O Level Business Studies (7115)
Operations management Banker
26 questions · about 17% 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.
Q1Costs, scale of production and break-even analysis · Core · Paper 1 style · 4 marksGolden Crust is a bakery in Hyderabad that makes bread and cakes.
- (a) Define 'fixed costs'. [2]
- (b) Identify two variable costs for Golden Crust. [2]
Show answer
- (a) Costs that do not change with the level of output in the short run, e.g. rent.
1 mark: do not vary with output; 1 mark: short run / example such as rent, salaries, insurance (must be linked).
- (b) Any two: flour, sugar, eggs, butter, packaging, electricity/gas for ovens (if per batch), wages paid per item.
1 mark each. Do not accept rent or managers' salaries.
Kite Masters makes kites for the spring festival season. Fixed costs are $18,000 per season. Each kite sells for $12 and has variable costs of $7. It expects to sell 5,000 kites.
- (a) Calculate the break-even level of output. [2]
- (b) Calculate the margin of safety. [2]
Show answer
- (a) 3,600 kites
Contribution per kite = 12 − 7 = $5 (M1). Break-even = 18,000 ÷ 5 = 3,600 kites (A1).
- (b) 1,400 kites
Margin of safety = expected sales − break-even output (M1) = 5,000 − 3,600 = 1,400 kites (A1).
Coastal Nets makes fishing nets in Gwadar. Its fixed costs are $50,000 a year and its variable cost is $20 per net. It makes 5,000 nets a year.
- (a) Calculate the average cost per net. [2]
- (b) Outline two economies of scale Coastal Nets could gain if it grew larger. [4]
Show answer
- (a) $30
Total cost = 50,000 + 20 × 5,000 = $150,000 (M1). Average cost = 150,000 ÷ 5,000 = $30 (A1).
- (b) 1. Purchasing economies: buying nylon thread in bulk gives discounts, lowering cost per net. 2. Technical economies: it can afford faster net-making machines that produce more nets per hour. (Also: financial economies – cheaper loans; marketing economies – advertising cost spread over more nets; managerial economies – specialist managers.)
For each of two economies: 1 mark identify + 1 mark outline applied to Coastal Nets.
Oak & Pine makes wooden chairs in Nairobi, Kenya.
- (a) State whether each of these costs is fixed or variable: (i) rent of the workshop, (ii) wood for each chair, (iii) insurance, (iv) paint for each chair. [2]
- (b) Monthly fixed costs are $15,000 and the variable cost is $35 per chair. Calculate the total cost of making 600 chairs in a month. [2]
Show answer
- (a) (i) fixed (ii) variable (iii) fixed (iv) variable
2 marks for all four correct; 1 mark for two or three correct.
- (b) $36,000
Total variable cost = 35 × 600 = $21,000 (M1). Total cost = 15,000 + 21,000 = $36,000 (A1).
Desert Rose makes scented candles in Bahawalpur. Each candle sells for Rs 450 and has variable costs of Rs 270. Fixed costs are Rs 900,000 a year. Next year it expects to sell 7,000 candles.
- (a) Calculate the expected profit next year. [2]
- (b) Calculate the break-even level of output. [2]
- (c) Explain one limitation of break-even analysis for Desert Rose. [2]
Show answer
- (a) Rs 360,000
Total contribution = (450 − 270) × 7,000 = Rs 1,260,000 (M1). Profit = 1,260,000 − 900,000 = Rs 360,000 (A1).
- (b) 5,000 candles
900,000 ÷ (450 − 270) = 900,000 ÷ 180 (M1) = 5,000 candles (A1).
- (c) It assumes all candles made are sold at the same price, but Desert Rose may have unsold candles or give discounts, so actual break-even could be higher.
1 mark: limitation (assumes all output sold / constant price / costs stay constant / straight-line costs / only as good as forecast data). 1 mark: explanation applied to Desert Rose.
Threadline Ltd is a garment exporter in Faisalabad. In three years it has grown from 80 to 900 workers and opened two more factories.
- (a) Explain two diseconomies of scale Threadline Ltd might experience. [6]
Show answer
- (a) 1. Poor communication: with 900 workers across three factories, messages pass through many levels and arrive late or distorted, so mistakes in orders for foreign buyers increase and costs rise. 2. Low worker motivation: workers feel unimportant in a large firm and managers rarely see them, so absenteeism and labour turnover rise and productivity falls. (Also: weak coordination between factories / slow decision-making.)
For each: 1 mark identify, 1 mark application to Threadline, 1 mark development showing average costs rise.
Sun Shade makes garden umbrellas. It sells each umbrella for $80; variable cost is $50 per umbrella and fixed costs are $120,000 a year. It expects to sell 6,000 umbrellas. The manager is considering raising the price to $90, which market research suggests would reduce sales to 5,200 umbrellas.
- (a) Should Sun Shade raise its price to $90? Justify your answer using suitable calculations (for example, the break-even output and expected profit at each price). [12]
Show answer
- (a) Calculations: At $80: break-even 4,000, profit $60,000. At $90: break-even 3,000, profit $88,000. Yes, probably: profit rises from $60,000 to $88,000, break-even falls from 4,000 to 3,000 and the margin of safety rises from 2,000 to 2,200. But the forecast fall in sales may be wrong; if rivals keep lower prices, sales could fall more, and lower sales could cost market share in the long term. Judgement: raise the price if the research is reliable, and monitor sales.
Calculations: $80: 120,000 ÷ 30 = 4,000; 30 × 6,000 − 120,000 = $60,000. $90: 120,000 ÷ 40 = 3,000; 40 × 5,200 − 120,000 = $88,000. Content: $80: break-even 4,000, profit $60,000, margin of safety 2,000; $90: break-even 3,000, profit $88,000, margin of safety 2,200; reliability of the market-research forecast; rivals' prices; market share in the long term. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to Sun Shade, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to Sun Shade, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks. Correct calculations count towards application and analysis; follow through an earlier calculation error.
FreshMart has grown from one supermarket to a chain of 40 supermarkets across Pakistan. In its central bakery, output rose from 10,000 loaves a week (total cost Rs 400,000) to 25,000 loaves a week (total cost Rs 750,000).
- (a) Define 'economies of scale'. [2]
- (b) Calculate the average cost per loaf before and after the increase in output. [2]
- (c) Explain why FreshMart may be able to charge lower prices than a small corner shop. [4]
Show answer
- (a) The factors that cause average (unit) costs to fall as a business increases its scale of production.
1 mark: average/unit costs fall; 1 mark: as output/size of the business increases.
- (b) Before Rs 40; after Rs 30
400,000 ÷ 10,000 = Rs 40 (1); 750,000 ÷ 25,000 = Rs 30 (1).
- (c) FreshMart buys in bulk for 40 stores, so suppliers give large discounts (purchasing economies); it can borrow more cheaply and spread advertising over many stores. Lower average costs mean it can charge lower prices and still make a profit, whereas a corner shop buys in small quantities at higher unit cost.
1 mark per relevant economy identified (up to 2) + up to 2 marks for explaining the link from lower average cost to lower prices, with application.
Pure Pour bottles mineral water in Murree and sells each case for $25. It must choose a new bottling machine. Machine A: fixed costs $200,000 a year, variable cost $15 per case. Machine B (more automated): fixed costs $320,000 a year, variable cost $9 per case. Expected sales are 30,000 cases a year, but sales vary a lot with the weather.
- (a) Recommend which bottling machine Pure Pour should buy. Justify your answer using suitable calculations (for example, the break-even output and expected annual profit for each machine). [12]
Show answer
- (a) Calculations: A: break-even 20,000 cases, profit $100,000. B: break-even 20,000 cases, profit $160,000. Both break even at 20,000 cases, but above that B earns $16 per case instead of $10, so at 30,000 cases B gives $60,000 more profit. Risk: below 20,000 cases B makes bigger losses (higher fixed costs), and sales depend on weather. Unless sales are likely to fall below 20,000, choose B; it may also need fewer workers, though breakdowns of an automated machine could stop production.
Calculations: A: 200,000 ÷ (25 − 15) = 20,000; 10 × 30,000 − 200,000 = $100,000. B: 320,000 ÷ (25 − 9) = 20,000; 16 × 30,000 − 320,000 = $160,000. Content: both break even at 20,000 cases; profit A $100,000, B $160,000 at 30,000 cases; contribution $10 v $16 per case; B's higher fixed costs mean bigger losses below break-even; weather makes sales uncertain; automation — fewer workers, breakdown risk. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to Pure Pour, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to Pure Pour, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks. Correct calculations count towards application and analysis; follow through an earlier calculation error.
Aroma Kitchenware can make only one new product next year. Appendix:Item | Rice cooker liner (X) | Pressure cooker (Y)Selling price ($) | 15 | 40Variable cost per unit ($) | 9 | 22Fixed costs ($) | 48,000 | 135,000Forecast sales (units) | 12,000 | 9,000
- (a) Using the appendix, recommend which product Aroma Kitchenware should make. Justify your answer using suitable calculations (for example, break-even output, margin of safety and expected profit for each product). [12]
Show answer
- (a) Calculations: X: break-even 8,000, margin of safety 4,000, profit $24,000. Y: break-even 7,500, margin of safety 1,500, profit $27,000. Y gives slightly more profit ($27,000 v $24,000), but its margin of safety is only 1,500 units (17% of forecast) compared with 4,000 (33%) for X. If sales are 20% below forecast, X still makes a profit (9,600 units → $9,600) but Y makes a loss (7,200 units → −$5,400). X is the safer choice unless the forecast for Y is very reliable; the extra $3,000 profit from Y is small for the extra risk.
Calculations: X: contribution $6; 48,000 ÷ 6 = 8,000; 12,000 − 8,000 = 4,000; 6 × 12,000 − 48,000 = $24,000. Y: contribution $18; 135,000 ÷ 18 = 7,500; 9,000 − 7,500 = 1,500; 18 × 9,000 − 135,000 = $27,000. Content: X break-even 8,000, margin of safety 4,000 (33%), profit $24,000; Y break-even 7,500, margin of safety 1,500 (17%), profit $27,000; if sales are 20% below forecast X still profits, Y makes a loss; reliability of forecasts; fit with existing range. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to Aroma Kitchenware, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to Aroma Kitchenware, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks. Correct calculations count towards application and analysis; follow through an earlier calculation error.
Sara is opening a small café in Gilgit. Her weekly fixed costs are Rs 42,000. Each meal sells for Rs 600 and costs Rs 250 in ingredients and packaging.
- (a) Calculate how many meals Sara must sell each week to break even. [2]
- (b) Do you think a break-even chart would be useful to Sara when she opens her café? Justify your answer. [6]
Show answer
- (a) 120 meals
Contribution = 600 − 250 = Rs 350 (M1). 42,000 ÷ 350 = 120 meals (A1).
- (b) Useful: shows how many meals she needs to sell (120 a week) and the profit or loss at different sales levels; helps her see the effect of changing prices or costs, and supports a loan application. Limitations: assumes all food prepared is sold and every meal sells at the same price, but cafés waste food and offer different meals; costs (e.g. ingredient prices) change; tourist demand in Gilgit is seasonal, so weekly sales vary. Judgement: useful as a planning guide for a new business, but she should update it and not rely on it alone.
Up to 2 marks knowledge, up to 2 marks analysis (developed consequences), up to 2 marks evaluation (justified judgement that weighs both sides for this business).
Saba Ceramics makes floor tiles. Last month 40 workers produced 12,000 boxes of tiles.
- (a) Define 'productivity'. [2]
- (b) Calculate labour productivity for last month. [2]
Show answer
- (a) A measure of the efficiency of inputs: output per unit of input, e.g. output per worker in a time period.
1 mark: output compared with inputs; 1 mark: e.g. output per worker per period.
- (b) 300 boxes per worker
Labour productivity = output ÷ number of workers (M1) = 12,000 ÷ 40 = 300 boxes per worker per month (A1).
Three businesses in Lahore use different methods of production.
- (a) State the most suitable method of production (job, batch or flow) for each business: (i) a tailor making wedding dresses to each customer's design; (ii) a bakery making 200 loaves of brown bread, then 200 loaves of white bread; (iii) a factory filling soft-drink bottles 24 hours a day. [3]
- (b) Outline one disadvantage of flow production. [2]
Show answer
- (a) (i) job (ii) batch (iii) flow
1 mark each.
- (b) e.g. Very high cost of machinery: the business needs large, steady demand to cover it; or boring, repetitive work lowers worker motivation; or a breakdown at one stage stops the whole line; or products are standardised.
1 mark identify + 1 mark outline.
Rehman Rice Mills processes and packs rice in Gujranwala. Its manager wants to increase productivity.
- (a) Outline two ways Rehman Rice Mills could increase productivity. [4]
Show answer
- (a) 1. Train workers so they operate the husking and packing machines faster with fewer mistakes. 2. Buy more automated packing machines, so more bags are packed per worker per hour. (Also: improve motivation, e.g. bonuses; better organisation/lean production; reduce machine breakdowns with maintenance.)
For each of two ways: 1 mark identify + 1 mark outline applied to the rice mill.
Sahil Motors assembles cars in Karachi. It is thinking of introducing just-in-time (JIT) inventory control, so that parts arrive from suppliers only when needed on the assembly line.
- (a) Define 'lean production'. [2]
- (b) Explain one advantage and one disadvantage of JIT for Sahil Motors. [6]
Show answer
- (a) Techniques used to reduce waste of all kinds (e.g. time, materials, inventory) in production and so increase efficiency.
1 mark: reducing waste; 1 mark: to improve efficiency / lower costs (or examples JIT, kaizen).
- (b) Advantage: little money is tied up in inventory of parts and less warehouse space is needed, so costs fall and cash is available for other uses. Disadvantage: if a supplier delivers late (e.g. imported parts delayed at the port or by strikes), the assembly line stops, cars are not finished and customers wait, so sales are lost.
Advantage: 1 identify, 1 application, 1 development. Disadvantage: 1 identify, 1 application, 1 development.
Chenab Bicycles makes bicycle frames. In Year 1, 60 workers produced 48,000 frames. In Year 2, after new welding equipment was installed, 65 workers produced 54,600 frames.
- (a) Calculate labour productivity in each year. [2]
- (b) Calculate the percentage increase in labour productivity. [2]
- (c) Explain why higher productivity is important for Chenab Bicycles. [4]
Show answer
- (a) Year 1: 800 frames per worker; Year 2: 840 frames per worker
48,000 ÷ 60 = 800 (1); 54,600 ÷ 65 = 840 (1).
- (b) 5%
(840 − 800) ÷ 800 × 100 (M1) = 5% (A1).
- (c) More frames per worker means lower labour cost per frame (average costs fall). Chenab can then cut prices to compete with imported bicycles, or keep prices and earn a higher profit margin; it may also afford higher wages, improving motivation.
1 mark: lower average/unit costs. 1 mark application. Up to 2 marks development: more competitive prices, higher profit, higher wages, faster delivery to customers.
Golden Biscuits Ltd makes biscuits using batch production: one oven line makes one type for a few hours, then is cleaned and changed to another type. Demand for its best-selling biscuit has grown so much that the line runs that type nearly all the time. The directors are considering a new flow-production line for this biscuit.
- (a) Explain two benefits to Golden Biscuits Ltd of using flow production for its best-selling biscuit. [8]
- (b) Recommend whether Golden Biscuits Ltd should introduce flow production for this biscuit. Justify your answer. [12]
Show answer
- (a) 1. Lower average costs: machines run continuously without stopping for cleaning and changeover, and ingredients can be bought in bulk, so each biscuit costs less and prices can be competitive. 2. Higher output and consistent quality: an automated line makes identical biscuits quickly, so the firm can meet growing demand without losing sales.
For each benefit (max 4 each): 1 mark identify; 1 mark apply to the biscuit factory (changeovers, high demand); 2 marks develop the consequence (costs, profit, meeting demand).
- (b) Yes, if demand stays high: the line already runs this biscuit almost constantly, so flow production uses the equipment fully and cuts unit costs. Risks: high cost of the new line; if tastes change, a dedicated line is inflexible; workers may find tasks repetitive. Because demand is large and stable, the cost savings and output are likely to outweigh the risk; keep batch production for the other types.
Content: line already runs this biscuit almost constantly, so flow uses equipment fully and cuts unit costs; high cost of the new line; inflexible if tastes change; repetitive work and motivation; keep batch production for other types; level and stability of demand. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to Golden Biscuits Ltd, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to Golden Biscuits Ltd, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks.
Chiniot Furniture makes hand-carved beds using many skilled craftsmen. Lahore Steel makes steel sheets using large automated rolling machines and few workers.
- (a) Explain the difference between labour-intensive and capital-intensive production, using these two businesses as examples. [4]
- (b) Outline two benefits to Lahore Steel of using technology in production. [4]
Show answer
- (a) Labour-intensive production uses a large amount of labour relative to capital (Chiniot Furniture – skilled carvers, few machines). Capital-intensive production uses a large amount of machinery relative to labour (Lahore Steel – automated rolling machines, few workers).
1 mark each definition (2) + 1 mark each correctly linked example (2).
- (b) 1. Higher productivity: machines produce more sheets per hour than workers could, lowering average costs. 2. Consistent quality: computer-controlled machines give the same thickness every time, reducing waste and rejected sheets. (Also: lower labour costs; can operate 24 hours; safer for workers.)
For each of two benefits: 1 mark identify + 1 mark outline applied to Lahore Steel.
Pak Packaging Ltd makes cardboard boxes. It is considering buying an automated cutting machine costing $500,000. The machine would reduce the number of production workers from 50 to 30. Each worker is paid $12,000 a year. The factory is the main employer in a small town.
- (a) Calculate the annual saving in wages and the number of years of wage savings needed to cover the cost of the machine. Give the number of years to 1 decimal place. [2]
- (b) Do you think Pak Packaging Ltd should buy the automated machine? Justify your answer. [6]
Show answer
- (a) Saving $240,000 a year; 2.1 years
(50 − 30) × 12,000 = $240,000 (1). 500,000 ÷ 240,000 = 2.1 years (1).
- (b) For: wage costs fall by $240,000 a year, so the machine pays for itself in about 2.1 years; cutting is faster and more accurate, so quality and output improve. Against: 20 workers lose their jobs in a town where the firm is the main employer – bad publicity, lower morale among remaining workers, possible union action; redundancy pay; machine needs maintenance and skilled operators. Judgement: buy it, since the payback is short, but reduce the impact by retraining some workers to operate and maintain the machine or by natural wastage.
Up to 2 marks knowledge, up to 2 marks analysis (developed consequences), up to 2 marks evaluation (justified judgement that weighs both sides for this business).
Al-Noor Pharmacy controls its inventory of a common painkiller. The maximum inventory level is 900 packs, the reorder level is 400 packs and the buffer inventory is 200 packs. It sells 100 packs a day.
- (a) Calculate the lead time (the number of days between placing an order and receiving it) if the order arrives just as inventory falls to the buffer level. [2]
- (b) Calculate how many packs should be ordered each time so that inventory returns to the maximum level when the order arrives. [2]
- (c) Explain one problem for Al-Noor Pharmacy of holding too much inventory and one problem of holding too little. [4]
Show answer
- (a) 2 days
Inventory used during lead time = 400 − 200 = 200 packs (M1). 200 ÷ 100 = 2 days (A1).
- (b) 700 packs
Order quantity = maximum − buffer (M1) = 900 − 200 = 700 packs (A1).
- (c) Too much: cash is tied up and medicines may pass their expiry date and have to be thrown away; storage costs rise. Too little: the pharmacy may run out, so patients go to another pharmacy and it loses sales and goodwill.
Too much: 1 identify + 1 explain (opportunity cost of cash, expiry/waste, storage, theft). Too little: 1 identify + 1 explain (stock-outs, lost sales/customers, cannot meet sudden demand).
City Care Hospital's pharmacy often has long queues, and staff spend time searching for medicines on badly organised shelves. The manager wants to introduce kaizen.
- (a) Define 'kaizen'. [2]
- (b) Do you think kaizen will improve the efficiency of the hospital pharmacy? Justify your answer. [6]
Show answer
- (a) Continuous improvement through many small changes, usually suggested by workers themselves.
1 mark: continuous improvement; 1 mark: small changes / ideas from workers (teams).
- (b) Likely yes: staff know the problems best and can suggest small changes, e.g. reorganising shelves so common medicines are near the counter, labelling, or a separate queue for collecting repeat prescriptions; queues and wasted time fall at little cost, and staff feel valued. But it takes time and needs managers to listen and staff to be willing; it will not solve major problems such as too few pharmacists. Judgement: it should improve efficiency if managers support it and act on suggestions.
Up to 2 marks knowledge, up to 2 marks analysis (developed consequences), up to 2 marks evaluation (justified judgement that weighs both sides for this business).
Two businesses are choosing where to locate: a clothing shop and a brick-making factory.
- (a) Identify two factors that affect the location of the clothing shop. [2]
- (b) Outline two factors that affect the location of the brick-making factory. [4]
Show answer
- (a) Any two: footfall/number of customers passing; nearness to competitors or other shops; rent; parking/transport access; security; visibility.
1 mark each.
- (b) 1. Nearness to raw materials: clay is heavy and costly to transport, so a site near clay deposits cuts costs. 2. Availability and cost of land: brick kilns need large areas and are best away from homes because of smoke. (Also: transport links to building sites; supply of labour; planning rules; energy supply.)
For each of two factors: 1 mark identify + 1 mark outline applied to brick-making.
Thread World Ltd makes T-shirts in a factory in the UK. Its directors are thinking of moving production to Bangladesh.
- (a) Explain two reasons why Thread World Ltd might relocate its factory to Bangladesh. [6]
Show answer
- (a) 1. Lower wage costs: garment workers in Bangladesh earn much less than in the UK, so labour cost per T-shirt falls and the firm can cut prices or raise profit. 2. Closer to raw materials and suppliers: cotton fabric and garment suppliers are nearby, lowering transport costs and delivery times. (Also: government incentives/export zones; large workforce with garment skills; avoid UK rules or costs; access to Asian markets.)
For each reason: 1 mark identify, 1 mark application, 1 mark development.
Fresh Pack Ltd packs dried fruit for export through Karachi port. It needs a new warehouse with 40 workers. Appendix: annual costs (Rs).Item | Site A (Hub, inland) | Site B (near Karachi port)Rent | 1,800,000 | 1,200,000Wage per worker | 420,000 | 480,000Transport costs | 2,400,000 | 900,000Other information: Site A is close to fruit farms in Balochistan; Site B is in a busy industrial area with many skilled workers but traffic congestion.
- (a) Using the appendix, recommend which site Fresh Pack Ltd should choose for its new warehouse. Justify your answer using suitable calculations. [12]
Show answer
- (a) Calculations: Site A: Rs 21,000,000; Site B: Rs 21,300,000. The costs are very close (A is Rs 300,000 cheaper, about 1.4%), so other factors decide. Site A is near the fruit farms, so fresh supplies arrive quickly and wages are lower, but it is further from the port and transport costs are much higher, and fuel price rises would hurt. Site B is near the port, has skilled workers and lower transport costs, but congestion may delay shipments. Recommendation: either with justification, e.g. B, because export deadlines and skilled packing workers matter more than a 1.4% cost difference, and transport costs are the most likely to rise.
Calculations: A: 1,800,000 + 40 × 420,000 + 2,400,000 = Rs 21,000,000. B: 1,200,000 + 40 × 480,000 + 900,000 = Rs 21,300,000. Content: total annual cost A Rs 21.0 m, B Rs 21.3 m (difference Rs 300,000, about 1.4%); A near fruit farms with lower wages and rent v higher transport costs; B near the port with skilled workers and low transport costs v congestion delays; export deadlines; fuel price risk. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to Fresh Pack Ltd, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to Fresh Pack Ltd, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks. Correct calculations count towards application and analysis; follow through an earlier calculation error.
SolarWave plc makes solar panels in Germany and wants to build a factory in Asia employing 200 workers. Appendix:Factor | Country P | Country QAverage monthly wage ($) | 310 | 460Import tariff on solar panels in that country | 0% | 25%Government grant for new factories | none | $500,000Size of local solar market | small | large and growingPolitical stability | some unrest | stable
- (a) Using the appendix, recommend which country SolarWave plc should choose for its new factory. Justify your answer using suitable calculations. [12]
Show answer
- (a) Calculations: $360,000 a year (Q is more expensive). Country Q: although wages cost $360,000 a year more, the grant of $500,000 covers well over one year of the difference; the large, growing market means panels can be sold locally, and making them inside the country avoids the 25% tariff that imported panels would face. Political stability reduces the risk of disruption. Country P has lower wages and no tariff barrier to worry about, but a small market and unrest. Recommendation: Q, because market access and stability outweigh the higher wage bill.
Calculations: Difference per worker per month = 460 − 310 = $150; 150 × 12 × 200 = $360,000. Content: wage bill difference $360,000 a year (Q dearer); $500,000 grant in Q covers more than one year of the difference; 25% tariff in Q protects panels made inside Q; large, growing market in Q v small market in P; political stability v unrest. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to SolarWave plc, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to SolarWave plc, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks. Correct calculations count towards application and analysis; follow through an earlier calculation error.
BrightCall Ltd plans to open a call centre that answers customer enquiries for banks. It is choosing between a large city and a smaller town where the government offers a tax break to new employers.
- (a) Explain two factors BrightCall Ltd should consider when choosing the location. Which factor is likely to be the most important? Justify your answer. [6]
- (b) State two ways a government might influence location decisions. [2]
Show answer
- (a) 1. Availability of skilled labour: staff need good communication and IT skills; a large city has more graduates, but wages are higher. 2. Government incentives: the tax break in the smaller town lowers costs and raises profit. (Also: reliable internet/electricity, rent.) Judgement: labour is most important, because a call centre's service quality depends on its staff; a tax break is of little use if it cannot recruit enough skilled workers, though if the town has a college the incentive could tip the decision.
Up to 2 marks knowledge of two factors; up to 2 marks analysis applied to a call centre; up to 2 marks evaluation choosing one with a reason why it beats the other.
- (b) Any two: grants or subsidies; tax breaks; planning permission/refusing permission; building infrastructure (roads, internet); special economic zones; laws restricting location (e.g. pollution).
1 mark each.
Swat Honey Co. collects, filters and bottles honey for sale in supermarkets.
- (a) Define 'quality assurance'. [2]
- (b) Identify two benefits to Swat Honey Co. of producing high-quality products. [2]
Show answer
- (a) A system of checking quality at every stage of production, so that standards are met and faults are prevented rather than found at the end.
1 mark: checking at every stage of production; 1 mark: to prevent faults/meet agreed standards (involves all workers).
- (b) Any two: good reputation/brand image; customer loyalty and repeat sales; can charge higher prices; fewer complaints/returns; less waste; supermarkets more willing to stock it.
1 mark each.
The Pearl Hotel in Gwadar has received many online complaints about slow room service, dirty rooms and rude staff.
- (a) Explain two benefits to The Pearl Hotel of introducing total quality management (TQM). [6]
Show answer
- (a) 1. Every member of staff, from cleaners to receptionists, becomes responsible for quality and treats other staff and guests as customers, so problems such as dirty rooms are fixed before guests see them; complaints fall. 2. Better reputation: improved online reviews attract more guests, raising occupancy and allowing higher room rates. (Also: less waste/costs of putting things right; staff more motivated by involvement.)
For each benefit: 1 mark identify, 1 mark application to the hotel, 1 mark development.
Hamza Garments makes 25,000 shirts a month. 3.2% of shirts are faulty and must be thrown away; each faulty shirt costs Rs 650 to make. A quality-training course for all workers costs Rs 250,000. The training company says it will reduce the fault rate to 1.4%.
- (a) Should Hamza Garments pay for the training course? Justify your answer using suitable calculations (for example, the number of faulty shirts before and after training and the monthly saving). [12]
Show answer
- (a) Calculations: Before 800; after 350; saving Rs 292,500 per month. Yes: the monthly saving of Rs 292,500 is more than the one-off cost of Rs 250,000, so the training pays for itself in under a month; fewer faults also improve reputation with buyers, and trained workers may feel more valued. But the fault rate of 1.4% is only the training company's claim; workers may forget the training or leave; production time is lost during the course. Judgement: pay for it, as even a much smaller improvement would cover the cost, but monitor fault rates afterwards.
Calculations: 3.2% × 25,000 = 800; 1.4% × 25,000 = 350; (800 − 350) × 650 = Rs 292,500. Content: faulty shirts 800 → 350 a month; saving Rs 292,500 a month v one-off cost Rs 250,000 (pays back in under a month); reputation with buyers, motivation; reliability of the training company's claim, staff turnover, lost production time; monitoring fault rates. Mark bands (12; knowledge 2, application 2, analysis 4, evaluation 4): Level 3 (9–12): developed analysis of both sides / all options applied to Hamza Garments, using the data, and a justified decision that explains why the rejected option(s) are weaker. Level 2 (5–8): advantages and disadvantages analysed and applied to Hamza Garments, with a decision that is only partly justified or one-sided. Level 1 (1–4): relevant knowledge with little application or analysis; a decision with no reasoning earns no evaluation marks. Correct calculations count towards application and analysis; follow through an earlier calculation error.
MediLab Pharmaceuticals makes tablets. At present inspectors test samples at the end of production. Last week 4,800 boxes were made and 120 boxes were rejected.
- (a) Calculate the percentage of boxes rejected. [2]
- (b) Explain the difference between quality control and quality assurance. Do you think MediLab should change to quality assurance? Justify your answer. [6]
Show answer
- (a) 2.5%
120 ÷ 4,800 × 100 (M1) = 2.5% (A1).
- (b) Quality control: inspectors check finished products (or samples) at the end and remove faulty ones. Quality assurance: every worker checks quality at each stage, preventing faults. For MediLab, faulty medicines are dangerous; 2.5% rejects is costly waste, and sampling may miss faults that reach patients. QA cuts waste and risk, but needs training and time. Judgement: yes, because for medicines safety and reputation are critical; keep some final testing too.
Up to 2 marks: correct difference (end inspection v at every stage/prevention). Up to 2 marks: analysis applied to medicines and the reject rate. Up to 2 marks: justified judgement.
