IB Business Management SL Unit 5 Operations Management Questions

Build your IB Business Management SL Operations Management foundation through production, quality, capacity and innovation decisions.

Exam points

Explain the role and key concepts of Unit 5 Operations management in business decision-making.
Analyse how Unit 5 Operations management affects business performance, stakeholders and management choices.
Evaluate strategies related to Unit 5 Operations management using business evidence, context and relevant trade-offs.

Covered syllabus points

5.1 Introduction to operations management 5.2 Operations methods 5.4 Location 5.5 Break-even analysis

[Maximum number: 20]

With reference to an organization of your choice, examine the impact of ethics and innovation on operations management.

Assessment criteria for Section C

Criterion A: Knowledge and conceptual understanding
This criterion addresses the extent to which the candidate demonstrates knowledge and understanding of the given concepts and relevant business management content (theories, techniques or tools, depending on the requirements of the question).

Marks	Level descriptor
0	The work does not reach a standard described by the descriptors below.
1	Superficial knowledge of the given concepts is demonstrated. Business management content is not selected or the content selected is irrelevant.
2	Satisfactory understanding of one or both of the given concepts is demonstrated. Some business management content selected is relevant. The relevant content is satisfactorily explained.
3	Good understanding of one or both of the given concepts is demonstrated. The business management content selected is relevant, though it may not be sufficient. The relevant content is generally well explained, though the explanation may lack some depth or breadth.
4	Good understanding of both of the given concepts is demonstrated. The business management content selected is relevant, sufficient and well explained.

Criterion B: Application
This criterion addresses the extent to which the candidate is able to apply the given concepts and the relevant business management content (theories, techniques or tools, depending on the requirements of the question) to his or her chosen real-world organization(s). The real-world organization(s) must not be the organization featured in the prescribed case study for paper 1.

Marks	Level descriptor
0	The work does not reach a standard described by the descriptors below.
1	The given concepts and/or any relevant business management content are connected to the real-world organization(s), but this connection is inappropriate or superficial.
2	The given concepts and/or relevant business management content are connected appropriately to the real-world organization(s), but this connection is not developed.
3	The given concepts and relevant business management content are generally well applied to explain the situation and issues of the real-world organization(s), though the explanation may lack some depth or breadth. Examples are provided.
4	The given concepts and relevant business management content are well applied to explain the situation and issues of the real-world organization(s). Examples are appropriate and illustrative.

Criterion C: Reasoned arguments
This criterion assesses the extent to which the candidate makes reasoned arguments. This includes making relevant and balanced arguments by, for example, exploring different practices, weighing up their strengths and weaknesses, comparing and contrasting them or considering their implications, depending on the requirements of the question. It also includes justifying the arguments by presenting reasonable evidence or other support for the claims made.

Marks	Level descriptor
0	The work does not reach a standard described by the descriptors below.
1	Statements are made but these are superficial.
2	Relevant arguments are made but these are mostly unjustified.
3	Relevant arguments are made and these are mostly justified.
4	Relevant, balanced arguments are made and these are well justified.

Criterion D: Structure
This criterion assesses the extent to which the candidate organizes his or her ideas with clarity, and presents a structured piece of writing comprised of:

- an introduction
- a body
- a conclusion
- fit-for-purpose paragraphs.

Marks	Level descriptor
0	The work does not reach a standard described by the descriptors below.
1	Two or fewer of the structural elements are present, and few ideas are clearly organized.
2	Three of the structural elements are present, or most ideas are clearly organized.
3	Three or four of the structural elements are present, and most ideas are clearly organized.
4	All of the structural elements are present, and ideas are clearly organized.

Criterion E: Individuals and societies
This criterion assesses the extent to which the candidate is able to give balanced consideration to the perspectives of a range of relevant stakeholders, including individuals and groups internal and external to the organization.

Marks	Level descriptor
0	The work does not reach a standard described by the descriptors below.
1	One individual or group perspective is considered superficially or inappropriately.
2	One relevant individual or group perspective is considered appropriately, or two relevant individual or group perspectives are considered superficially or inappropriately.
3	At least two relevant individual or group perspectives are considered appropriately.
4	Balanced consideration is given to relevant individual and group perspectives.

N.B. Although the question asks for the application of one concept on another, it is still expected that Business Management content will be aligned with the concepts especially the second concept (the one being acted on).

Please note that candidates can conclude that there was a minimal impact, however it has to be based on balanced arguments and evaluation.

Additional guidance in relation to the assessment criteria

For each criterion, the aim is to find the descriptor that conveys most accurately the level attained by the candidate, using the best-fit model. It is not necessary for every single aspect of a level descriptor to be met for that mark to be awarded.

- The highest-level descriptors do not imply faultless performance and should be achievable by a candidate.
- A candidate who attains a high level of achievement for one criterion will not necessarily reach high levels of achievement for the other criteria and vice versa.

If only one concept is addressed:
- Criteria A, B, C and E: award up to a maximum [3].
- Criterion D: full marks can be awarded.

Where the question asks for impacts of two concepts on content, examiners must allow for unbalanced treatment of the two concepts throughout a candidate’s response. One concept may be more significant than the other.

Criterion B
For [2]: “...connection is not developed” should be treated the same as superficial.

Criterion C

1 + 1 arguments are expected per concept.
- Justification is through logic or data.
- For [2] there is no balance as there are no counter arguments at all, or the arguments are all one-sided then this would be unjustified.
- For [3] there are some balanced arguments – some of which are justified.

Criterion D
- Introductions need to be concise and related to the question.
- The candidate’s response does not to have explicit headings for each structural element.
- A body is the area in which the substance of arguments occurs. It is usually located between the introduction and the conclusion.
- Fit-for-purpose paragraph means that ideas are presented in a clear academic way. For example, one idea per paragraph.

Criterion E
- One example of an “individual” could be an individual consumer or an individual manager. However, this cannot be considered with a “group” of consumers or a management team.
- For [4], a balanced response: look at the perspectives of both individual and group(s).
- The chosen individual, group needs to be applicable and relevant to the question with specific explanation.
- Candidates need to go beyond stating the stakeholder.
- Please do not use the adjective ‘inappropriate’ in the descriptor for [2]. If inappropriate award [1].

Candidates need not explicitly say “stakeholder”.

In section C, the question rubric explicitly states that “organizations featured in sections A and B and in the paper 1 case study may not be used as a basis” to candidate’s answers to questions 6, 7 and 8. When this happens please award marks as follows:

Criterion A: award a maximum of [1]. The business management content cannot be relevant if the organization is fictitious.
Criterion B: award [0] – there is no connection to a “real-world organization”
Criterion C: award a maximum of [1]. The arguments cannot be relevant if the organization is fictitious.
Criterion D: mark as normal.
Criterion E: award up to a maximum of [1]. The individual and/or group perspective(s) cannot be relevant if the organization is fictitious.

[Maximum number: 2]

Currently, LC manufactures ceiling fans in a building that is financed by long-term debt. LC is considering selling the building to pay off the long-term debt and moving production to a new building, which LC would lease.

Lusanka Company (LC)

Lusanka Company (LC) manufactures ceiling fans using a mass production process. Selected financial information for LC is shown in Table 1.

$Table 1: Selected financial information for LC for the year ended 31 December 2022 and as of 31 December 2022 (figures in \$000s)$

Table 1: Selected financial information for LC for the year ended 31 December 2022 and as of 31 December 2022 (figures in \$000s)

State two features of a mass production process.

[Maximum number: 10]

FrioAire Appliances (FA)

FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA's home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited.
As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, FA is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
- use innovative technologies, including advanced robotics and 3D processes
- require fewer employees, but those it does require will need to have better skills and qualifications.
Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory.
FA's leadership style at the factory in the less economically developed country is autocratic. Members of FA's board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights.
FA workers in the less economically developed country are very loyal to FA, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.

Evaluate the option of building a factory in, and relocating, to Germany.

[Maximum number: 8]

In 2022, AH’s costs increased, but it kept prices unchanged. For 2023, AH decided to change its pricing strategy and pass on all cost increases to customers.

Table 2: Selected financial information for AH for 2022 and forecasted financial information for 2023

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, AH's costs increased, but it kept prices unchanged. For 2023, AH decided to change its pricing

Figure for Question 4 — 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.

(a)

Using relevant information from Table 2, calculate:

[ 6 ]

(i)

the break-even quantity of rugs in 2022 (show all your working);

[ 2 ]

Break-even = fixed cost / contribution.
Break-even = $\$2000$ / ( $\$105$ - $\$65$ ) = $\$2000$ / $\$40$ = 50 rugs.

Alternative answer:
Break-even point ( $\$$ ):
Price per unit x units = fixed cost + (variable cost per unit x units).
Q = quantity/units/rugs.
$\$105$ Q = $\$2000$ + $\$65$ Q.
$\$105$ Q - $\$65$ Q = $\$2000$ .
$\$40$ Q = $\$2000$ .
Q = $\$2000$ / $\$40$ = 50 rugs.

\frac{2000}{105-65}=\frac{2000}{40}=50

Accept if the candidate does not say rugs or units.
Award [1] for the correct working and [1] for the correct answer.
Award [2] for a correct answer with working.
Award [1] for correct answer without working.
Award [1] for correct method with an error in the calculation.

(ii)

the profit or loss for A H if 500 rugs were sold in 2022 (show all your working);

[ 2 ]

Profit = total revenue - total cost.
Profit = ( $\$105$ x 500) - ( $\$2000$ + ( $\$65$ x 500)).
Profit = $\$52500$ - ( $\$2000$ + $\$32500$ ) = $\$52500$ - $\$34500$ = $\$18000$ .

Alternative method:
450 x $\$40$ = $\$18000$ .

\begin{aligned}\text{Profit}&=105\times500-(2000+65\times500)\\&=52500-34500=18000\end{aligned}

Award the marks if the unit sign is shown somewhere in the working and omitted in the final answer.
Award [2] for a correct answer with working.
Award [1] for correct answer without working.
Award [1] for correct method with an error in the calculation.

(iii)

the margin of safety in 2023 if AH sells 750 rugs (show all your working).

[ 2 ]

Margin of safety = current output (units) - break-even output.
MoS = 750 - ( $\$2000$ / ( $\$120$ - $\$70$ )).
MoS = 750 - 40 = 710 rugs.

\begin{aligned}\mathrm{MoS}&=750-\frac{2000}{120-70}=710\\\mathrm{MoS}_{\$}&=90000-4800=85200\\\mathrm{MoS}_{\%}&=\frac{90000-4800}{90000}\times100=94.67\%\end{aligned}

Apply Own Figure Rule.
Provided that the candidate uses a mathematically correct method, they may express the margin of safety in dollars or as a percentage.

MoS in dollars:
(750 x $\$120$ ) - (40 x $\$120$ ) = $\$90000$ - $\$4800$ = $\$85200$ .
MoS = $\$85200$ .

MoS as a percentage:
(Total revenue - break-even revenue) / total revenue x 100
= ( $\$90000$ - $\$4800$ ) / $\$90000$ x 100 = 94.66666667%.

Allow rounding, provided they have rounded correctly. Accept 94.67%, 94.7%, or 95%.
Award [2] for a correct answer with working.
Award [1] for correct answer without working.
Award [1] for correct method with an error in the calculation.

(b)

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

[ 2 ]

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].

All question bank results loaded

Covered syllabus points

Question 1

Question 2

Question 3

Question 4

Question (a)

Question (i)

Question (ii)

Question (iii)

Question (b)