Business (AS & A Level) · Oct / Nov 2021 · Paper 21 · Question 1

Quality Furniture (QF) QF is a public limited company in country S. It manufactures furniture for cafés. The number of cafés in country S has increased by more than 50% over the last 5 years. This has meant that QF has been able to expand and achieve internal economies of scale. However, the growth of the café market has attracted new firms supplying café furniture and increased competition for QF. An extract from QF’s income statement is shown in Table 1.1. Table 1.1: Extract from QF’s income statement for 2020 $m Revenue 300 Cost of sales 120 Gross profit 180 Expenses 150 Although QF has been successful so far, Javid, the Managing Director, has identified two problem areas: inventory and human resources. Inventory QF’s inventory includes raw materials, work in progress and finished tables and chairs. QF buys 80% of its materials from country T and there is a long delivery lead time. This means that QF holds a high level of buffer inventory which has a high value. Human resources QF’s production employees are unhappy that they have not received any benefit from the company’s expansion. Profit has doubled over the past three years but employees have not received any pay increases or bonuses. The employees have all been trained by QF and have specialist skills which had ensured that customer expectations were met. However, customers are starting to complain about a fall in the quality of the furniture, which could be the result of the low morale of the employees. Some highly trained employees have left QF to work for competitor firms. 5 10 15 20 25

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