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Date May 2019 Marks available 10 Reference code 19M.1.SL.TZ0.4
Level Standard level Paper Paper 1 Time zone Time zone 0
Command term Recommend Question number 4 Adapted from N/A

Question

Refer to the Radeki de Dovnic Manufacturing (RDM) case study (SL/HL paper 1 May 2019).

While identifying a location for the new factory, Zylstra Industries (ZI), a large manufacturing company located not far from Location A, presented RDM with another possibility: a strategic alliance. Thus, RDM have two options to consider.

Option 1: Purchase land and build a new automated factory. The potential location is summarized in Table 1.

Table 1: Information on Location A

Location A is in an economically depressed area of northwestern Europe, where land values nevertheless remain high. Location A has an old industrial tradition with a long tradition of poor industrial/employee relations.

Option 2: A ten-year strategic alliance with ZI. ZI has proposed that RDM uses some of its vacant
manufacturing space in exchange for assistance in transforming ZI’s manufacturing process into a
highly automated one using robots. Twenty RDM engineers and computer scientists would:

ZI would pay all capital expenditures and RDM would employ the twenty engineers and computer scientists. Average salary and other financial rewards of one highly skilled employee would be $150 000 per year. In exchange, RDM would get free usage of factory floor space. RDM would buy its own equipment at a cost of $6 000 000. 

RDM estimates that leasing space similar to what ZI is offering would cost $3 000 000 a year.

[Source: © International Baccalaureate Organization 2019]

 

State two reasons for selecting a specific location for production.

[2]
a.

Using the information in Table 1, calculate for Location A the payback period (show all your working).

[2]
b.i.

Using the information in Table 1, calculate for Location A the average rate of return (ARR) (show all your working).

[2]
b.ii.

Explain two types of financial rewards, other than salary, that RDM might offer its engineers and computer scientists.

[4]
c.

Recommend whether RDM should choose Option 1 or Option 2.

[10]
d.

Markscheme

Reasons for selecting a specific location of production include:

Accept any other valid reason.

Award [1] for each reason identified up to [2]. Maximum award: [2].

a.

$16.0M per year profits. Cost: $64.0M.

64 16 = 4 years

or

Capital outlay $64 000 000
Expected yearly profit $16 000 000

Answer: exactly 4 years

Award [1] for the correct workings and [1] for the correct answer with the unit “years”.

b.i.

ARR = [(80 000 000 − 64 000 000) ÷ 5 ÷ 64 000 000] × 100 = 5 %

Award [2] for correct answer with working and with the percentage sign.

Award [1] if the percentage sign is missing,

Do not credit the formula alone.

b.ii.

Types of financial reward other than salary that RDM might offer its engineers and computer scientists include:

Accept any other relevant financial reward.

Mark as a 2 + 2.

Award [1] for an appropriate financial reward identified and an additional [1] for explanation and application. Award a maximum of [2] for each financial reward identified, explained, and applied to the stimulus. Maximum award overall: [4].

c.

Refer to Paper 1 markbands for May 2016 forward, available under the "Your tests" tab > supplemental materials.

With Option 1, advantages for RDM include:

Disadvantages of Option 1 include:

Accept any other relevant advantage or disadvantage of Option 1.

With Option 2, advantages for RDM include:

Disadvantages of Option 2 include:

Accept any other relevant evaluation.
Marks should be allocated according to the paper 1 markbands for May 2016 forward section B.

d.

Examiners report

Candidates were asked to state two reasons for selecting a specific location for production. Most candidates answered correctly, with a wider responses such as the cost of land, the cost and/or availability of raw materials, local workforce, infrastructure, transport, proximity to markets, proximity to suppliers etc. The question was accessible and did not present any particular difficulty.

a.

For (4)(bi) and (4)(bii), candidates had to do some calculations, which is always challenging for some, even though the formula of the ARR was provided. A small number of candidates did not achieve full marks because they did not show their workings (although the instructions explicitly stated “show all your working”) or did not include the unit: “years” for (4)(bi), “%” for (4)(bii).

b.i.

For (4)(bi) and (4)(bii), candidates had to do some calculations, which is always challenging for some, even though the formula of the ARR was provided. A small number of candidates did not achieve full marks because they did not show their workings (although the instructions explicitly stated “show all your working”) or did not include the unit: “years” for (4)(bi), “%” for (4)(bii).

b.ii.

Candidates were asked to explain two types of financial rewards that RDM could use. As for (2)(a) and (3)(b), many candidates wrote generic answers, typically defining bonus or fringe benefits in general, without application to the case study. As a consequence, the marks awarded to (4)(c) were overall disappointing; many candidates clearly had some theoretical knowledge of financial rewards, but did not link this to the case.

c.

Candidates had to recommend one of two strategic options. Both had advantages and disadvantages; candidates who achieved the highest marks considered the advantages and disadvantages of both options, whereas candidates who discussed only one option produced one-sided, limited answers. One fairly common approach did not work well: some candidates started their response with their recommendation: “RDM should choose Option A because….” and the whole response was just a justification, without considering other arguments, other perspectives.

d.

Syllabus sections

Last exams 2023 » Unit 5: Operations management » 5.4 Location » The following ways of reorganizing production, both nationally and internationally: outsourcing/zubcontracting, offshoring, insourcing
First exams 2024 » Unit 5: Operations management » 5.4 Location » 5.4.2 The following ways of reorganizing production, both nationally and internationally: Outsourcing/subcontracting, Offshoring, Insourcing, Reshoring
Last exams 2023 » Unit 1: Business organization and environment » 1.6 Growth and evolution » The following external growth methods: mergers and acquisitions (M&As) and takeovers, joint ventures, strategic alliances, franchising
First exams 2024 » Unit 1: Introduction to business management » 1.5 Growth and evolution » 1.5.5 External growth methods
Last exams 2023 » Unit 5: Operations management » 5.4 Location
First exams 2024 » Unit 5: Operations management » 5.4 Location
Last exams 2023 » Unit 1: Business organization and environment » 1.6 Growth and evolution
First exams 2024 » Unit 1: Introduction to business management » 1.5 Growth and evolution
Last exams 2023 » Unit 1: Business organization and environment
First exams 2024 » Unit 1: Introduction to business management
First exams 2024 » Unit 5: Operations management
Last exams 2023 » Unit 5: Operations management
Last exams 2023
First exams 2024

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