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Business Studies · May / June 2026 · Paper 22 · Question 3

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  • 3(a)[8]

    Explain two advantages to KE of introducing lean production. Award 1 mark for each advantage (max 2). Award a maximum of 3 additional marks for each explanation of the advantage of using lean production – one of which must be applied to this context. Relevant advantages might include:

    Less inventory/less storage required for raw materials – if JIT used it 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 is quicker – if Kaizen is used it means the factory layout is more effective – time is not wasted between the tasks of manufacturing products
    Defects/waste could be reduced or eliminated – reduces repair/returns cost – customer happy with quality / good reputation
    Employees might be able to offer ways for small continuous improvements in the factory – involvement may increase motivation – reduces unit costs
    Better use of equipment – increased efficiency – lower cost per item produced
    Some processes may be removed – speeds up the production process – increases productivity
    Improves health and safety of employees as motion between tasks may be reduced – less time off work due to injury – more output produced Notes:
    The first mark needs to be a clear benefit of lean production.
    Explanation of one advantage could be used for another advantage but do not credit twice as this is repetition.
    Motivation or less costs are development points and should only be credited once. For example: There is less storage required for raw materials (1). This is because if just-in-time inventory control is used (1)

    it means the raw materials are only ordered when required for production to manufacture cooking pots (app). This will reduce the warehouse space required and reduce costs (1). Application might include: cooking pots/equipment;

    employs 10 000 people;

    public limited company;

    output of 20 million cooking pots;

    value of output is $90m/$180m;

    sells in the home country;

    competitive market;

    sells at low prices;

    numerical information from Appendix 1 and 3.

  • 3(b)[12]

    Using Appendix 3 and other information, consider the two new products KE could produce. Which product should KE choose? Justify your answer using suitable calculations.

    product A
    product B Level Description Sound application of knowledge and understanding of relevant business concepts using appropriate terminology. Detailed discussion of both products. Well-justified recommendation. Candidates discussing both products in context and with a well-justified recommendation, including why the alternative product 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 product. Judgement with some justification / some evaluation of choice made. Candidates discussing one or more products in detail and applying them 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 products with little/no explanation. Simple judgement with limited justification / limited evaluation of choice made. Candidates outlining the two products in context should be rewarded with the top marks in the band. 1–4 No creditable response. Relevant points might include: Product A
    Price is $4 lower than for Product B at a price of $2 per item
    Break even output is 20 000
    Margin of safety is 20 000
    Contribution is $1.50
    Total revenue for 40 000 is $80 000
    Total cost for 40 000 is $50 000
    Profit for this product is $30 000
    Fixed costs are the same for both products at $30 000
    GPM = 75%
    PM = 37.5% Product B
    Price for Product B is price of $6 per item which is higher than Product A
    Break even output is 10 000
    Margin of safety is 5 000
    Contribution is $3
    Total revenue for 15 000 is $90 000
    Total cost for 100 000 is $75 000
    Profit for this product per month is $15 000
    Profit is lower by $15 000 per month
    GPM = 50%
    PM = 17% Recommendation Justification might include:
    KE should choose to start producing Product A as it has a higher margin of safety of 20 000 items. It also has a lower price of $2 and more forecast sales. However, the profit margin is lower for Product B and profit is lower by $15 000 so Product B should not be produced.
    KE should choose to start producing Product B which has a lower break-even output of cooking pots at 10 000 pots so might be less difficult to achieve than Product A. Notes:
    Accept profit or net profit as they are interchangeable terms.
    Figures should be labelled accurately e.g. specify gross profit or [net] profit etc. (or clear calculations/understanding of where figures have come from).
    To achieve Level 3, there should be a Level 2 point for both Product A and Product B.
    Level 3 must include a decision and show clear understanding of what the Level 2 figures mean.
    A recommendation based on comparing the figures without further understanding should be rewarded with a further Level 2. Product A Product B Price per item $2 $6 APP Additional FC $30 000 $30 000 APP VC per item $0.50 $3 APP Forecast Sales 40 000 15 000 APP Contribution $1.50 $3 L1 FC / SP - VC Break Even $30 000 / $2 – $0.50 = 20 000 units $30 000 / $6 – $3 = 10 000 units L2 Margin of safety 20 000 units 5000 units L2 Total Variable Costs $20 000 $45 000 L1 Total Costs $50 000 $75 000 L1 Sales Revenue Less Cost of Sales Gross Profit Less Expenses Profit (NP) $80 000 $20 000 $60 000 $30 000 $30 000 $90 000 $45 000 $45 000 $30 000 $15 000 L1 L1 L2 APP L2 Gross Profit Margin ($60 000/$80 000 × 100) = 75% ($45 000/$90 000 × 100) = 50% L2 Profit Margin ($30 000/$80 000 × 100) = 37.5% (38%) ($15 000/$90 000 × 100) = 16.67% (17%) L2
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