1 QAC uses batch production to make 70 different cleaning products including soap and polish.

To meet increased demand for two of its products, X and Y, QAC could invest $10m in flow pro-
duction using new technology. The Finance Director is worried about QAC’s cash flow position
as shown in Table 1. He thinks it is important to have a high level of inventory but he also wants
to improve the cash flow position.

Table 1: QAC’s cash flow forecast for April – June 2017 ($000)

April May June

Cash in: 300 400 460
Cash out:
Labour costs 140 140 140
Inventory costs 120 180 180
Fixed costs 100 100 100
Total cash out 360 420 420
Net cash flow (60) (20) ?
Opening balance 30 (30) (50)
Closing balance (30) (50) ?

(a) Identify and explain two advantages to QAC of having a high level of inventory.

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2 GKK makes plastic bottles for a range of products from food to chemicals. GKK buys its raw materials
from a low-cost country. GKK’s organisational structure is wide with a short chain of command
which allows for delegation. The Government plans to introduce new legal controls to protect the
environment. The Operations manager said: ‘The Government might achieve one of its objectives
but how does it affect GKK? This is a competitive market so prices are important.’ He wants to
improve efficiency and plans to use lean production.

(a) Identify and explain two benefits to GKK of increasing efficiency.

Benefit 1: … . .............................................................................................................................

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Explanation: ..................................................................................................................................

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Benefit 2: … . .............................................................................................................................

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(b) Explain one lean production technique. Recommend whether GKK should introduce this
technique. Justify your answer.

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3 MSH is a large business providing floor cleaning services to other businesses. It has many loyal
employees. When a worker does leave, new recruits are trained using on-the-job training. MSH is
located in an area with a high level of unemployment. MSH is experiencing falling demand and
plans to increase promotion. The manager of MSH is thinking about relocating the business to Main
city, which is 50 km away. Main city has many expanding industrial areas. The manager is worried
about the effect of relocation on some stakeholder groups.

(a) Do you think MSH should relocate its business? Justify your answer.

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