Business Studies 0450 May / June 2022 Paper 22 Question 2

2(a) Explain two benefits to TT of using lean production methods. Award 1 mark for each benefit (maximum of two marks). Award a maximum of 3 additional marks for each explanation of the benefit of using lean production methods – one of which must be applied to this context. Relevant benefits might…

Business Studies · May / June 2022 · Paper 22 · Question 2

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2(a)[8]
Explain two benefits to TT of using lean production methods. Award 1 mark for each benefit (maximum of two marks). Award a maximum of 3 additional marks for each explanation of the benefit of using lean production methods – one of which must be applied to this context. Relevant benefits might include
Employees might be able to offer ways for small continuous improvements in the factory – may improve efficiency – reduce unit costs
Less inventory / less storage required for components – as JIT means components only ordered when required for production – reduces cost of storage of inventory / reduces amount of working capital required / may improve cash flow
Production of toys is quicker – as Kaizen means the factory layout is more effective – time is not wasted between manufacturing tasks
Defects/waste could be reduced or eliminated – reduces repair/returns cost – customer happy with quality – good reputation
The equipment used for flow production could be used in a better way – increased efficiency – lower unit costs
Some processes may be removed – speeds up the production of toys – increases productivity
Improved health and safety of employees as motion between jobs may be reduced – less time off work due to injury – more output produced For example: There is less storage required for components (1). This is because just-in-time inventory control is used (app) means the components to manufacture the products are only ordered when required for production (1). This will reduce the warehouse space required and reduce costs (1). Application could include: manufacture toys;
toys/toys for under 5’s;
older children/children;
expanding into new markets abroad;
existing economies of scale;
Kaizen;
JIT;
specialist new equipment;
flow production.
2(b)[12]
Using Appendix 2 and other information, consider TT’s financial position. Do you think TT is in a good financial position to expand? Justify your answer using suitable calculations. Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of whether TT is in a good financial position. Well-justified conclusion. Candidates discussing in detail whether TT is in a good financial position, in context and with a well-justified conclusion including why TT may not be in a good financial position 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 some arguments around whether TT is in a good financial position. Judgement with some justification / some evaluation of choice made. Candidates discussing in detail whether TT is in a good financial position 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 financial position of TT with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the financial position of TT in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Level 1 statements
Accounts receivable has increased by $3m
The amount of cash held has increased by $2m
Amount of trade credit has increased by $1m
TT no longer has an overdraft
TT has taken out another bank loan for $5m
TT has current assets of $15m in 2022
TT has current liabilities of $5m in 2022
Current assets have increased by $5m
Current liabilities have remained the same Level 2 statements
Accounts receivable has increased by $3m – as more customers are allowed credit or existing customers are allowed a longer period to pay
The current ratio in 2022 is 3 / the current ratio has increased by 1
This is high as 2 would be more acceptable and indicates that TT may have too many of its assets in a liquid form
The acid test ratio in 2022 is 2 / the acid test ratio has also increased by 1
The acid test ratio is high as a ratio of 1 would be acceptable and indicates that assets are being held in non-income earning form
The liquidity seems to be sufficient to encourage banks to increase the loans to pay for the $10m expansion Conclusion
Yes, TT is in a good financial position to expand as it has increased both liquidity ratios between 2021 and 2022. It is in a good position to be able to expand and fund some of the $10m for expansion out of its own funds. It does not look likely to have a liquidity problem as it expands.
No, TT may not be in a good financial position to expand as it appears to have too much liquidity as the liquidity ratios could be considered to be too high. It has also increased its current liabilities by increasing its accounts payable and doubled its bank loans. These loans will have to be doubled again if TT chooses to finance the expansion from external sources. However, as TT is planning to expand then this may be a good financial position to fund this expansion with some internal sources of finance.

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