Zoe's Bags (ZB) Zoe's Bags $$\((Z B)\)$$ is an online retailer that makes and sells a range of luxury hand-made bags. The business was set up three years ago as a partnership by Zoe and her brother Luis and has grown each year. The bags are targeted at a niche market and made to customers' orders. The business works closely with its main supplier of raw materials. ZB operates a just in time (JIT) inventory 5 management system. All bags have a lead time of five days from when the customer submits the order. Following a magazine advertising promotion in January, orders grew by 50\% in February to 1400 bags. Zoe and Luis found it difficult to organise the larger production team. A break-even chart for February is shown in Fig. 1.1. 10 Due to the increase in orders, Zoe and Luis want to focus on developing the business. They recruited 2 supervisors to manage the 15 production employees. To support the new supervisors, Luis organised some off-the-job training. All production employees are currently paid a salary. However, ZB's labour turnover has 15 increased recently. One of the new supervisors has recommended that ZB should introduce performance-related pay. Zoe and Luis are currently considering this recommendation. Explain one way that Zoe and Luis can use break-even analysis.

Responses may include:
AO1 Knowledge and understanding
- To support decision making (i.e. pricing decisions, costing decisions)
- To calculate useful data (i.e. break-even level of output, margin of safety, profit/loss levels at levels of output)

Do not allow calculations that are needed to produce break even analysis (i.e. VC, FC, TR)
- To consider 'what if' scenarios,
- To forecast costs/pricing
AO2 Application
Explanation may include:
- To support decision making; for example Luis could use the break-even data to decide on an appropriate marketing mi>
- To calculate useful data; such as the level of output at which ZB will stop making a loss.
- To consider 'what if' scenarios; for example the impact of changing factors of production
- To forecast costs/pricing when the level of output changes

Context may include:
- Margin of safety of 400 (OFR based on answer to Q1(b)(i)
- Break-even level of output of 1000 (OFR based on answer to Q1(b)(i)
- Allow any correct identifications/calculations of the data in Fig 1.1
(i.e. FC \(=\$ 25000\), VC per unit \(=\$ 15, T R / P\) per unit \(=\$ 40-\) Note: some calculations depend upon the output)
- Business set up three years ago / in 2021
- Business has grown each year
- Bags are made to order
- ZB uses JIT
- Lead time is five days
- \(50 \%\) growth in sales in February due to magazine advertising promotion.
- Larger production team (due to sales growth)
- Two supervisors recruited
- 15 production employees
- Supervisors given off-the-job training
- Production employees paid a salary (fixed, direct cost)
- Increased labour turnover recently
- Recommendation to introduce performance-related pay
- Luxury hand-made bags

Accept all valid responses.