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Business Studies · May / June 2022 · Paper 21 · Question 2

0450

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  • 2(a)[8]

    Explain one benefit and one limitation to Yasin of using a break-even chart. Award 1 mark for each benefit/limitation (maximum of two marks). Award a maximum of 3 additional marks for each explanation of the benefit/limitation of using the break-even chart– one of which must be applied to this context. Relevant benefits might include:

    Shows break-even output – so Yasin knows how much bread he needs to sell to break even – this will allow him to plan the bakery and equipment required – to ensure at least the minimum quantity of bread is produced and sold
    Shows the margin of safety – this is the amount of bread Yasin predicts will be sold above the break-even output – it provides a target for sales of bread – so that MB makes a profit
    Helps in decision making – so that Yasin knows the minimum target amount of bread to produce – he can see if he needs to increase the price to break-even more quickly – or if lower ingredient costs is required by MB to make a profit
    Shows the area of profit or loss – and therefore what the output needs to be to cover all costs – if the market research shown in the business plan does not indicate that sufficient sales will be made to make a profit – then Yasin may need to think again about his plans for the bakery. Relevant limitations might include:
    A break-even chart assumes all the output will be sold/provides an estimate of sales – but MB may not sell all the bread in the day – some may be wasted and the costs of producing these will not be taken into account – so at a specific output the business may not make a profit but may make a loss
    The break-even chart is drawn on the assumption of straight lines – but when the output is higher Yasin may be able to bulk buy ingredients – this may mean he can receive discounts so the variable cost per unit may not be constant
    Fixed costs/variable costs may change – if the scale of production changes as the bakery expands – the rent or depreciation of equipment will change/ingredient costs may change
    Need a separate break-even chart for each product/need a new chart if prices are changed – relevant if going to make cakes For example: The chart shows the break-even output for MB (1)

    so Yasin will know how many units of bread he will need to sell each month to break even (app). This will allow him to plan for the equipment required (1)

    so he can ensure the bakery sells the minimum amount of bread to cover all the costs and not make a loss (1). Application could include: bread;

    bakery;

    cakes;

    data presented in Appendix 2;

    fixed costs will change if either of the options in Appendix 2 go ahead.

  • 2(b)[12]

    Consider the following two ways MB could achieve lean production. Which is the best way for Yasin to choose? Justify your answer.

    Kaizen.
    Just-in-time inventory control. Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both ways. Well-justified recommendation. Candidates discussing both ways in detail, in context and with a well-justified recommendation including why the alternative way was rejected should be rewarded with the top marks in the band. 9–12 Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of at least one way. Judgement with some justification / some evaluation of choice made. Candidates discussing at least one way in detail and applying it to the case should be rewarded with the top marks in the band. 5–8 Limited application of knowledge and understanding of relevant business concepts. Limited ability to discuss the ways with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining both ways in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Advantages Disadvantages Kaizen
    Employees might be able to offer suggestions about how small continuous changes may improve the efficiency of the bakery
    Helps eliminate waste – time is not wasted between tasks / eliminating waste of space / eliminating wasted resources
    As there is less time between the different processes of baking bread – it can lead to increases in productivity/efficiency
    There should be less work-in-progress – as the flow through and layout of the bakery is more efficient, and the amount of part- finished bakery products should be reduced
    The 2 employees may not be willing/able to make suggestions for improvements
    The employees may have reduced hours if efficiency is improved which may make them reluctant to help
    It will take time and/or money to reorganise the bakery to improve the flow of products through the different processes
    Yasin may not have the skills and knowledge to do this effectively – may have to pay someone else to plan the bakery layout – increased costs for a small business in the short-term
    There may be a limit to the improvements MB can make using Kaizen Advantages Disadvantages Just-in-time inventory control
    Reduces the costs of holding inventory of ingredients such as flour
    Less working capital required to pay for inventory
    Less storage space required – reduces costs or makes more effective use of the bakery production area
    Bread and cakes will be fresh due to fresh ingredients – helps ensure customer satisfaction
    No excess ingredients purchased – so does not go out-of- date/does not go stale
    If there is an increase in demand for certain types of bread, then there may not be sufficient ingredients to meet the increased demand
    Any delays in orders being delivered may disrupt production and may stop the production of some items
    It relies on a good relationship between Yasin and his suppliers
    Relies on Yasin making the orders quickly when needed Recommendation Justification might include:
    Kaizen is the most effective because it could save time between the different tasks performed in the bakery. This may speed up baking and allow more output to be produced in a shorter time period therefore increasing the output of bread and possibly increasing revenue or reducing costs as more efficient. JIT is less important as the bread is baked each day and ingredients will need to be purchased regularly anyway.
    Less working capital is required for JIT, so this is the best option for a small bakery as Yasin is likely to have limited funds to run the new business. The bread is made each day so fresh ingredients are required, and this makes JIT the most suitable because a small bakery may have limited opportunities to implement Kaizen ideas.
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