measures to address the growing environmental

impact of the Fashion Industry are failing, MPs on the                  Environmental Audit Committee (EAC) called for a 1p Fashion  Tax to be levied on all clothing sold in the UK (BBC 2019).  The EAC claims that urgent action is needed to make retailers take     responsibility for their waste. The income generated would be     used to fund better recycling initiatives and help to address this.

Using the following diagram, examine the impact of a 1p tax on clothing.  Your answer should discuss anticipated changes in     supply, changes in demand and changes in market prices of       typical items; comment on the tax revenue generated. Based on your analysis, explain whether you consider this a ‘fair tax’ or   not.