Operations Case Study Solutions

Operations “A” 8 marks ✍🏽

4 (a) (i) Calculate the break-even level of output for DVP using the information in Appendix 2.          [2]                                                                                                                                                        

Break-even output =

_____Fixed Cost_________

Price -Variable cost per unit

$2000 ÷ ($950–$450) = 5 houses

4 (a) (ii) Calculate the margin of safety for DVP using the information in Appendix 2.[2]

Margin of safety = Actual output – break-even output 

                                 9–5 = 4 houses

4 (a) (iii) Identify four ways break-even analysis can be useful to a business.[4]

Way 1:  Predicts how many sales the business needs to make to break-even

Way 2:  Predicts how much sales could fall by and still make a profit

Way 3:  Shows potential profit/loss for the business at different levels of output

Way 4:  Shows possible effect of change in price on the break-even level of output/profit

Organisation and Management Exam Practice ✍🏽

4 (b) State the advantages and disadvantages of the following three ways to achieve high quality for service DVP customers. Which do you think is the most important way? Justify your answer.   [12]                                                                                                                                                                      

Only employ highly trained workers: This will ensure the painting is carried out to a high standard to the customers’ requirements, as trained workers will make less mistakes, and do highly professional painting work.

However, if Dee only employs highly skilled painters it will be harder to find suitable employees and she may not be able to meet customer demand for decorating if she can’t recruit enough painters.

Recording all customer complaints: Dee can identify any problems with the paint jobs done in homes and try to correct them so the problems don’t happen again and service will improve. It improves the DVP reputation if she takes action on customer feedback.

However, this can be time consuming and customers may not always feedback on any issues with the painting.

Only use the best quality materials for painting: Using the best quality paints and brushes will mean the painting job will be finished to a very high standard and improve the reputation and brand image of DVP. 

However, the best quality materials will mean a higher price for DVP’s services. It may mean that their prices are higher than competitors and they find it difficult to increase their customer bases.

Recommendation:         Although it will increase costs, as DVP’s client base are home-owners with increasing incomes but little time, they should focus on quality materials to improve service.

As painting is not a highly skilled job Dee can train new employees to reach her high standards and as she has a small customer base does not need to prioritise customer’s complaints as she will remember their feedback.

However, using the best quality materials will ensure the painting service is of the highest standard and builds a quality brand image.

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