IB Business Management SL 5.5.1 Contribution Question Bank

Practise IB Business Management SL/HL 5.5.1 by applying contribution concepts to exam-style questions.

[Maximum number: 2]

Alfombras Horizonte (AH)

Alfombras Horizonte (AH) produces natural henequen* rugs in Yucatán, Mexico, and sells them online. AH rugs are very popular among young people because of their eco-friendly materials and AH's mission statement: "We are responsible with Mother Earth for our environment and ourselves."
In 2022, A H 's costs increased, but it kept prices unchanged. For 2023, A H decided to change its pricing

Figure for Question 5.5.1—Contribution question 1 — IB Business Management SL

strategy and pass on all cost increases to customers.

$Table 2: Selected financial information for \(\boldsymbol{A$

Table 2: Selected financial information for \(\boldsymbol{A

* henequen: a fibre plant from Mexico and Guatemala. Fabrics made from henequen fibre are used to make a wide variety of products, including bags, rugs and hammocks.

Explain whether A H's change in pricing strategy for 2023 will have an impact on its unit contribution.

A H decided to pass on all cost increases to its customers, therefore, the $\$5$ increase in variable cost means that the new selling price of $\$120$ will represent a $\$10$ unit contribution increase.
Or,
Since unit contribution is the difference between the selling price and its variable cost, according to the figures from the table in 2023, $\$120$ - $\$70$ = $\$50$ , which is a $\$10$ increase in contribution from 2022.

Candidates do not have to word their responses in exactly the same way.

Award [1] for some understanding.
Award [2] for a clear explanation such as those mentioned above.
N.B. If a candidate says only "it will increase" (or something to that effect, without further explanation), award [1].

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5.5.1—Contribution question 1