AS & A Level Business (9609)
Operations management Banker
34 questions · about 16% of the marks we indexed · examined in 9 of 9 sessions.
Practice questions
Original questions written by HomiLabs in the style of the exam, with answers and mark schemes. They are not
Cambridge past paper questions and have not been reviewed by Cambridge. Try each one before opening the answer.
Q1Inventory and supply chain management · Core · Paper 2 style · 6 marksLahore Looms uses 40 cones of cotton yarn a day. The supplier takes 5 days to deliver. Lahore Looms keeps a buffer inventory of 100 cones and always orders 800 cones at a time.
- (a) Calculate the re-order level for cotton yarn at Lahore Looms. [2]
- (b) Calculate the maximum inventory level. [1]
- (c) Explain one cost to Lahore Looms of holding inventory. [3]
Show answer
- (a) 300 cones
Re-order level = (daily usage × lead time) + buffer inventory (M1) = 40 × 5 + 100 = 300 cones (A1).
- (b) 900 cones
Buffer + re-order quantity = 100 + 800 = 900 (B1).
- (c) Storage cost: yarn must be kept in a dry warehouse and insured; the space and insurance cost money and the cash tied up in 900 cones of yarn cannot be used elsewhere (opportunity cost). Also accept: damage/deterioration, theft, obsolescence.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
- (a) Define the term 'just-in-time (JIT) inventory management'. [2]
- (b) Explain one disadvantage of JIT for a bakery that supplies bread to supermarkets every morning. [3]
Show answer
- (a) A system in which materials and components are delivered just when they are needed for production, and finished goods are produced to meet orders, so little or no inventory (and no buffer) is held.
1 mark: supplies arrive exactly when needed / produce to order; 1 mark: minimal or zero inventory held.
- (b) If the flour supplier's delivery is late (e.g. because of a road closure or strike), the bakery has no buffer inventory and cannot bake, so it fails to deliver bread to supermarkets that morning, losing revenue and possibly the contract.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application). Accept: higher ordering/delivery costs, loss of bulk-buying discounts, cannot meet sudden rises in demand.
Rehman Motors runs car repair workshops. It imports brake pads from Thailand. It holds 3,600 brake pads and uses 450 a week. Shipping times have varied between 3 and 9 weeks this year.
- (a) Calculate how many weeks Rehman Motors' current inventory of brake pads will last. [1]
- (b) Explain the term 'supply chain management'. [3]
- (c) Explain one reason why Rehman Motors might choose to hold more inventory than usual. [3]
Show answer
- (a) 8 weeks
3,600 ÷ 450 = 8 weeks (B1).
- (b) Managing the flow of materials, components, information and finance from suppliers through production to the customer, coordinating all the businesses involved to minimise cost and delays. For Rehman Motors this includes managing the overseas brake-pad supplier, shipping and its workshops' needs.
1 mark: flow of goods/information from suppliers to customer; 1 mark: coordination to improve efficiency/reduce cost or delay; 1 mark: application.
- (c) Its brake pads are imported and shipping times are uncertain (delays at ports); holding extra inventory means workshops do not run out and lose customers who need urgent repairs. Also accept: expected price rises/depreciation of the rupee, bulk discounts.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
- (a) GreenBasket is an online grocery retailer in Karachi. Customers complain of missing items and late deliveries. Analyse two ways better supply chain management could improve GreenBasket's competitiveness. [8]
Show answer
- (a) 1. Accurate, shared information with suppliers: linking its ordering system to farmers and wholesalers means fresh produce is ordered according to real-time demand, so fewer items are out of stock and less produce is wasted; customers receive complete orders, improving loyalty against rival apps. 2. Faster, coordinated logistics: planning delivery routes and warehouse picking with supply chain software shortens order-to-delivery time and lowers fuel cost per order; GreenBasket can promise reliable delivery slots and compete on convenience and price.
Ways: supplier relationships, information sharing, demand forecasting, logistics, reduced waste, lower cost, reliability. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
SmartTel assembles mobile phones in Pakistan using components imported from China and South Korea. It holds about 10 weeks of components, worth Rs 1.2 billion. In 2025, delays at the port stopped production for 2 weeks. New phone models are launched every 9 months.
- (a) Evaluate whether SmartTel should change to a just-in-time (JIT) system for its phone components. [12]
Show answer
- (a) For: SmartTel holds 10 weeks of components; JIT would release working capital (Rs 1.2 billion) and cut storage costs; phone components become obsolete quickly as models change, so less inventory means less write-off; encourages efficiency and quality. Against: components are imported from China and South Korea with long, unreliable lead times; the 2025 port delays stopped production for 2 weeks even with inventory; exchange-rate swings make frequent small orders more expensive; JIT needs reliable suppliers, close relationships and good transport, which SmartTel lacks. Judgement: a full JIT system is too risky given its international supply chain; SmartTel should reduce inventory gradually (e.g. lower buffer for components sourced locally, JIT for packaging) and develop local suppliers before adopting JIT more widely.
Benefits vs risks of JIT in context of imported components and supply disruption; partial adoption; judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
- (a) Define the term 'sustainable production'. [2]
- (b) Explain one way a hotel could make its operations more sustainable. [3]
Show answer
- (a) Producing goods and services in ways that minimise harm to the environment and use resources (energy, water, materials) efficiently, so that the needs of future generations are not compromised.
1 mark: minimise environmental impact / efficient use of resources; 1 mark: without compromising future generations / long-term.
- (b) Install solar water heaters and low-flow showers; this cuts gas and water use per guest, reducing costs and the hotel's environmental impact, which can also attract environmentally aware guests. Also accept: recycling, reusing towels, local food suppliers.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
- (a) Jhang Dyeing Mills is a dyeing and finishing mill near Faisalabad that uses large amounts of water and gas. Analyse two ways Jhang Dyeing Mills could make its operations more sustainable. [8]
Show answer
- (a) 1. Water recycling: installing a treatment plant to reuse dyeing water reduces the amount drawn from falling groundwater and stops untreated discharge into canals; this lowers water costs and fines and helps meet European buyers' sustainability requirements, protecting export orders. 2. Energy efficiency: heat recovery from boilers and solar panels reduce gas use; costs fall as gas prices rise and CO₂ emissions per metre fall, improving competitiveness and reputation. Investment costs and payback must be considered.
Ways: water treatment/reuse, renewable energy, efficient machinery, waste reduction, lean production, sustainable materials. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
Indigo Denim produced 1.2 million metres of denim in 2023 using 180 million litres of water. In 2025, after introducing new washing machines, it produced 1.6 million metres using 176 million litres of water.
- (a) Calculate the percentage reduction in water used per metre of fabric between 2023 and 2025. Give your answer to 1 decimal place. [3]
- (b) Explain one reason why improving efficiency in this way could help Indigo Denim's operations strategy. [3]
Show answer
- (a) 26.7 %
2023: 180 million ÷ 1.2 million = 150 litres per metre (M1). 2025: 176 million ÷ 1.6 million = 110 litres per metre (M1). Reduction = (150 − 110) ÷ 150 × 100 = 26.7 % (A1).
- (b) Lower water use per metre reduces costs and dependence on a scarce resource, so Indigo Denim can keep producing even if water supply is restricted and can show buyers measurable sustainability improvements, supporting a strategy of competing on quality and responsible production.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
WoodWorks makes furniture in Chiniot. Timeline:2020: Job production of custom furniture for households. Revenue Rs 400 million; average lead time 6 weeks.2021: Changes to batch production of standard designs. Unit costs fall 18 %; lead time 3 weeks.2022: Wins contracts to furnish 12 new hotels. Custom household orders fall by half.2023: Buys CNC cutting machines (Rs 150 million). Capacity doubles. Revenue Rs 720 million.2024: Switches to cheaper imported wood. Customer returns rise from 2 % to 6 %.2025: Hotel construction slows. Capacity utilisation 62 %.
- (a) Evaluate the effectiveness of WoodWorks' operations strategy between 2020 and 2025. [20]
Show answer
- (a) Effective: switching from job to batch production in 2021 cut unit costs by 18 % and lead times from 6 to 3 weeks, helping the move into hotel contracts; the 2023 CNC machines increased capacity and consistency of quality, and revenue grew from Rs 400m to Rs 720m. Less effective: the move to batch production reduced flexibility — custom orders fell and some loyal household customers left; the 2024 decision to import cheaper wood led to quality complaints (returns rose to 6 %) and reputational damage; capacity utilisation fell to 62 % in 2025 after the large investment as hotel construction slowed. Judgement: the strategy was effective for growth and cost reduction up to 2023, but less so afterwards because it relied heavily on one market (hotels) and compromised quality; overall partially effective — it must rebalance flexibility and quality. Consider external factors (economy, construction slowdown) separately from strategy.
Use the timeline: production method change, automation, sourcing decision, capacity, quality data. Criteria: cost, quality, flexibility, capacity utilisation, revenue. Judgement. Levels: Level 4 (16–20): accurate knowledge, strong use of the case data, three or four developed chains of analysis and a well-supported judgement/recommendation throughout, specific to this business and its situation. Level 3 (11–15): developed analysis in context with some supported evaluation. Level 2 (6–10): some analysis, mostly descriptive use of the case; evaluation weak or unsupported. Level 1 (1–5): knowledge with little application.
Punjab Foods (an invented company) makes packaged snacks and frozen foods. Appendix 1: energy is 20 % of production costs; electricity prices rose 40 % in two years. Appendix 2: sales of standard snacks are flat; demand for 'healthy' snacks is growing 12 % a year. Appendix 3: a major supermarket chain and two export customers will require suppliers to cut carbon emissions by 30 % by 2030. Appendix 4: the main plant runs at 92 % capacity utilisation; gearing is 48 %.
- (a) Advise the directors of Punjab Foods on its operations strategy for the next five years. [20]
Show answer
- (a) Options: (1) Cost focus: expand the main plant, automate packing, centralise production for economies of scale — supports price competition with rivals, but large investment and less flexibility. (2) Sustainability focus: solar power (energy is 20 % of costs and electricity prices rising), reduce packaging waste, source from local farmers — lowers long-run costs, meets supermarket and export buyers' requirements (Appendix 3), improves brand; higher upfront costs. (3) Flexibility/innovation: smaller batch lines for new healthy products (demand growing 12 % a year). Recommendation: combine sustainability investments with a clear payback (solar, waste reduction) and flexible lines for the growing healthy segment, rather than pure scale expansion; justify with appendix data on energy costs, buyer requirements and demand; phase investment given finance constraints; set KPIs (cost per unit, energy per tonne, waste).
Use appendices; weigh cost, quality, flexibility, sustainability and finance; clear recommendation. Levels: Level 4 (16–20): accurate knowledge, strong use of the case data, three or four developed chains of analysis and a well-supported judgement/recommendation throughout, specific to this business and its situation. Level 3 (11–15): developed analysis in context with some supported evaluation. Level 2 (6–10): some analysis, mostly descriptive use of the case; evaluation weak or unsupported. Level 1 (1–5): knowledge with little application.
- (a) Define the term 'quality assurance'. [2]
- (b) Explain one difference between quality control and quality assurance for a medicine manufacturer. [3]
Show answer
- (a) A system of setting agreed quality standards at every stage of production and checking that they are met, so that errors are prevented rather than detected at the end; often each worker is responsible for quality.
1 mark: standards set for each stage / process; 1 mark: prevent defects / all workers responsible.
- (b) Quality control inspects finished tablets at the end of the line and rejects faulty batches (detecting errors), whereas quality assurance builds checks into every stage — raw materials, mixing, pressing — so faults are prevented; QA should reduce costly wasted batches.
1 mark each: QC = inspection/detect at end; QA = prevent at every stage; 1 mark: application.
Hashmi Ceramics makes dinner plates. In 2024 it made 74,000 plates and 1,850 were rejected. In 2025, after introducing kaizen groups, it made 80,000 plates and its reject rate fell to 0.9 %.
- (a) Calculate the reject rate at Hashmi Ceramics in 2024. [2]
- (b) Calculate the number of plates rejected in 2025. [1]
- (c) Explain the term 'kaizen' and how it may have helped Hashmi Ceramics. [3]
Show answer
- (a) 2.5 %
1,850 ÷ 74,000 × 100 (M1) = 2.5 % (A1).
- (b) 720
0.9 % × 80,000 = 720 (B1).
- (c) Kaizen means continuous improvement through many small changes suggested by workers. Production teams at Hashmi may have suggested small changes, e.g. adjusting kiln temperatures or handling methods, which together cut the reject rate from 2.5 % to 0.9 %.
1 mark: continuous small improvements; 1 mark: workers involved/teams; 1 mark: application to reject rate.
- (a) RestWell Inns, a chain of 14 budget hotels, is considering introducing total quality management (TQM). Analyse two benefits of TQM for RestWell Inns. [8]
Show answer
- (a) 1. Consistent service quality: TQM makes every employee — receptionists, cleaners, cooks — responsible for quality and focused on internal and external customers; fewer mistakes (dirty rooms, wrong bills) mean better online reviews and repeat bookings, raising occupancy. 2. Lower costs: getting things right first time reduces the cost of complaints, refunds and re-cleaning rooms; staff empowerment and teamwork may improve motivation, reducing labour turnover in a high-turnover industry.
Benefits: quality culture, customer satisfaction/reviews, lower cost of errors, motivation/empowerment, competitive advantage. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
StepUp Shoes makes leather shoes in Lahore. It holds 5 weeks of materials, wastes 8 % of the leather it buys, and makes large batches of each design. Workers are paid piece rates and supervised closely. Cheaper imported shoes have taken 15 % of its market over three years.
- (a) Evaluate whether introducing lean production would improve the competitiveness of StepUp Shoes. [12]
Show answer
- (a) For: lean techniques (JIT, kaizen, cell production, waste reduction) could cut the 5 weeks of materials inventory and 8 % waste of leather, lowering costs so StepUp can compete with cheaper imports; cell production and multi-skilled teams increase flexibility to produce smaller batches of new designs quickly, important as fashions change; quality improves. Against: lean needs reliable suppliers (if leather comes from small tanneries with variable quality, JIT deliveries could stop production), investment in training and a change in culture from the current piece-rate, supervisor-led system; workers may resist; benefits take time. Judgement: lean production would improve competitiveness, especially through waste reduction and flexibility, if introduced gradually with training and supplier development; full JIT is risky until supply is reliable.
Lean elements; costs, quality, flexibility; preconditions (suppliers, culture, training); judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
- (a) Define the term 'batch production'. [2]
- (b) Explain one advantage of flow production for a soft drinks manufacturer. [3]
Show answer
- (a) A method in which a group (batch) of identical products is made together, passing through each stage of production before the next batch, which may be different, is started.
1 mark: groups of identical items produced together; 1 mark: whole batch moves through each stage / machines reset between batches.
- (b) Bottles move continuously along an automated line, so very large volumes are produced at low unit cost (economies of scale); this lets the manufacturer sell at competitive prices in a mass market. Also accept: consistent quality, less labour needed.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Tasty Foods is choosing a method for packing snacks. Labour-intensive method: fixed costs Rs 2,000,000 a month, variable cost Rs 180 per unit. Capital-intensive method: fixed costs Rs 6,000,000 a month, variable cost Rs 80 per unit.
- (a) Calculate the average cost per unit for each production method at an output of 50,000 units a month. [3]
- (b) Explain one reason why Tasty Foods might still choose the labour-intensive method. [3]
Show answer
- (a) Labour-intensive: Rs 220; capital-intensive: Rs 200
Labour-intensive: (2,000,000 + 180 × 50,000) ÷ 50,000 = 11,000,000 ÷ 50,000 = Rs 220 (M1 A1). Capital-intensive: (6,000,000 + 80 × 50,000) ÷ 50,000 = Rs 200 (A1).
- (b) If demand is uncertain and output might fall (e.g. to 30,000 units), the capital-intensive method's high fixed costs would make its unit cost higher; workers are also more flexible for producing different snack recipes in small batches. Also accept: capital cost/finance, local job reputation.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
- (a) Analyse one disadvantage of job production for a business that makes made-to-measure wedding dresses. [5]
Show answer
- (a) Each dress is unique and made by skilled tailors, so labour cost per dress is high and economies of scale are not possible; the business must charge high prices, which limits its market to higher-income customers, and output is limited by the number of skilled tailors, restricting growth. Also accept: long lead times.
Chain: unique/skilled/slow → high unit cost, low output → high price/limited market/growth. Marks: knowledge 1, application 1, analysis 3. Level 2 (3–5): a developed chain of analysis (cause → effect → impact) applied to this business. Level 1 (1–2): knowledge with limited application; no developed analysis.
Ravi Tea Packers is considering an automated packing line costing Rs 30 million. It would replace 8 packing workers, each costing Rs 900,000 a year. The machine would cost Rs 1,200,000 a year to maintain.
- (a) Calculate the annual net saving and the payback period of the automated packing line. [4]
- (b) Evaluate whether Ravi Tea Packers should automate its packing line. [12]
Show answer
- (a) Annual net saving Rs 6,000,000; payback 5 years.
Labour saving = 8 × 900,000 = Rs 7,200,000 (M1). Net saving = 7,200,000 − 1,200,000 = Rs 6,000,000 (A1). Payback = 30,000,000 ÷ 6,000,000 (M1) = 5 years (A1).
- (b) For: Rs 6 million net annual saving; faster, consistent filling weights and hygiene meet supermarket requirements; capacity rises for growth; less dependence on labour. Against: payback of 5 years is long — the machine may be outdated or breakdowns occur; Rs 30 million may need a loan at high interest; 8 redundancies damage morale and the firm's local reputation and may cost redundancy pay; loss of flexibility for small orders of different pack sizes; technical skills needed for maintenance. Judgement: automate if demand is stable or growing and finance is available at reasonable cost, with redeployment of staff to reduce resistance; otherwise delay or lease the equipment. Consider whether 5-year payback is acceptable given the machine's expected life (e.g. 10 years).
Use calculation; financial and non-financial factors; finance; workforce; judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
Mehr Plastics must choose a site for a new factory. Forecast annual output is 150,000 units, sold at Rs 400 each. Site X: annual fixed costs Rs 18 million; variable cost Rs 250 per unit. Site Y: annual fixed costs Rs 24 million; variable cost Rs 220 per unit.
- (a) Calculate the forecast annual profit at each site. [4]
- (b) Calculate the annual output at which both sites would have the same total costs. [2]
Show answer
- (a) Site X: Rs 4,500,000; Site Y: Rs 3,000,000
Site X: 150,000 × (400 − 250) − 18,000,000 = 22,500,000 − 18,000,000 = Rs 4,500,000 (M1 A1). Site Y: 150,000 × (400 − 220) − 24,000,000 = 27,000,000 − 24,000,000 = Rs 3,000,000 (M1 A1).
- (b) 200,000 units
18,000,000 + 250Q = 24,000,000 + 220Q → 30Q = 6,000,000 (M1) → Q = 200,000 (A1).
Zenith Garments is choosing between two sites. Factors and weights: labour cost 0.3; transport links 0.25; access to markets 0.25; government incentives 0.2. Scores out of 10 — Faisalabad: 8, 6, 7, 5. Karachi: 6, 9, 8, 4.
- (a) Calculate the weighted score for each site and state which site should be chosen on this basis. [4]
- (b) Explain one limitation of using weighted scoring to choose a location. [3]
Show answer
- (a) Faisalabad 6.65; Karachi 6.85: Karachi has the higher score.
Faisalabad: 0.3×8 + 0.25×6 + 0.25×7 + 0.2×5 = 2.4 + 1.5 + 1.75 + 1.0 = 6.65 (M1 A1). Karachi: 0.3×6 + 0.25×9 + 0.25×8 + 0.2×4 = 1.8 + 2.25 + 2.0 + 0.8 = 6.85 (A1). Karachi chosen (A1).
- (b) The weights and scores are subjective: if managers gave labour cost a weight of 0.4 instead of 0.3, Faisalabad might win; the decision can be biased by managers' opinions and the method ignores factors not included, such as security or quality of life for staff.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
- (a) FastTrack Logistics has grown from 200 to 2,500 employees in four years and now operates in 30 cities. Analyse two diseconomies of scale it may experience. [8]
Show answer
- (a) 1. Communication problems: with more layers and depots across 30 cities, messages from head office take longer and get distorted, so decisions (e.g. rerouting deliveries during floods) are slow, increasing costs and late deliveries. 2. Coordination and control problems / low motivation: managers cannot monitor all depots, so procedures differ and errors increase; employees in a large firm may feel remote from management, lowering motivation and raising labour turnover and absenteeism, increasing average costs.
Diseconomies: communication, coordination/control, motivation/alienation; each linked to rising unit costs in context. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
GlobalToys is a multinational toy maker with all its production in southern China. It sells mainly in the USA and Europe. Labour costs in Pakistan are about 40 % lower than at its Chinese plants, but labour productivity is about 30 % lower. The US recently raised tariffs on some goods made in China.
- (a) Evaluate whether GlobalToys should move part of its production from China to Pakistan. [12]
Show answer
- (a) For: labour costs about 40 % lower; reduces dependence on one country (supply-chain risk, tariffs on Chinese goods in the US market); Pakistan has preferential (GSP+) access to EU markets for many exports and a large young workforce; government incentives in special economic zones. Against: with productivity 30 % lower, labour cost per unit is only about 14 % lower (0.6 ÷ 0.7 ≈ 0.86), not 40 %, and fewer skilled toy-making suppliers may raise other costs; infrastructure (power outages, ports) and political/economic instability; exchange-rate risk; set-up and relocation costs and redundancy in China; quality control at a distance; reputation risks if working conditions are poor. Judgement: a partial move (a second plant for simple, labour-intensive products) reduces risk and may cut costs, but only if productivity, power supply and quality standards can be assured; a full move is too risky.
Quantitative and qualitative location factors; offshoring risks; partial vs full move; judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
- (a) Define the term 'added value'. [2]
- (b) Explain one way a coffee shop could increase the value it adds. [3]
Show answer
- (a) The difference between the selling price of a product and the cost of the bought-in materials and components used to make it.
1 mark: selling price (or sales revenue); 1 mark: minus cost of bought-in materials/inputs.
- (b) Create a relaxing atmosphere with comfortable seating and free Wi-Fi, so customers are willing to pay a higher price for each coffee while the cost of the beans and milk is unchanged; the difference (added value) increases. Also accept: branding, premium ingredients, latte art, speed/convenience.
1 mark for knowledge of the term/concept; up to 2 marks for explaining it in the context of the business (application).
Craftwood makes dining tables. Each table sells for Rs 45,000. The wood, glue and polish for each table cost Rs 18,000. Craftwood sells 120 tables a month.
- (a) Calculate the added value per table and the total added value per month. [3]
- (b) Explain why added value is not the same as profit. [3]
Show answer
- (a) Rs 27,000 per table; Rs 3,240,000 per month
Added value per table = 45,000 − 18,000 = Rs 27,000 (M1 A1). Per month = 27,000 × 120 = Rs 3,240,000 (A1).
- (b) Added value only subtracts the cost of bought-in materials (wood, polish); the business must still pay wages, rent, electricity and other overheads from the added value, so profit is lower than added value.
1 mark: added value = price − bought-in materials; 1 mark: other costs (labour, overheads) still to be paid; 1 mark: application.
- (a) Evaluate whether improving efficiency is more important than improving effectiveness for a courier company. [12]
Show answer
- (a) Efficiency (using fewer resources per parcel — fuel, riders' time, route optimisation) lowers unit costs, essential in a price-competitive market with thin margins. Effectiveness (achieving objectives such as on-time, undamaged delivery and customer satisfaction) wins and keeps business customers such as online retailers. Conflict: maximising parcels per rider may increase late or damaged deliveries. Judgement: for a courier, effectiveness (reliability) is the basis of its reputation and contracts, so it is more important; efficiency improvements are valuable only if they do not reduce reliability. Depends on its competitive strategy (low-cost vs premium express) and customers' priorities.
Definitions of efficiency, effectiveness (and productivity); trade-offs; context; judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
A shop refit consists of four activities. A: remove old fittings (3 days), starts at once. B: install new shelving (5 days), after A. C: rewire lighting (4 days), after A. D: paint and clean (2 days), after both B and C.
- (a) Identify the critical path and state the minimum time needed to complete the project. [2]
- (b) Calculate the total float for activity C. [2]
Show answer
- (a) A → B → D; 10 days.
Paths: A–B–D = 3 + 5 + 2 = 10; A–C–D = 3 + 4 + 2 = 9 (M1). Critical path A–B–D, 10 days (A1).
- (b) 1 day
C can start at day 3 and must finish by day 8 (latest start of D): float = 8 − 4 − 3 = 1 day (M1 A1).
- (a) MedSupply distributes medicines to 900 pharmacies. It plans to introduce an enterprise resource planning (ERP) system that links ordering, inventory, finance and delivery. Analyse two benefits of ERP for MedSupply. [8]
Show answer
- (a) 1. Better inventory control: real-time data on stock levels and expiry dates in every warehouse means medicines are reordered automatically when needed and older stock is sent first; fewer stock-outs at pharmacies and less waste of expired medicines, reducing costs. 2. Faster, more accurate order processing: an order from a pharmacy automatically updates inventory, invoices and delivery schedules, so errors fall and orders are delivered faster; customer satisfaction and cash flow (faster invoicing) improve. Costs of implementation and training should be noted but are not required.
Benefits: integrated information, inventory control, efficiency, accuracy, customer service, better decision-making, cash flow. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 4. Level 2 (5–8): two developed chains of analysis, each clearly applied to this business. Level 1 (1–4): knowledge and/or application with undeveloped or generic analysis. Evaluation earns no extra marks.
A software company is installing a new ERP system. A: specify requirements (4 days), starts at once. B: order hardware (6 days), starts at once. C: configure software (3 days), after A. D: train staff (5 days), after A. E: install and test system (4 days), after B and C. F: go live and review (2 days), after D and E.
- (a) Calculate the earliest start time (EST) and latest finish time (LFT) of each activity. [4]
- (b) State the critical path and the total float of activities B and D. [3]
- (c) Activity D is delayed by 3 days. State the effect on the project. [1]
Show answer
- (a) EST: A 0, B 0, C 4, D 4, E 7, F 11. LFT: A 4, B 7, C 7, D 11, E 11, F 13.
Forward pass: E starts after the later of B (6) and C (4+3 = 7) → 7; F after the later of D (9) and E (11) → 11; project ends day 13 (M1 A1). Backward pass from 13: LFT E = 11, D = 11, C = 7, B = 7, A = min(7 − 3, 11 − 5) = 4 (M1 A1).
- (b) Critical path A–C–E–F (13 days). Float: B 1 day, D 2 days.
Critical activities have zero float: A, C, E, F (B1). Float B = 7 − 6 − 0 = 1 (B1). Float D = 11 − 5 − 4 = 2 (B1).
- (c) The project is delayed by 1 day (to 14 days).
Delay 3 exceeds D's float of 2, so the project finishes 1 day late (B1).
Prime Bags can make 12,000 bags a month and currently makes 9,000. It receives a new monthly order for 4,000 bags at Rs 560 each. The variable cost of making a bag itself is Rs 420; an outside supplier would make bags for Rs 510 each. Fixed costs will not change.
- (a) Calculate Prime Bags' current capacity utilisation. [2]
- (b) Prime Bags accepts the order, making 3,000 bags itself and outsourcing 1,000. Calculate the additional monthly profit from the order. [3]
- (c) Explain one risk to Prime Bags of operating at 100 % capacity. [2]
Show answer
- (a) 75 %
9,000 ÷ 12,000 × 100 (M1) = 75 % (A1).
- (b) Rs 470,000
Revenue = 4,000 × 560 = Rs 2,240,000 (M1). Costs = 3,000 × 420 + 1,000 × 510 = Rs 1,770,000 (M1). Additional profit = Rs 470,000 (A1).
- (c) There is no spare time for machine maintenance, so breakdowns are more likely, and staff may be overworked, leading to mistakes and late deliveries to existing customers.
1 mark: risk identified; 1 mark: consequence.
Indus Crest Bank (an invented bank) employs 250 staff in its customer call centre in Lahore. A specialist overseas company has offered to run the call centre at 35 % lower cost. In a recent survey, only 58 % of the bank's customers were satisfied with telephone service.
- (a) Evaluate whether Indus Crest Bank should outsource its customer call centre to a specialist company in another country. [12]
Show answer
- (a) For: the specialist provider offers costs 35 % lower, 24-hour service and the ability to handle peaks; the bank can focus on its core banking activities and avoid investing in new call-centre technology. Against: loss of control over service quality — customer satisfaction is already a problem; language/accent and cultural differences may frustrate customers; data security and regulatory risks with customers' financial information sent abroad; negative publicity from 250 local job losses; dependence on one supplier and exchange-rate risk on contract costs. Judgement: outsourcing basic queries (balance checks, card blocking) may be sensible, but complex and high-value customer contact should stay in-house; the decision depends on the provider's security standards, contract terms (service-level agreements) and whether customer service is part of the bank's competitive advantage.
Benefits and risks of outsourcing; quality, control, security, reputation, cost; judgement. Mark scheme: AO1 knowledge 2, AO2 application 2, AO3 analysis 2, AO4 evaluation 6. Level 3 (9–12): developed analysis in context plus a supported judgement that answers the question for this business (e.g. 'it depends on…' weighed, with a clear conclusion). Level 2 (5–8): developed analysis with some, limited or unsupported evaluation. Level 1 (1–4): knowledge and some application; little or no analysis.
