Refer to line 35. Calculate CQ's capacity utilisation.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2023). The mark or mark type is shown in brackets.

1. [1] (a) CU = 120 000 / 160 000 × 100 = 75%
2. [1] (a) Accept answer without % sign, 75
3. [1] (b) Inventory turnover = cost of sales / average inventory and/or
4. [1] (b) Cost of sales = revenue – gross profit (1 mark if no relevant calculation)
5. [1] (b) Cost of sales = 1.2 – 0.8 = $0.4m
6. [2] (b) Inventory turnover = 0.4 / 0.13
7. [3] (b) Inventory turnover = 3.077 OR 3.08 OR 3.1 OR 3 times
8. [2] (b) Incorrect unit for final answer e.g. $3.077 OR 3.077% OR 3.077 days
9. [1] (b) If expressed in days then: Inventory turnover = average inventory / cost of sales X 365 (1 mark if no relevant calculation)
10. [2] (b) Inventory turnover = 0.13 / 0.4 X 365
11. [3] (b) = 118.6 days OR 119 days
12. [2] (b) If correct equation stated but then calculation shows 1.2 / 0.13 = 9.23
13. [K] (c) Definition of lean production: reducing all forms of waste.
14. [K] (c) Lean production techniques: TQM; Quality circles; Cell production; JIT; Kaizen; Simultaneous engineering.
15. [K] (c) Need for capital investment such as ERP or flexible machinery.
16. [K] (c) Knowledge of relevant ratios such as inventory turnover.
17. [APP] (c) Inventory turnover of 3.08 means that inventory is currently kept for 119 days on average. Objective is to increase inventory turnover to 5 times.
18. [APP] (c) Need to hold bamboo material for production and finished shoes to meet fluctuations in demand.
19. [APP] (c) 5% of output is defective – in six months = 6000 units. Objective is to cut this by 50%.
20. [APP] (c) CQ has only just taken over the factory. Objective to increase production to full capacity within eight months and reduce workforce size.
21. [APP] (c) The shoe manufacturer had been unprofitable when CQ took it over.
22. [APP] (c) Unions have agreed to changes in working practices.
23. [L2 AN] (c) By reducing all forms of waste CQ will be more efficient, and this will reduce unit cost of production making CQ more competitive.
24. [L2 AN] (c) Lean production includes TQM and quality circles. Giving workers responsibility for quality may increase motivation resulting in a reduction in defective output, improve quality and productivity, making CQ more competitive.
25. [L2 AN] (c) Lean production includes JIT manufacturing. Aim to hold zero inventory which will increase inventory turnover resulting in less inventory holding costs.
26. [L2 AN] (c) Training of employees will be required thus increasing costs of CQ but this could increase motivation of employees resulting in higher productivity.
27. [L2 AN] (c) Lean production aims to use less of everything and therefore may enable production to be maintained whilst reducing the size of the labour force and therefore reduce unit costs.
28. [L2 AN] (c) Lean production by building relationship with suppliers could eliminate the supply chain failures thus reducing the high levels of inventory previously needed.
29. [AN] (c) Use of JIT may result in CQ running out of inventory and therefore lead to a loss of sales.
30. [EVAL] (c) Elements that the evaluation/judgement might depend on: Effectiveness will depend on supplier relationships and reliability of receiving supplies when needed. Supply chain with bamboo coming from the US may make JIT production difficult to implement, with long lead times.
31. [EVAL] (c) Can CQ predict demand accurately? JIT risks lost customers if demand is underestimated.
32. [EVAL] (c) Is inventory turnover high or low compared to competitors?
33. [EVAL] (c) Was part of the problem that workers are unfamiliar with the production methods for the bamboo shoes after the takeover?
34. [EVAL] (c) Cost of the investment and current financial situation of CQ such as its high gearing.
35. [EVAL] (c) Significance of other factors that may also impact success of LP: Existing factory, workers may have an ingrained culture to overcome.
36. [EVAL] (c) Evaluation of alternative approaches to achieving objectives such as investment in capital equipment or increased marketing expenditure to increase sales and inventory turnover.
37. [EVAL] (c) Supported overall judgement about introduction of LP.