Practice IB Business Management Topic Unit 5: Operations Management - Production Methods, Production Planning and Management with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for Unit 5: Operations Management - Production Methods, Production Planning and Management and mirrors Paper 1, 2, 3 style where relevant.
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NeuroTech Ltd.
NeuroTech Ltd. is a European health technology company that develops wearable brain-monitoring devices for medical research institutions. The firm has invested heavily in research and development (R&D) to remain at the forefront of innovation, allocating nearly 18% of annual revenue toward new product development.
Recently, NeuroTech faced a major crisis after a software malfunction in one of its products caused data losses at several hospitals. Although no patients were harmed, the incident received significant media coverage. The firm initiated its crisis management plan, issuing public statements, recalling affected devices, and offering free replacements. Internally, the board has asked for a review of the company's contingency planning and operational risk mitigation procedures.
Despite the crisis, NeuroTech is evaluating a new R&D investment in a second-generation neural interface. The project is expected to generate significant returns if successful. The finance department has prepared the following data to assist the board in evaluating its financial health and the viability of the investment.
Table 1: Financial Data – NeuroTech Ltd (2024)
| Item | Amount (€) |
|---|---|
| Revenue | 12,000,000 |
| Cost of sales | 6,800,000 |
| Operating expenses | 4,400,000 |
| Net profit | 800,000 |
| Capital employed | 6,000,000 |
| Average stock | 1,200,000 |
| Initial investment (R&D project) | 2,500,000 |
| Net cash inflow (Years 1–4) | 850,000 p.a. |
Explain one way contingency planning may have helped NeuroTech Ltd. manage the product failure crisis.
Calculate the return on capital employed (ROCE)
Show all your working.
Calculate the payback period for the proposed R&D project.
Show all your working.
Analyse how NeuroTech’s current financial efficiency may influence its ability to manage R&D risk.
Suggest one way NeuroTech can ensure its future R&D strategy balances innovation with operational risk management.
EcoForge Ltd. is a UK-based company that manufactures energy-efficient building materials. To improve competitiveness, EcoForge has adopted a lean production strategy, including just-in-time (JIT) inventory systems and total quality management (TQM) initiatives. As part of its production planning review, the company is investing in new software to better align production schedules with customer orders.
EcoForge Ltd. plans to expand into the European market by opening a new manufacturing plant. The finance team has compiled key efficiency and financial data for 2024 to evaluate whether the company should fund this expansion internally or seek external sources of finance.
Table 1: Selected Financial Data – EcoForge Ltd. (2024)
| Item | Amount (£) |
|---|---|
| Revenue | 7,500,000 |
| Cost of sales | 4,400,000 |
| Operating expenses | 2,600,000 |
| Net profit | 500,000 |
| Average stock | 550,000 |
Explain one way total quality management (TQM) can support lean production at EcoForge Ltd.
Calculate the stock turnover ratio for EcoForge Ltd. Show all your working.
Comment on what the stock turnover ratio result suggests about EcoForge Ltd.’s inventory management (stock control) efficiency.
Suggest one internal and one external source of finance EcoForge Ltd. could use to fund the new plant.
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:
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.
Identify the stock control method currently used by NexaHealth.
Explain how NexaHealth’s proposed JIC-based contingency plan could affect the business in terms of cost and risk.
Analyse how NexaHealth’s proposed strategies (automation and adopting lean production and TQM practices) could help improve operational performance.
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.
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.
FlexFrame
FlexFrame is a European company that designs and assembles modular office furniture for B2B clients. Most of its production is done in-house at its central factory in Austria. FlexFrame promotes its use of lean production to reduce excess materials and shorten delivery times.
To support continuous improvement, FlexFrame recently introduced quality circles in its manufacturing division and is considering whether to implement total quality management (TQM) across the whole organization.
FlexFrame is also considering a contingency plan to reduce the risk of disruption (eg supplier failures for key components, machinery breakdowns, or transport delays) that could affect delivery reliability. The plan would include measures such as dual-sourcing critical components, holding additional safety stock of high-risk parts, and arranging backup logistics providers. Management estimates the plan would increase unit costs by 8% and delay the rollout of some new product/process changes due to extra supplier qualification and training requirements.
Identify one feature of lean production used by FlexFrame.
Explain one benefit and one risk of investing in R&D for FlexFrame.
Explain the impact of outsourcing production on FlexFrame’s operations.
Evaluate whether FlexFrame should implement the proposed contingency plan.