CIE IGCSE Topical Past Paper 1

4.1 Production of goods and services

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045/12/M/J/2024

FBM is a boat building business. It has 100 skilled employees. The Operations Director is concerned that FBM holds a high level of inventory. She is also concerned that the business is starting to experience diseconomies of scale. The Finance Director has been asked to analyse FBM’s cost and output data. An extract is shown in Table 1.1.

Extract from FBM’s cost and output data
Variable costs per unit
$5000
Fixed costs per year
$600 000
Number of boats made each year
300
Table 1.1

(d) Explain one advantage and one disadvantage to FBM of holding a high level of inventory. [6]
Advantage:
Explanation:

Disadvantage:
Explanation: