IB Business Management Topic 3.9 Budgets Questionbank…

TerraNova Ltd.

TerraNova Ltd. is an agricultural technology company based in New Zealand that develops vertical farming systems for urban food production. The company has a strong innovative corporate culture that values experimentation, sustainability, and cross-functional collaboration. However, as TerraNova scaled operations to meet increasing demand, it introduced stricter performance targets across departments.

These changes, including the removal of flexible working arrangements in the production team, led to a deterioration in industrial relations. Employee representatives submitted a formal grievance to management, citing the lack of consultation and increased stress levels among staff. Senior leaders are now reviewing TerraNova's budget and financial performance for Q2 2024 to assess whether further cost-cutting is needed.

The company is also exploring external sources of finance to fund a new training and automation programme aimed at improving long-term efficiency and reducing employee workload.

Table 1: Budgeted vs Actual Figures – Q2 2024

(a) the sales variance and total cost variance for TerraNova Ltd. in Q2 2024.

Show all your working.

(b) on how the variances and final accounts reflect the financial impact of TerraNova's internal changes.

(e) how the company’s business purpose may influence strategic financial decisions as it grows.

(e) how budgeting can support better decision-making during and after a crisis.

(e) one advantage of assigning departmental managers responsibility for both revenue and cost streams at LunoCare Ltd

(d) one internal and one external source of finance TerraNova Ltd. could consider to fund its employee training and automation programme.

(e) how improved industrial relations could contribute to TerraNova’s long-term financial performance.

Elevate Health Tech (EHT)

Resource 4 – Excerpt from EHT’s financial summary (unaudited, 2024)

Item	Amount (USD)
Current assets	$230,000
Current liabilities	$180,000
Non-current liabilities	$50,000
Retained profit	$40,000
Total equity	$100,000

Note: Fixed assets are fully depreciated and no longer productive.

(a) With reference to the stimulus, one internal issue that might arise from EHT’s current ownership structure.

(b) one human resource challenge and one financial challenge that EHT may face if it accepts the DIB loan and scales up

(c) Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for EHT over the next five years.

FlexiFreeze Ltd.

FlexiFreeze Ltd. is a medium-sized business that manufactures portable solar-powered refrigeration units for off-grid medical and disaster relief use. It was originally set up as a partnership but restructured into a private limited company (Ltd) after receiving a contract from an international NGO. The company's business purpose is to deliver low-cost, high-impact refrigeration solutions to underserved communities while achieving sustainable long-term growth.

In Q2 2024, the business launched a new production facility to meet rising demand. While this supported its growth and evolution, it also strained liquidity. Some stakeholders, including suppliers and staff, have expressed concerns about delayed payments and overtime demands.

The finance team has provided the final statement of profit or loss for Q2 2024 and a comparison with budgeted figures, alongside a cash flow forecast to assess short-term financial pressures.

Table 1: Budgeted vs Actual Statement of Profit or Loss – Q2 2024

Item	Budgeted (£)	Actual (£)
Sales revenue	950,000	900,000
Cost of sales	520,000	580,000
Operating expenses	310,000	330,000
Net profit	120,000	—

Table 2: Cash Flow Forecast – July 2024

Item	Amount (£)
Opening balance	40,000
Cash inflows	250,000
Cash outflows	295,000
Closing balance

(a) one reason FlexiFreeze Ltd. may have changed from a partnership to a private limited company.

(b) the actual net profit for Q2 2024, showing your working.

(d) one risk FlexiFreeze Ltd. may face as it expands.

NutraBeam Ltd.

NutraBeam Ltd. is a health food company that produces organic protein powders and snack bars using renewable energy. The business relies on a batch production method to manufacture its goods and integrates a customised management information system (MIS) that monitors ingredient inventory levels, order fulfilment, and energy consumption in real time.

In Q2 2024, NutraBeam experienced a serious disruption when a contaminated shipment of chia seeds halted production for two weeks. This led to missed retailer delivery targets and negative media coverage. The company activated its crisis management plan, which included supplier audits, public transparency statements, and temporary outsourcing of production.

NutraBeam's operations manager is now reviewing the company's production planning, including safety stock levels and quality control procedures. Meanwhile, the finance department has compiled actual vs. budgeted performance data to assess the financial implications of the crisis.

Table 1: Budgeted vs Actual Figures – Q2 2024

Item	Budgeted ($)	Actual ($)
Sales revenue	1,800,000	1,540,000
Cost of sales	960,000	1,200,000
Operating expenses	520,000	540,000
Net profit	320,000	–200,000

(a) the total adverse variance in costs and the revenue variance for NutraBeam Ltd. in Q2 2024.
Show all your working.

(b) on what these figures suggest about the financial impact of the production crisis.

(d) one way NutraBeam could adapt its MIS to improve production resilience in the future.

LunoCare Ltd. \n\nLunoCare Ltd. is a healthcare technology company that recently merged with a traditional medical device manufacturer. After the merger, the company faced tension between the tech team's flexible leadership style and the acquired firm's hierarchical culture. \n\nThe human resources department is implementing new performance review processes to support the integration and is piloting employee-driven feedback initiatives. Meanwhile, management has tied part of employee bonuses to company profitability this year.\n\nTable 1. Draft statement of Profit and Loss of LunoCare Ltd. for 2023\n\n| Statement of Profit and Loss for 2023 (in $'000)** | |\n|------------------------------------------------------|---------|\n| Revenue | 5,600 |\n| Cost of sales (COGS) | (3,200) |\n| **Gross profit** | ________ |\n| Expenses | (2,000) |\n| **Net profit before tax** | ________ |\n\n\n**Table 2. Draft statement of Financial Position of LunoCare Ltd. for 2023**\n\n\n| **Statement of Financial Position for 2023 (in$ '000) | |\n|----------------------------------------------------------|---------|\n| Non-current assets | 3,000 |\n| Current assets | 1,200 |\n| └── of which: Cash | 200 |\n| Current liabilities | (1,000) |\n| Non-current liabilities | (800) |\n| Net assets | 2,400 |\n\n\nAdditional notes:\n- Some employees expressed concern about how much data management uses in decision-making versus relying on leadership intuition.\n- The finance director assigned departmental managers responsibility for controlling specific revenue and cost streams.

(a) the missing figures for net profit before tax.

(b) one advantage of involving employees in providing feedback on their own performance.

(d) one reason why different stakeholders would be interested in LunoCare Ltd.'s financial accounts.

Sales revenue	2,400,000	2,200,000
Cost of sales	1,050,000	1,160,000
Operating expenses	920,000	980,000
Net profit	430,000	60,000

IB Business Management 3.9 Budgets Questionbank

IB Business Management 3.9 Budgets Questionbank