Name: _____________ Date: ________

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Business Mid-term exam – 6 – 2017

Premium suits
Sally owns a business called premium suits it is a private limited company. The business makes suits for men using
job production and the production workers are paid an hourly wage. Sally employs 100 people who work on the
production of suits. She has five employees who help her in the office but she only has one manager who is
responsible for finance. Sally carries out all the other functions for the business.
The business has grown quickly and profits have also grown rapidly over the last two years. Sally wants to continue
to expand the business and increase the sales of different suits to add to her current range of medium-priced suits.
There is a lot of competition for medium-priced suits and the market is not growing. She has identified two other
markets for suits, both of which have increasing demand. However, she's unsure which option to choose.
Option 1: she can start selling expensive suits that are handmade and of high-quality material. This suits would be
made to measure for each customer and individually designed. The market for these suits is a niche market. She would
need to employ more skilled workers.
Option 2: she can start selling low price suits to the mass Market. However, to enter this market Sally will need to
invest in Machinery to produce suits on a large scale. She could gain from economies of scale which would be an
advantage.
Sally currently uses batch production. However, if she decided to follow option one she will use job production and
if she follows option to she will use flow production.
No matter which option Sally chooses, she is thinking of relocating the business.
1) The finance manager is analysing the costs of the business which are shown below
Fixed cost $ 12,000 per year Selling price $40 per suit
Variable cost $15 per suit Maximum output: 2000 per year
Draw a break-even chart and identify the break-even level of production. (Include the calculation method) [6]
2)
a) What is meant by relocating? [2]
b) For each option for expansion, identify and explain two factors Sally will have to consider if she decides to
relocate the business. [8]
3)
c) As Premium Suits grows larger it could gain from economies of scale. Identify and explain two economies
of scale the business might benefit from as it grows. [8]
d) Quality is important to Sally. Consider the advantages and disadvantages of Quality control Quality
assurance. Recommend which method Sally should use to ensure quality suits are produced. Justify your
answer. [12]
4)
a) Explain the main features of job production for Option 1 and the main features of flow production for
option two. [8]
b) Sally believes that the new Machinery will have advantages for the business but no disadvantages. Do you
agree with Sally? justify your answer [12]
5)
a) Identify and explain two ways Sally could increase the added value for her suits. [8]
b) Sally says that option one would require a different marketing mix to option 2. How do you think each of
the elements of the marketing mix will be different for the two products in Option 1 and option 2? Justify
your answer. [12]