M23/3/BUSMT/SP1/ENG/TZ0/XX

BUSINESS MANAGEMENT
STANDARD LEVEL
PAPER 1

Practice examination 2023 – Skandvig Terra PLC

1 hour 15 minutes

INSTRUCTIONS TO CANDIDATES
▪ Do not open this examination paper until instructed to do so.
▪ A clean copy of the IB Business Management case study – Skandvig Terra PLC is required
for this examination paper.
▪ Read the case study carefully.
▪ A clean copy of the IB Business Management formulae sheet is required for this examination
paper.
▪ Section A: answer two questions.
▪ Section B: answer question 4.
▪ A calculator is required for this examination paper.
▪ The maximum mark for this examination paper is [40 marks].
 IB Business Management Standard Level Paper 1 Examination

SECTION A

Answer two questions from this section.

QUESTION ONE

a. Outline one advantage and one disadvantage of SVT broadening its product range
(line 49). [4 marks]

b. With reference to SVT, distinguish between not-for-profit organisations (line 128) and non-
governmental organisations (NGOs; line 104). [6 marks]

QUESTION TWO

a. Outline one advantage of using incentive payments to achieve the objectives of SVT’s
Human Resource Management Department (line 60). [4 marks]

b. Use the Ansoff matrix to explain two of SVT’s growth strategies. [6 marks]

QUESTION THREE

a. With reference to SVT and using examples, define secondary market research (line 134).
[4 marks]

b. Analyse the relationship between the product life cycle, investment, profit and cash
flow for SVT’s wind turbines. [6 marks]
 IB Business Management Standard Level Paper 1 Examination

SECTION B

Answer the compulsory question from this section.

QUESTION FOUR

Ariadne, who leads the Engineering Division at SVT, convinced the Board of Directors to
establish operations to manufacture the WF15 water purifier as a distinct division of the
company and on a dedicated production line using flow production. Sophia Abena Boafoa
Akuffo was tasked with heading up the new division. Sophia, originally from Ghana, a West
African nation, was recruited internally and had previously held a senior production
management position at SVT’s flagship factory in Norway. She has extensive business
experience and maintains large personal networks across Africa. With her democratic
leadership style, she was seen as an excellent choice to head this new division by SVT’s Board
of Directors. The new division was to be run as a not-for-profit and was to be focused on
corporate social responsibility objectives – providing clean drinking water to those who could
nether access it nor afford it.
Limited production trials of manufacturing the WF15 product began in mid-2022 with
adjustments and fine-tuning to the production process occurring over the second half of the
year. In May 2023 Sophia informed the board that her division had started to produce 5,000
units a month with finished stock being stored in warehouses, and that the WF15 factory had
the ability to quickly ramp up production to manufacture up to 45,000 units per month –
maximum production capacity.
The Chief Financial Officer (CFO) had been tasked to coordinate with the marketing and
operations departments to conduct market research to assess the potential demand for the
WF15 water purifier product and estimate production capacity, the costs, price points and
revenues associated with their manufacture. The marketing team consulted with government
agencies, charities, non-governmental organisations (NGOs), and private companies in a
wide range of countries across Asia and Africa. The marketing team’s report concluded that
the demand for the WF15 water purifier would be more than 500,000 units a year at a price of
€30.00 per unit if distribution was efficient, and after that, demand would fall rapidly as prices
increased. The marketing team estimated that only 60,000 units would be purchased at €60.00
a unit as low household incomes in less-economically-developed countries made the product
largely unaffordable at the higher price.
Sophia is especially interested in how different pricing strategies could be integrated into the
marketing mix for the WF15 water filter and the quantities that need to be sold to breakeven
at different prices. When the finance team reports back to her, they forecast the following:
▪ Maximum production capacity: 45,000 units per month
▪ Fixed costs: €70,000 per month.
▪ Unit variable costs (including direct labour and raw materials): €26.00 per unit.
▪ Average delivery costs: €6.50 per unit

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 IB Business Management Standard Level Paper 1 Examination

a. Define flow production. [2 marks]

b. Calculate the annual loss that would be made if the WF15 product was priced at €30.00
a unit and the factory was producing at full capacity. Comment on your answer.
[4 marks]

c. Calculate the break-even target price at 45,000 units of output per month and at 6,000
units of output per month. Comment on your answer. [4 marks]

d. Using information from the case study and additional information above, discuss the
effectiveness of the different leadership styles of Yannick (line 19), Ariadne (line 23) and
Sophia. [10 marks]

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