A LevelBusinessCambridge (CIE)Exam Questions4. Operations ManagementCapacity Utilisation & Outsourcing

Capacity Utilisation & Outsourcing (Cambridge (CIE) A Level Business): Exam Questions

Exam code: 9609

1 hour18 questions
Easy
Medium
Hard
1
3 marks

Case Study

Gemini Theatre (GT)

GT is a private limited company fully owned by the Gemini family. It owns a small theatre. This building is used to show live stage performances. Some of the performances are created by GT and some are created by visiting groups who rent the theatre. Table 2.1 shows the planned performances for January 2021.

Table 2.1: Planned performances for January 2021

Name of performance

Created by

Number of performances

Ticket price

Percentage of tickets sold

A Summer Dream

Visiting group

9

$40

100%

Wise Owl

GT

14

$15

60%

La Poeme Ballet

GT

5

$20

40%

GT gains all the revenue from performances created by GT. Visiting groups must pay 50% of their total ticket revenue to GT. The theatre has a maximum of 250 tickets that can be sold for each performance.

GT uses cost-based pricing to set each ticket price for its own performances. Each performance makes a profit but the company often experiences cash flow problems.

GT needs to recruit a new Theatre Manager. The person hired will have many duties, including the responsibility for all of GT’s administration as well as some accounting. The Directors are considering two people who were both recently interviewed. Table 2.2 contains information gained from the interview process.

Table 2.2: Information gained from the interview process

Nick

Portia

  • Three years working for a similar theatre business

  • A Levels in Business, Art and Chinese

  • Very organised and efficient

  • No management experience

  • Wants to move overseas in the future

  • Eight years working as a manager for a bank

  • No formal qualifications

  • Late for the interview

  • Good sense of humour

  • Looking for a long-term career

Explain one possible advantage to GT, other than increased revenue, of renting the theatre to visiting groups.

How did you do?

2
3 marks

Explain one impact on employees of a business operating under maximum capacity.

How did you do?

3
3 marks

Explain one implication for a business of operating at full capacity.

How did you do?

4
3 marks

Read the following extract (Table 2) before answering

Calculate the forecast 2021 capacity utilisation for laptop cases without the special order.

How did you do?

5
2 marks

Define the term 'capacity utilisation'.

How did you do?

6
2 marks

Define the term 'outsourcing'.

How did you do?

7
3 marks

Explain one impact on a business of operating under maximum capacity.

How did you do?

8
3 marks

Explain one problem for a business of operating over maximum capacity.

How did you do?

9
3 marks

Explain one method a business could use to improve its capacity utilisation.

How did you do?

10
3 marks

Explain one impact of outsourcing on a business.

How did you do?

1
2 marks

Read the following extract before answering.

Calculate the capacity utilisation in May 2022.

How did you do?

2
2 marks

Read the following extract (line 60-64 and Table 1) before answering

Calculate, for Kitchen 2, the average daily capacity utilisation.

How did you do?

3
3 marks

Read the following extract (Table 1) before answering

Refer to Table 1 and other information from the above extract. Assume that Total Quality Management (TQM) is implemented successfully.

Calculate the capacity utilisation.

How did you do?

4
8 marks

Read the following extract before answering.

Analyse two benefits to JGS of outsourcing.

How did you do?

5
3 marks

Read the following extract (Table 1) before answering

Calculate for 2019 the overall average capacity utilisation for NH.

How did you do?

1
12 marks

Case Study

Ashmore Glass

Ashmore Glass manufactures glass bottles and jars in country R, supplying drinks producers and food manufacturers. It operates its own fleet of 22 lorries and employs 34 drivers.

Table 1: Ashmore Glass distribution data

2023

2025

Distribution cost as % of revenue

8.1

11.4

Average lorry utilisation per journey (%)

71

58

Deliveries made on the agreed date (%)

96

94

Number of drivers

30

34

A national logistics company has offered to take over all of Ashmore Glass's distribution for a fixed fee equivalent to 8.5% of revenue. It would guarantee delivery within two days, but not on a specified date. Ashmore Glass would sell its lorries, and the 34 drivers would be made redundant.

The Finance Director, Priya Nadar, argues the offer would cut distribution costs immediately and release the capital tied up in an increasingly underused fleet.

The Sales Director, Tom Ackley, disagrees. Several of Ashmore Glass's largest customers run just-in-time production and specify exact delivery dates, and he believes recent contracts were won partly on the company's on-time record. He also questions whether an outside provider would handle fragile glass as carefully.

Ashmore Glass must respond within a month.

Evaluate whether Ashmore Glass should outsource its distribution to the national logistics company.

How did you do?

2
12 marks

Case Study

Whitlow

Whitlow is a commercial laundry in country F, washing linen for restaurants, care homes and gyms. It operates two sites.

Table 1: Whitlow site data, 2025

Site A (Elmhurst)

Site B (Portway)

Maximum capacity (tonnes of linen per week)

90

60

Actual output (tonnes per week)

74

26

Capacity utilisation (%)

82

43

Fixed costs per week ($)

11 000

9 500

Distance from Site A (km)

-

55

Site B opened four years ago to serve a growing hotel market, but two large hotel customers have since closed. Site B employs 14 people, several of whom have been with Whitlow since it opened.

The Operations Director, Sam Reilly, proposes closing Site B and transferring its work to Site A, which has spare capacity.

The Managing Director, Nadia Okonjo, is reluctant. Site B's remaining customers are all within 20 km of Portway and may not accept longer delivery times from Elmhurst. She also notes that a new business park near Portway is due to open next year.

Evaluate whether Whitlow should close Site B in order to improve its capacity utilisation.

How did you do?

3
12 marks

Case Study

Perrin Storage

Perrin Storage operates refrigerated warehouses in country M, storing frozen food for producers and supermarkets.

Table 1: Perrin Storage data

2024

2025

Capacity utilisation (%)

91

98

Storage requests refused (pallets)

2 400

9 100

Energy cost as % of total costs

34

41

Equipment breakdowns per year

7

19

Perrin Storage is considering building a third warehouse at a cost of $4.2 million. It would take 18 months to complete and increase total capacity by 45%.

The Operations Director, Elena Vasquez, argues the business is turning away too much work, and that breakdowns have risen because the existing refrigeration plant runs continuously with no time for maintenance.

The Finance Director, Hugo Bram, is cautious. Two of Perrin Storage's three largest customers are on contracts due for renewal within two years, and a competitor has announced its own new facility 30 km away.

Evaluate whether Perrin Storage should build the third warehouse.

How did you do?