IB Business Management HL 5.6 Production Planning Question Bank

Evaluate production plans, capacity, scheduling and inventory decisions to balance efficiency, responsiveness and operational risk.

[Maximum number: 4]

Jill Anderson

Jill Anderson operates a restaurant. Although Jill's meals are viewed as being excellent quality, sales are slowing. Jill is considering replacing existing meals with gluten-free meals. The following financial and forecast information is for the month of May 2018. Jill's restaurant can only produce either existing or gluten-free meals.

Table 1: Existing meals

Table 2: Estimated costs and price if Jill produces the gluten-free meals

A local gluten-free manufacturer, which is not part of Jill's existing supply chain, has offered to supply already prepared gluten-free meals at $\$ 8$ per meal. Jill is unsure whether to make or buy the gluten-free meals.

(a)

Define the term supply chain.

[ 2 ]

(b)

Using your answer from (b) (iii) and (iv), explain whether Jill should buy-in or make the gluten-free meals herself.

[ 2 ]

Buys in:
$1200 \times \$ 14-[2400+1200 \times \$ 8]$
$16800- [2400+9600]
$16800-$12000
4800 profit
Which is $\$2800$ higher than in (iii) - the cost to make with profit of $\$2000$ Candidates do not have to repeat all of the working above if presented in the previous answers especially in (b)(iii).
Or:
Buys in:
$12000 \times \$ 6-2400$ (using contribution method)
$16800- [2400+9600]
$7200-$2400= $4800 profit
$16800-$12000
$4800 profit
Which is $\$2800$ higher than the profit of $\$2000$ if she makes them herself in part (iii).

Accept any other method.
Given the nature of the question regarding reference to (b)(iii) and (iv) it is expected that the candidates incorporate references to the change in contribution and or profit
Award [1] for just using the extra contribution to support but without reference to/ or calculation of profit before and after.
Award [1] for a response that mentions some relevant qualitative issues with reference to or comparison with the option to make.
Award [2] for a correct numerical answer with some references to the exact figures of profit before and after.
Do not credit a response that just says that Jill should accept the offer without any calculation or reference to profit or contribution when buying.
Please note:
Some candidate just referred to a fall in fixed cost- not to contribution or profit. Do not award.
Do not credit a response that does not demonstrate some attempt to calculate the option of buying or refer to profit after buying.
Allow OFR

[Maximum number: 4]

Cool Meals (CM)

Cool Meals (CM) produces frozen organic ready-made meals that are sold to food retailers throughout the country.
CM buys large quantities of organic ingredients from local farmers for its just-in-case (JIC) stock control management. It uses a cost-plus (mark-up) pricing strategy.
CM is known for its:
- good-quality organic frozen meals, which are perceived as good value for money
- flexibility with retailers in terms of quantity of meals supplied, credit given and efficient delivery at pre-arranged dates
- corporate social responsibility (CSR) based on a long-term commitment made to farmers to purchase large quantities of organic ingredients every four months and pay a fair price promptly
- CM has an excellent working relationship with farmers, who always prioritize CM's requests in terms of quantity and delivery.
Recently, an economic downturn and increased competition, especially from non-organic frozen meal suppliers, has decreased demand for frozen organic meals.
The finance manager of CM, Kayleigh, provided the following financial information.

Table 1: Selected financial information for CM

Kayleigh is worried about the cash flow of CM and suggested the company changes the stock control method from just-in-case (JIC) to just-in-time (JIT). She is also looking at other strategies to improve CM's financial position.

Explain one advantage and one disadvantage for CM of changing its stock control method from just-in-case (JIC) to just-in-time (JIT).

[Maximum number: 8]

Fair Coffee (FC)
David is about to open a small coffee shop, Fair Coffee (FC), at a central city location. On opening day FC will have a stock level of 500 kg of coffee beans. David estimates that the coffee beans will be used at a constant rate for the first six months of operation.
David's planned stock management figures for the coffee beans are shown below:

Table for Question 5.6 Production planning question 3 — IB Business Management HL

Lead time for delivery of the coffee beans: 1 month.

(a)

Using the information in the table, construct a fully labelled stock control chart for FC, for the first six months of operation.

[ 4 ]

(b)

A delivery of coffee beans was 1 month late, arriving on the last day of the seventh month rather than the last day of the sixth month. Using figures from the chart you constructed in part (b), explain the effects of:

[ 4 ]

(i)

the late delivery on FC's stock level and;

[ 2 ]

(ii)

the late arrival delivering only 75 kg of coffee.

[ 2 ]

- The late arrival of only 75 kg , a lower quantity than normally ordered, on the last day of the seventh month will mean that David's stock of beans will be $\mathbf{5 0 + 7 5 = 1 2 5 ~ k g}$ , still below the 200 kg of the desired buffer/minimum stock level [1].
- Assuming the same level of consumption, FC will run out of stock and will not be able to supply all of its customers next month (the exact day is not required) [1].

Do not penalize candidates that use the correct figures without explicit use of the chart.
N.B. award a maximum of [1] if the answer is added to the chart drawn in part (b) and there is no explanation.

Award a maximum of [1] if there is no figure to support the explanation.
Award a maximum of [1] if the answer does not address the late arrival issue.

All question bank results loaded

Covered syllabus points

5.6 Production planning question 1

Question (a)

Question (b)

5.6 Production planning question 2

5.6 Production planning question 3

Question (a)

Question (b)

Question (i)

Question (ii)