Practice IB Business Management Topic 3.3 Costs and Revenues with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 3.3 Costs and Revenues and mirrors Paper 1, 2, 3 style where relevant.
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LuminaCare is a Ghana-based, for-profit social enterprise that manufactures solar-powered medical devices for rural clinics and maternal health centers across Sub-Saharan Africa. Its flagship product is a solar fetal heart monitor, which allows midwives to detect complications during pregnancy without relying on grid electricity. The company raised seed capital from impact investors but has now reached an inflection point: demand has grown by 300%, and LuminaCare must decide whether to pursue a $2.5M Series A equity round or take on $1.2M in concessional debt from a development bank.
With reference to Resource 3, describe one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
Explain one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
Using the resources and relevant business management tools and theories, recommend a plan of action for LuminaCare over the next five years. Your plan must make a clear recommendation on financing (choose Series A now, choose the concessional loan now, or propose a staged sequence using both at different times) and justify your choice.
TerraVolt Ltd.
TerraVolt Ltd. is a European company specialising in the production of modular battery storage systems for renewable energy projects. After identifying an opportunity to expand into off-grid African markets, TerraVolt invested heavily in a new research and development (R&D) project to develop a lightweight, durable battery model.
However, unexpected production delays caused by supply chain disruptions forced TerraVolt to activate parts of its contingency plan, including outsourcing key components at higher costs. The finance team has prepared the company's final accounts and depreciation schedules to assess the financial impact and to plan for future investment needs.
Table 1: Statement of Profit or Loss for TerraVolt Ltd. for the year ending 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Sales revenue | 10,200 |
| Cost of sales | 6,300 |
| Gross profit | 3,900 |
| Operating expenses | 2,400 |
| Depreciation expense | 400 |
| Interest | 150 |
| Profit before tax | — |
| Tax | 150 |
| Profit for the year | — |
Table 2: Statement of Financial Position for TerraVolt Ltd. as at 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Non-current assets (at cost) | 2,000 |
| Accumulated depreciation | (800) |
| Current assets | 1,100 |
| Current liabilities | 750 |
| Long-term borrowings | 600 |
| Share capital | 700 |
| Retained earnings | — |
Additional information:
Calculate the profit before tax in 2024 for TerraVolt Ltd. (show your working). Give your final answer in €000s.
Calculate TerraVolt Ltd.’s net book value of non-current assets as at 31 December 2024 (show your working). Give your final answer in €000s.
Using the straight-line depreciation method, calculate TerraVolt Ltd.’s annual depreciation expense based on the machinery investment (show your working). Give your final answer in €000s.
Calculate the current ratio for TerraVolt Ltd. as at 31 December 2024 (show your working).
With reference to Tables 1 and 2 only, state one comment on TerraVolt Ltd.’s profitability and one comment on its liquidity position.
BeanBar Ltd.
BeanBar Ltd. is a medium-sized company that sells gourmet coffee beans online and in retail stores. The business recently launched a new premium coffee blend and carried out primary market research to better understand customer preferences before the launch. The findings helped inform the company's updated marketing plan, which included promotional discounts and revised packaging.
Although initial sales were strong, the marketing manager is concerned that poor internal communication between the finance and sales teams may be affecting financial performance. The finance team has noted rising costs, while the operations team wants to reinvest in product development.
Table 1 shows selected financial data for the past two months.
Table 1: Selected financial data for BeanBar Ltd. for 2024
| Item | Month 1 ($) | Month 2 ($) |
|---|---|---|
| Revenue | 100,000 | 90,000 |
| Cost of sales | 40,000 | 42,000 |
| Expenses | 30,000 | 35,000 |
| Net profit | ? | ? |
| Current assets | 60,000 | 50,000 |
| Current liabilities | 30,000 | 40,000 |
Calculate the net profit for Month 1 and Month 2. Show all your working.
Calculate the current ratio for Month 2. Show all your working.
Explain one reason why a fall in net profit might concern the finance team.
Identify one method of primary market research.
Outline one problem that may arise from poor internal communication between departments.
Green Haven Ltd. (GH)
Green Haven Ltd. (GH) is a small private limited company that produces indoor hydroponic garden kits. GH was started by two former biology teachers with the aim of promoting sustainable food production in urban homes.
Initially, GH was funded through personal savings and a bank loan. In its first year of operation, GH earned € 240,000 in revenue and incurred € 160,000 in total costs. GH purchases components from suppliers on 30-day trade credit terms. GH now aims to expand and is considering applying for a government grant to help fund the purchase of new machinery.
Table 1 shows selected financial information for GH.
Table 1: Selected financial data for GH
| Item | Amount (€) |
|---|---|
| Revenue | 240,000 |
| Total costs | 160,000 |
| Net profit | ? |
| Loan interest (annual) | 5,000 |
| Owner investment | 40,000 |
Define the term business
Identify two characteristics of a private limited company (Ltd).
Calculate GH's net profit for its first year of operation. Show all your working.
State one short-term and one long-term source of finance GH is using (as indicated in the stimulus).
Explain one benefit for GH of having a social objective, such as promoting sustainable food production.
SoundBeam Ltd.
SoundBeam Ltd. is a fast-growing audio technology company that manufactures wireless speakers. The company recently restructured its internal operations by shifting from a flat to a tall organizational structure. This change was made to improve management oversight as the number of employees increased.
The CEO, who is known for her autocratic leadership style, believes that centralized decision-making is necessary to maintain control during expansion. To finance the development of a new product line, SoundBeam Ltd. used both a bank loan and retained profit.
The finance department has compiled the following figures from the most recent quarter.
Table 1: Financial data for SoundBeam Ltd.
| Item | Amount ($) |
|---|---|
| Revenue | 600,000 |
| Cost of sales | 320,000 |
| Expenses | 200,000 |
| Net profit | ? |
Identify two features of a tall organizational structure.
Calculate the net profit for the quarter. Show all your working.
Explain one reason why a business might change from a flat to a tall structure as it grows.
Explain one reason why understanding costs and revenues is important for financial planning.