IB DP Business Management: Production planning (HL only) – 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 section 5.6, Production planning (HL only), in Unit 5 of the IB Business management guide, first assessment 2024. All of the section is HL only. Businesses and figures are invented. Stock control, defect rate, labour and capital productivity, operating leverage, CTB and CTM use the standard forms set out in the study guide.

Links: revision notes, the course hub, the syllabus checklist and the free diagnostics.

Questions

1. Distinguish between just-in-time (JIT) and just-in-case (JIC). [3]

2. Emberley Printing uses 25 reams of paper a day. Lead time is 8 days, buffer stock is 100 reams and the reorder quantity is 500 reams.

(a) Calculate the reorder level. [2] (b) Calculate the maximum stock level. [1] (c) Calculate the number of days between deliveries. [1] (d) Daily use rises to 40 reams. Show whether Emberley will run out of paper before a delivery arrives. [2] (e) Suggest one change to avoid this problem. [1]

3. Explain two reasons why a business might prefer a local supply chain to a global one. [4]

4. Falkmoor Cycles can produce 2,500 bikes a month. This month it made 1,850.

(a) Calculate the capacity utilization rate. [2] (b) A new order adds 300 bikes. Calculate the new rate. [1] (c) Explain one risk of operating at the new rate rather than the old one. [2]

5. Ivelston Brewery filled 6,400 bottles and 224 failed inspection.

(a) Calculate the defect rate. [2] (b) The brewery sets a target defect rate of 2%. Calculate how many fewer defective bottles are needed to meet it. [2]

6. Nethervale Furniture made 9,600 chairs with 40 workers and capital equipment worth USD 320,000. The sales value of output was USD 276,000 and the cost of all inputs was USD 240,000.

(a) Calculate labour productivity. [1] (b) Calculate capital productivity, per USD of capital. [2] (c) Calculate the productivity rate. [2] (d) State what your answer to (c) shows. [1]

7. Umberfield Foods sells 21,000 jars a year at USD 15. Variable cost is USD 9 a jar and fixed costs are USD 90,000.

(a) Calculate total contribution, profit and operating leverage. [3] (b) Sales volume falls by 20%. Calculate the new profit. [2] (c) Comment on the result. [1]

8. Vessenden Toys needs 12,000 wheels a year. A supplier charges USD 4.50 each. Making them needs extra fixed costs of USD 15,000 and variable cost of USD 2.80 per wheel.

(a) Calculate the cost to buy (CTB). [1] (b) Calculate the cost to make (CTM). [2] (c) State which is cheaper and by how much. [1] (d) Calculate the quantity, to the next whole unit, at which the two costs are equal. [2]

9. Cadenza Foods makes frozen meals for supermarkets. Demand is steady and each week one large order is delivered on a Friday. Its four ingredient suppliers are local and deliver the next day. Twice last year, storm damage to roads stopped deliveries for two days and production halted. Freezer space is costly to rent and the owners have little spare cash.

Evaluate whether Cadenza Foods should use JIT or JIC for its ingredients. [8]

10. Nethervale Furniture buys 10,000 boards a year. An overseas supplier charges USD 36 a board with a lead time of 6 weeks and a minimum order of 2,000 boards. A local supplier charges USD 40 with a lead time of 4 days and no minimum order.

(a) Calculate the extra yearly cost of using the local supplier. [2] (b) Recommend which supplier Nethervale should use. [6]

11. Pruitt Hydraulics needs 7,500 gaskets this year and expects to need 9,000 next year. A supplier charges USD 6.40 each. Making them needs extra fixed costs of USD 21,000 and variable cost of USD 3.90 per gasket.

(a) Calculate CTB and CTM for this year. [3] (b) Calculate the quantity at which CTB equals CTM. [2] (c) Justify a decision for next year. [4]

Answers

1. JIT means ordering and producing only what is needed, when needed, so stock stays minimal [1]. JIC means holding larger stocks in case of supplier delays or sudden demand [1]. JIT cuts holding cost and cash tied up but depends on reliable suppliers; JIC gives protection but costs more to store [1]. [3] Examiner insight: A “distinguish” answer gains credit when it states both terms and sets one against the other, not when it defines only one.

2. (a) Use in lead time = 25 × 8 = 200 reams [1]. Reorder level = 100 + 200 = 300 reams [1]. (b) Maximum stock = 100 + 500 = 600 reams [1]. (c) 500 ÷ 25 = 20 days [1]. (d) Use in lead time = 40 × 8 = 320 reams, which exceeds the 300 reams in stock at reorder [1]. Stock would be 20 reams short on delivery day, so it runs out after 300 ÷ 40 = 7.5 days [1]. (e) Raise the reorder level (for example to 420 reams) or enlarge the buffer stock [1]. [7] Examiner insight: Showing the working for lead-time use makes your method clear, and in (d) a comparison of the two numbers is stronger than a bare yes or no.

3. Reason one: shorter lead times and easier communication [1], so the business can hold less stock and respond quickly to changes in orders [1]. Reason two: less exposure to exchange-rate changes, border delays and distant disruption [1], so supply is more predictable and costs easier to plan [1]. [4] Examiner insight: Each reason needs a consequence for the business; a list of features such as “it is closer” tends to stay at one mark.

4. (a) 1,850 ÷ 2,500 × 100 [1] = 74% [1]. (b) (1,850 + 300) ÷ 2,500 × 100 = 2,150 ÷ 2,500 × 100 = 86% [1]. (c) Less spare capacity for breakdowns or rush orders [1], so late deliveries or costly overtime become more likely [1]. [5] Examiner insight: Dividing by capacity, not by previous output, is the step to show; a risk is stronger when tied to the higher rate.

5. (a) 224 ÷ 6,400 × 100 [1] = 3.5% [1]. (b) 2% of 6,400 = 128 defective bottles [1]. 224 − 128 = 96 fewer [1]. [4] Examiner insight: Answering (b) as a percentage-point gap of 1.5 does not answer the question asked, which wants a number of bottles.

6. (a) 9,600 ÷ 40 = 240 chairs per worker [1]. (b) 9,600 ÷ 320,000 [1] = 0.03 chairs per USD of capital [1]. (c) 276,000 ÷ 240,000 × 100 [1] = 115% [1]. (d) Output is worth more than the inputs used to make it [1]. [6] Examiner insight: Giving units with each productivity figure helps show you know which resource is measured.

7. (a) Contribution per jar = 15 − 9 = 6, so total contribution = 6 × 21,000 = 126,000 [1]. Profit = 126,000 − 90,000 = 36,000 [1]. Operating leverage = 126,000 ÷ 36,000 = 3.5 [1]. (b) New volume = 16,800 jars, contribution = 6 × 16,800 = 100,800 [1]. Profit = 100,800 − 90,000 = 10,800 [1]. (c) Profit falls 70% for a 20% fall in sales, because fixed costs do not fall [1]. [6] Examiner insight: A comment that links the larger percentage change in profit to fixed costs shows understanding; repeating the figures alone does not.

8. (a) CTB = 4.50 × 12,000 = 54,000 [1]. (b) Variable cost = 2.80 × 12,000 = 33,600 [1]. CTM = 15,000 + 33,600 = 48,600 [1]. (c) Making is cheaper, by 54,000 − 48,600 = 5,400 [1]. (d) 15,000 ÷ (4.50 − 2.80) = 15,000 ÷ 1.70 [1] = 8,823.5, so 8,824 wheels [1]. [6] Examiner insight: Rounding to the next whole unit matters here because 8,823 would still leave making slightly dearer.

9. Definition and link to the business: JIT keeps stock minimal, JIC holds extra in case of disruption [1]. For JIT: steady demand and fast local suppliers suit it [1]; lower freezer rental and less cash tied up help owners with little spare cash [1]. Against JIT: two storm stoppages show a delivery failure halts production completely and could mean missing the Friday order [1]. For JIC: stock would protect supplies during disruption [1], but freezer rental and spoilage costs are high and cash is short [1]. Judgement: a mainly JIT system with a small buffer of the few critical or long-life ingredients, since stoppages were rare and short [1], justified by comparing the cost of two days of lost output with the yearly cost of storage, which the case does not give [1]. [8] Examiner insight: Strong evaluation uses case facts on both sides and ends with a reasoned choice; a theory-only list of JIT and JIC features tends to stay in the lower levels.

10. (a) (40 − 36) × 10,000 = 40,000 [1]. Extra yearly cost: USD 40,000 [1]. (b) Overseas: lower price, saving 40,000 a year [1]; but 6-week lead time needs more stock, storage cost and cash tied up [1]; minimum order of 2,000 boards forces larger stock [1]; exposure to delay and exchange rates [1]. Local: reliable, quick, flexible small orders, supports JIT, easier quality checks [1]. Judgement: for example, overseas if demand is steady and storage cheap, with a local back-up, or local if storage space and cash are limited and reliability is vital; the choice needs reasons [1]. [8] Examiner insight: A recommendation is stronger when it weighs the calculated cost against non-cost factors and states what the decision depends on.

11. (a) CTB = 6.40 × 7,500 = 48,000 [1]. Variable cost = 3.90 × 7,500 = 29,250 [1]. CTM = 21,000 + 29,250 = 50,250 [1]. (b) 21,000 ÷ (6.40 − 3.90) = 21,000 ÷ 2.50 [1] = 8,400 gaskets [1]. (c) At 9,000 gaskets, CTB = 57,600 and CTM = 56,100, so making saves 1,500 [1]. Making gives control of quality and uses own machinery, but needs skills and commits to a lease [1]. The saving is only about 2.6% of CTB, and if demand falls below 8,400 buying is cheaper, so the forecast risk matters [1]. Judgement: make only if the demand forecast is reliable; otherwise keep buying, since the cost gap is small [1]. [9] Examiner insight: A “justify” answer gains credit when the decision is supported by figures and by a point that could change it, here the volume forecast.

Where marks are usually lost

• Calculating reorder level without adding buffer stock.
• Giving a final number with no working or no units.
• Using actual output rather than capacity as the denominator.
• Answering “how many” with a percentage, or the reverse.
• Mixing units in productivity measures.
• Comparing CTB and CTM at one volume and ignoring the crossover.
• Evaluating with only one side, or with no use of the case facts.
• Stopping at a result in “comment” or “justify” parts with no reason.

Next steps

• Review the revision notes and the study guide.
• See the IB DP Business Management hub and the syllabus checklist.
• Try all free 10-minute diagnostics at /diagnostics/.
• Book a free trial class at /trial/.

Frequently asked questions

Is production planning HL only in IB Business Management? Yes. Section 5.6, Production planning, is labelled HL only in Unit 5 of the IB Business management guide, first assessment 2024.

What are common mistakes on production planning calculations? Frequent errors include calculating the reorder level without adding buffer stock, using actual output rather than capacity as the denominator for capacity utilization, mixing units in productivity measures, and giving a final number with no working or units. Comparing cost to buy and cost to make at only one volume, ignoring the crossover, also loses marks.

How should you approach an evaluate question on JIT or JIC? Weigh the cost of a stoppage against the cost of holding stock, using facts from the case such as how steady demand is and how reliable suppliers are. Give both sides and reach a judgement rather than claiming one method always wins.

What should you include in a make-or-buy recommendation? Compare cost to buy and cost to make at the forecast volume and note where the answer would flip. Add non-numerical factors such as quality, control, supplier reliability and capacity before giving a judgement.

Official syllabus

IB Diploma Programme Business management guide, first assessment 2024, published by the International Baccalaureate Organization. This page covers section 5.6, Production planning (HL only).