Rafiq is the Operations manager at a small factory. The business makes a range of soft drinks using batch production. Last year Rafiq successfully introduced just-in-time inventory control, based on an idea from one of the 40 employees. As the business is planning to expand, Rafiq thinks it would be a good idea to change to flow production. Table 1: Income statement for 2015 ($000) Revenue | X Cost of sales | 360 Gross profit | 240 Expenses | Y Profit | 120 Retained profit | 100

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

1. [2] (a) Clear understanding [2] e.g. Money spent on producing or buying in the goods sold by the business,
2. [2] (a) OR variable cost of making the goods sold,
3. [2] (a) OR cost per unit × number of output,
4. [2] (a) OR money spent on making the products plus an example of those costs.
5. [1] (a) Some understanding [1] e.g. Money spent on materials.
6. [1] (b) Application [2 × 1] - award 1 mark per calculation. X = 600 [600000]
7. [1] (b) Y = 120 [120000]
8. [2] (c) Knowledge [2 × 1] - award 1 mark for each relevant reason [max 2].
9. [2] (c) Application [2 × 1] - award 1 mark for each relevant explanation. Relevant points might include:
10. [K] (c) Retained profit [k] which could be used to finance the change to flow production [app]
11. [K] (c) Measure of performance [k] to see if the $120000 profit is higher than last year [app]
12. [K] (c) Source of finance [k]
13. [K] (c) To attract/keep investors [k] as the business plans to expand [app].
14. [2] (d) Knowledge [2 × 1] - identification of relevant advantage [max 2].
15. [2] (d) Application [2 × 1] - award 1 mark for each way if relevant reference made to this business.
16. [2] (d) Analysis [2 × 1] - award 1 mark for each relevant explanation. Relevant points might include:
17. [K] (d) Less inventory held [k] so less chance of wastage [an] as drinks could go out of date [app]
18. [K] (d) Lower costs [k] as don't have to spend as much on insurance [an] which will help reduce expenses [app]
19. [K] (d) Less warehouse space [k] so have more space available [an] so have room to introduce flow production process [app]
20. [K] (d) Improve working capital [k] as less money tied up in inventory [an] which can help improve gross profit [app]
21. [K] (d) Improve cash flow [k]
22. [K] (d) Increased motivation [k] as the idea came from one of the employees [app] and therefore productivity could improve [an]
23. [K] (d) Improved quality [k] as ingredients are fresher [app] so increase in sales [an].
24. [1] (e) Knowledge [1] – award 1 mark for identification of relevant points about batch or flow production. Positive or negative points allowed.
25. [1] (e) Application [1] – award 1 mark if relevant reference made to this business.
26. [2] (e) Analysis [2] – award up to 2 marks for relevant development of point(s).
27. [2] (e) Evaluation [2] – justified decision made as to whether the business should change to flow production. Either viewpoint acceptable. Relevant points might include:
28. [K] (e) Depends on level of demand/size of market [k]
29. [K] (e) Economies of scale [k]
30. [K] (e) Workers might become demotivated [k] as work is more repetitive than batch [app] so they become less productive [an]
31. [K] (e) Cost of investment [k] as only a small business [app] do they have the necessary finance [an]?
32. [K] (e) Inflexible [k] as make a range of flavours [app] so might not be able to easily switch to meet demand [an]
33. [K] (e) Workers may fear redundancy [k] as machines replace them [an] so less than 40 employees needed [app].