IB Business Management 5.6 Production Planning Questionbank

(c) Comment on what the stock turnover ratio result suggests about EcoForge Ltd.’s inventory management (stock control) efficiency.

(d) Suggest one internal and one external source of finance EcoForge Ltd. could use to fund the new plant.

(e) Analyse how improved production planning could support EcoForge Ltd.’s financial and strategic goals.

NexaHealth Equipment Ltd.

NexaHealth manufactures advanced diagnostic scanners for hospitals. Each scanner requires 72 imported components sourced using a just-in-time (JIT) model. NexaHealth spends £7.2 million annually on R&D, equal to 12% of its £60 million annual revenue, to maintain its innovation lead.

Last quarter, a global semiconductor shortage caused a six-week production delay, resulting in:

• £3.4 million in lost hospital contracts
• £620,000 in labour downtime costs
• A drop in customer satisfaction from 92% to 77%

To manage this risk, the COO has proposed switching to a just-in-case (JIC) model for critical components, which would increase annual inventory holding costs by £1.5 million but reduce delay risk to below 1%. The operations team instead suggests investing £4.2 million in automation and adopting lean production and TQM practices to reduce dependency on external suppliers.

(a) Identify the stock control method currently used by NexaHealth.

(b) Explain how NexaHealth’s proposed JIC-based contingency plan could affect the business in terms of cost and risk.

(c) Analyse how NexaHealth’s proposed strategies (automation and adopting lean production and TQM practices) could help improve operational performance.

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)

Table 2: Statement of Financial Position for TerraVolt Ltd. as at 31 December 2024 (figures in €000s)

Additional information:

• The initial investment in machinery was €2,000,000.
• Machinery has an expected useful life of 5 years and a residual value of €0.

(a) Calculate the profit before tax in 2024 for TerraVolt Ltd. (show your working). Give your final answer in €000s.

(b) 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.

(c) 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.

(d) Calculate the current ratio for TerraVolt Ltd. as at 31 December 2024 (show your working).

Global Solar Solutions (GSS)

(a) With reference to business management motivation theory, describe one need that GSS satisfies for rural households requiring solar lighting.

(b) Explain one human resource challenge and one operations challenge GSS may face if it accepts the DRD expansion contract.

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

ZenMoto Ltd.

ZenMoto Ltd. is a Japanese company that manufactures electric scooters designed for city commuting. To improve operational efficiency, ZenMoto has implemented lean production techniques such as just-in-time (JIT) inventory management, kaizen (continuous improvement), and quality circles across its factories. It is also reviewing its production planning processes to better match seasonal demand fluctuations.

The company plans to expand into new Southeast Asian markets and needs funding for a new manufacturing plant. The finance department has provided key efficiency data and is evaluating whether internal cash flows are sufficient or if external sources of finance are needed.

Table 1: Selected Financial Data – ZenMoto Ltd. (2024)

(a) Explain one way lean production techniques could improve ZenMoto Ltd.'s operational efficiency.

(b) Calculate the return on capital employed (ROCE) for ZenMoto Ltd. Show working.

(c) Comment on how ZenMoto Ltd.’s ROCE result might influence its decision to use internal or external finance for expansion.

(d) Suggest one internal and one external source of finance ZenMoto Ltd. could consider for the new manufacturing plant.

(d) Using the stimulus and your knowledge of business management, evaluate which strategy NexaHealth should prioritise to improve operational resilience and long-term competitiveness. You may recommend one primary strategy or justify a phased approach, but you must make a clear first priority.