IB DP Business Management: Introduction to operations management and Operations methods – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – the IB holds copyright in its own papers. Use these alongside the official past papers available through your school or the IB store.

These questions cover sections 5.1 Introduction to operations management and 5.2 Operations methods of the IB Business management guide, first assessment 2024, for SL and HL. Learn the content first in the study guide and the revision notes. Hub: IB DP Business Management. Tick-list: printable checklist. All businesses and figures are invented.

Questions

1. Define the term mass customization. [2]

2. Identify the most suitable production method for each situation: (a) a one-off stage set for a theatre; (b) 20,000 identical plastic water bottles an hour; (c) 300 cupcakes of one flavour, then 300 of another flavour, using the same ovens. [3]

3. Explain two ways in which a change in a business’s operations could affect its other functions. [4]

4. Teldrake Furniture makes chairs in batches. Each batch has a set-up cost of USD 450 and a variable cost of USD 12 per chair.

(a) Calculate the cost per chair for a batch of 90 chairs and for a batch of 300 chairs. [3] (b) Explain one disadvantage to Teldrake of choosing the larger batch size. [2]

5. Stennick Printers runs a flow line with capacity of 4,000 units a week. Fixed costs are USD 24,000 a week and variable costs are USD 6 a unit. Output last week was 3,000 units.

(a) Calculate capacity utilization last week. [1] (b) Calculate the cost per unit at 3,000 units and at 4,000 units. [3] (c) Explain one risk to Stennick of relying on flow production if demand falls. [2]

6. Distinguish between batch production and job production. [3]

7. Dellacroft Chocolate currently makes a standard gift box by batch production. The box sells for USD 30 and costs USD 19 to make. The company is considering using modular packaging and an online design tool so that customers can personalize the box. A personalized box would sell for USD 48 and cost USD 31 to make.

(a) Calculate the profit per box for each version. [2] (b) Evaluate whether Dellacroft should adopt mass customization. [6]

8. Mercuria Foods can install a flow production line costing USD 400,000. If demand is high (probability 0.7) it expects to receive USD 900,000; if demand is low (probability 0.3) it expects USD 350,000. The alternative is to stay with batch production at a cost of USD 90,000, receiving USD 480,000 if demand is high and USD 260,000 if demand is low.

(a) Calculate the expected net gain of each option. [4] (b) Recommend which option Mercuria should choose. [5]

9. Explain how a circular business model could improve efficiency in a business’s operations. [3]

10. Kintaro Garments makes made-to-measure suits by job production. One suit uses materials costing USD 420 and 22 hours of tailoring at USD 31 an hour. Overhead allocated to each suit is USD 190. The selling price is USD 1,900.

(a) Calculate the cost of one suit. [3] (b) Calculate the profit margin on one suit, to one decimal place. [2] (c) Justify the use of job production by Kintaro. [4]

11. Rooksbury Bags sells 8,000 bags a year at USD 30. It uses batch production with 16 batches a year of 500 bags. Each batch has a set-up cost of USD 800 and variable cost of USD 14 a bag. The owners are considering mass customization. It would need a one-off investment of USD 60,000. Customers would design their bag on a website, the price would be USD 38, and variable cost would be USD 19 a bag with no set-up cost. Sales are expected to stay at 8,000 a year.

(a) Calculate the annual profit under batch production. [3] (b) Calculate the profit in the first year under mass customization, after the investment. [3] (c) Evaluate the proposal to switch to mass customization. [6]

Answers

1. Mass customization is the use of mass-production techniques and standard components or modules [1] to provide products that are personalized to each customer [1]. [2] Examiner insight: A definition earns credit for both halves of the idea, volume methods and individual variation, so a bare “made to order” is usually too thin.

2. (a) Job production [1]. (b) Mass/flow production [1]. (c) Batch production [1]. [3] Examiner insight: “Identify” asks for a choice with no explanation, so spend no time on reasons and make sure each part carries a named method.

3. First effect: a move to automated machines needs capital spending [1], so the finance function must find funds and budget for the cost [1]. Second effect: a faster or more flexible production method changes delivery times and variety [1], which marketing can use in its promotion and price decisions [1]. [4] Examiner insight: Each effect needs its own chain, from the operations change to a named function and a consequence; two bare function names are unlikely to earn full credit.

4. (a) Batch of 90: set-up per chair = 450 ÷ 90 = 5.00 [1], so cost per chair = 12 + 5 = USD 17.00 [1]. Batch of 300: 12 + 450 ÷ 300 = 12 + 1.50 = USD 13.50 [1]. (b) A larger batch can leave unsold chairs in store [1], which ties up cash [1]. [5] Examiner insight: A “calculate” answer is easier to credit when each step is on the page, so show the set-up cost per unit before adding the variable cost.

5. (a) 3,000 ÷ 4,000 × 100 = 75% [1]. (b) At 3,000 units: 24,000 ÷ 3,000 + 6 = 8 + 6 = USD 14 [1]. At 4,000 units: 24,000 ÷ 4,000 + 6 = 6 + 6 = USD 12 [1]. The difference is USD 2 a unit [1]. (c) Fixed costs are high and do not fall with output [1], so if demand falls the cost per unit rises and profit is squeezed, with unsold stock building up [1]. [6] Examiner insight: A risk explained only as “demand might fall” restates the question; the chain from high fixed costs to higher unit cost builds the explanation.

6. Batch production makes a group of identical items together before moving to the next product [1], while job production makes a single one-off item [1] to a customer’s own specification, so each job differs from the last [1]. [3] Examiner insight: “Distinguish” asks for the difference to be made clear, so write both sides in comparative terms.

7. (a) Standard box: 30 − 19 = USD 11 [1]. Personalized box: 48 − 31 = USD 17 [1]. (b) Strength: profit per box rises by USD 6, from 11 to 17 [1], because customers will pay a USD 18 premium for a cost increase of USD 12 [1]. Strength: made-to-order boxes mean less unsold stock than a large batch [1]. Limitation: the online tool and modular packaging need investment and a complex supply chain, and the profit gain depends on customers actually choosing the personalized box [1]. Judgement: adopt it if market research shows enough demand at USD 48 [1], because higher profit per box outweighs the cost only when volume holds up [1]. [8] Examiner insight: An “evaluate” answer is more convincing when it uses the figures from part (a) and ends with a judgement that names its condition.

8. (a) Flow line: expected value = 0.7 × 900,000 + 0.3 × 350,000 = 630,000 + 105,000 = USD 735,000 [1]; net gain = 735,000 − 400,000 = USD 335,000 [1]. Batch: expected value = 0.7 × 480,000 + 0.3 × 260,000 = 336,000 + 78,000 = USD 414,000 [1]; net gain = 414,000 − 90,000 = USD 324,000 [1]. (b) The flow line is ahead by USD 11,000 [1], but the gap is small [1]. If the probability of high demand were below about 0.67 the batch option would be better [1]. The flow line has a much larger outlay and is less flexible if demand turns out low [1]. Recommendation: choose the flow line only if Mercuria is confident of high demand and can afford the outlay; otherwise stay with batch production [1]. [9] Examiner insight: A recommendation is stronger when it goes beyond the highest expected value and says how sensitive the choice is to the probability.

9. A circular business model keeps materials in use through reuse, repair or recycling [1]. This reduces the amount of new raw material the business must buy [1], and so lowers input costs and waste for the same output [1]. [3] Examiner insight: The link to efficiency must be explicit, so say what falls (input cost or waste) rather than only describing recycling.

10. (a) Labour = 22 × 31 = USD 682 [1]. Total cost = 420 + 682 + 190 [1] = USD 1,292 [1]. (b) Profit = 1,900 − 1,292 = USD 608 [1]. Profit margin = 608 ÷ 1,900 × 100 = 32.0% [1]. (c) Each suit is unique to the customer’s measurements [1], so job production fits the product. Customers of bespoke tailoring accept a high price and long waits [1], which supports a margin of 32.0% despite the high cost. Skilled tailors do whole, varied tasks, which can motivate them [1]. A judgement is that job production is justified while customers value the individual fit, but it limits growth because output depends on scarce skilled labour [1]. [9] Examiner insight: “Justify” asks for valid reasons and evidence, so tie at least one reason to the figures in the stem.

11. (a) Revenue = 8,000 × 30 = USD 240,000 [1]. Costs = set-up 16 × 800 = 12,800 plus variable 8,000 × 14 = 112,000, a total of 124,800 [1]. Profit = 240,000 − 124,800 = USD 115,200 [1]. (b) Revenue = 8,000 × 38 = USD 304,000 [1]. Variable costs = 8,000 × 19 = 152,000, so profit before investment = USD 152,000 [1]. After the investment of 60,000, first-year profit = USD 92,000 [1]. (c) In the first year the proposal earns USD 23,200 less than batch production (115,200 − 92,000) [1]. From year two, profit is USD 36,800 higher a year (152,000 − 115,200), so the investment is recovered in under two years if sales hold [1]. Strengths: made-to-order production removes unsold stock and set-up costs [1]. Limitations: sales are assumed to stay at 8,000 although the higher price might reduce them [1]. Wider effects: staff need new skills and the module supply chain is more complex [1]. Judgement: switch if market research supports the USD 38 price, because the gain is large and lasting, but do so in stages to limit the risk [1]. [12] Examiner insight: Strong evaluation tests the assumptions behind the numbers, here the unchanged sales volume, instead of treating the calculated profit as certain.

Where marks are usually lost

• Defining a method in general terms without using the case study details.
• Giving only the benefits of a method in an “evaluate” or “justify” question.
• Leaving the set-up cost out of the batch unit cost, or not dividing it by batch size.
• Forgetting to subtract the cost of the option in a decision tree.
• Treating mass customization as the same as batch production.
• Showing only the final figure in a “calculate” question, so working cannot be credited.

Next steps

• Re-read the revision notes and the study guide.
• Course hub: IB DP Business Management and the printable checklist.
• Try all free 10-minute diagnostics to find the next topic to revise.
• Book a free trial class.

Frequently asked questions

What is mass customization? Mass customization uses mass-production techniques and standard components to offer products that each customer can personalize. It differs from batch production, which makes groups of identical items.

How do you work out cost per unit in batch production? Cost per unit is the variable cost plus the set-up cost divided by the batch size. Leaving out the set-up cost, or not dividing it by the batch size, is a common error.

What are common mistakes on production method questions? Students often describe a method in general terms without using the case details, give only benefits in an “evaluate” or “justify” question, and forget to subtract the cost of an option in a decision tree. Showing only the final figure in a “calculate” question also means working cannot be credited.

What depth are operations methods examined at in IB Business Management? In the IB Business management guide, first assessment 2024, the role of operations management (5.1) is set at AO2 and the four operations methods (5.2) at AO3, so you must be ready to evaluate and justify a choice of method.

Official syllabus

IB Diploma Programme Business management guide, first assessment 2024, International Baccalaureate Organization: Unit 5, sections 5.1 and 5.2.