Practice 3.9 Budgets (HL only) with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
Paper
Level
Question 1
HLPaper 3
LuminaCare
Resource 1 – Company profile and financial context
LuminaCare is a Ghana-based, for-profit social enterprise that manufactures solar-powered medical devices for rural clinics and maternal health centers across Sub-Saharan Africa. Its flagship product is a solar fetal heart monitor, which allows midwives to detect complications during pregnancy without relying on grid electricity. The company raised seed capital from impact investors but has now reached an inflection point: demand has grown by 300%, and LuminaCare must decide whether to pursue a $2.5M Series A equity round or take on $1.2M in concessional debt from a development bank.
Resource 2 – CFO’s internal memo (Finance)
“Our burn rate is steady, but we’ve reached our credit limit with suppliers. We operate on 90-day payment terms with clinics, so cash flow is always tight. Series A equity gives us the scale to meet demand and build a second facility—but would dilute founder control and introduce board-level oversight. The concessional loan is low-interest and non-dilutive but comes with covenants: quarterly EBITDA targets, strict capex limits, and donor-style reporting. Any miss could trigger loan restructuring or early repayment.”
Resource 3 – HR performance dashboard (Q1–Q2 2025)
| Metric | Value |
|---|---|
| Staff turnover (last 6 months) | 22% |
| Time to fill technical roles | 49 days (↑ 24%) |
| % of roles with formal job descriptions | 58% |
| Managerial span of control | Avg. 12 direct reports |
| Avg. team engagement score | 67/100 (↓ from 78) |
| The head of HR notes that burnout and unclear career paths are leading to attrition, especially among product engineers and field deployment staff. |
Resource 4 – Marketing team proposal
“Clinics love our mission—but most have no idea who we are until we show up at trade shows. We need to invest in inbound marketing, including a multilingual website, CRM tools, and a referral rewards program for midwives. More crucially, we’re perceived as a donor-funded nonprofit, not a serious tech company. To attract hospital procurement officers and larger buyers, we must reposition the brand to emphasize product quality, not just affordability and ethics.”
Resource 5 – Email thread: CEO to CFO and Marketing Lead
Resource 6 – Feedback from key field partners
“We rely on LuminaCare’s devices, but their response time for repairs has worsened.” “Sometimes we get different pricing from different reps. There’s no standard process.” “I love the mission—but our procurement officer wants a brand that feels serious. A logo change isn’t enough.”
1.[2]
With reference to Resource 3, describe one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
2.[6]
Explain one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for LuminaCare over the next five years.
Question 2
HLPaper 3
Elevate Health Tech (EHT)
Resource 1 – Background of the organization
Elevate Health Tech (EHT) is a social enterprise based in Peru. Founded in 2021 by two biomedical engineers, it develops low-cost, portable diagnostic devices (such as digital stethoscopes and glucose meters) for use in rural and underserved communities across Latin America. EHT reinvests all profits into R&D and local employment programs.
EHT has grown quickly, scaling from 5 to 38 employees in two years. It operates as a private limited company, with both founders holding equal ownership and decision-making authority.
Resource 2 – Statement from the HR Director
"Our team is motivated by our mission, but we’re facing growing pains. We’ve recently hired 12 new staff, many with limited technical background. We have no formal training programme or organizational structure. Employees report confusion about job roles, and productivity varies significantly across teams. The co-founders are very hands-on, but this is becoming unsustainable."
Resource 3 – Loan proposal from the Development Impact Bank (DIB)
DIB is prepared to offer EHT a $750,000 low-interest loan to expand production and distribution across four Andean countries. The loan would cover machinery upgrades and recruitment but requires EHT to submit quarterly financial statements and maintain a current ratio of at least 1.5 throughout the term.
A grace period of 18 months will apply before repayments begin.
Resource 4 – Excerpt from EHT’s financial summary (unaudited, 2024)
Note: Fixed assets are fully depreciated and no longer productive.
| Item | Amount (USD) |
|---|---|
| Current assets | $230,000 |
| Current liabilities | $180,000 |
| Non-current liabilities | $50,000 |
| Retained profit | $40,000 |
| Total equity | $100,000 |
Resource 5 – Email from the Head of R&D
"To remain competitive, we need to launch two new diagnostic products within the next 18 months. The current design lab is at capacity. We either need to lease a second lab or invest in automation. The team is overworked and we’ve lost two engineers to burnout. I’m also concerned about our lack of appraisal or performance review systems."
Resource 6 – Mission statement (from company website)
We believe affordable diagnostics are a human right. We exist to empower healthcare workers and communities with reliable tools, local jobs, and dignity-driven innovation.
1.[2]
With reference to the stimulus, describe one internal issue that might arise from EHT’s current ownership structure.
2.[6]
Explain one human resource challenge and one financial challenge that EHT may face if it accepts the DIB loan and scales up
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for EHT over the next five years.
Question 3
HLPaper 2
NutraBeam Ltd.
NutraBeam Ltd. is a health food company that produces organic protein powders and snack bars using renewable energy. The business relies on a batch production method to manufacture its goods and integrates a customised management information system (MIS) that monitors ingredient inventory levels, order fulfilment, and energy consumption in real time.
In Q2 2024, NutraBeam experienced a serious disruption when a contaminated shipment of chia seeds halted production for two weeks. This led to missed retailer delivery targets and negative media coverage. The company activated its crisis management plan, which included supplier audits, public transparency statements, and temporary outsourcing of production.
NutraBeam’s operations manager is now reviewing the company’s production planning, including safety stock levels and quality control procedures. Meanwhile, the finance department has compiled actual vs. budgeted performance data to assess the financial implications of the crisis.
Table 1: Budgeted vs Actual Figures – Q2 2024
| Item | Budgeted ($) | Actual ($) |
|---|---|---|
| Sales revenue | 1,800,000 | 1,540,000 |
| Cost of goods sold | 960,000 | 1,200,000 |
| Operating expenses | 520,000 | 540,000 |
| Net profit | 320,000 | –200,000 |
1.[2]
Calculate the total adverse variance in costs and the revenue variance for NutraBeam Ltd. in Q2 2024. Show all your working.
2.[2]
Comment on what these figures suggest about the financial impact of the production crisis.
3.[2]
Explain one weakness in NutraBeam’s production planning that may have contributed to the severity of the disruption.
4.[2]
Suggest one way NutraBeam could adapt its MIS to improve production resilience in the future.
5.[2]
Outline how budgeting can support better decision-making during and after a crisis.
Question 4
HLPaper 2
CoreByte Ltd.
CoreByte Ltd. is a medium-sized software company offering custom business platforms. The finance team recently reviewed the budget for 20XX and compared it to actual results. A summary is provided below.
To improve long-term employee motivation and reduce turnover, CoreByte Ltd. introduced a wider task variety for project teams and allocated a portion of company profits to an internal share ownership scheme. Senior leadership is divided between data-driven decision-making and intuitive approaches based on manager experience.
Table 1: Budget for CoreByte Ltd. for the period ended 2024
(All figures in $m)
| Revenue | Budgeted | Actual | Variance |
|---|---|---|---|
| Software subscriptions | 180 | 175 | 5 (A) |
| One-time custom projects | 60 | 70 | 10 (F) |
| Consulting and support | 30 | 25 | 5 (A) |
| Total revenue | 270 | 270 | 0 |
| Costs | Budgeted | Actual | Variance |
|---|---|---|---|
| Salaries and benefits | 100 | 110 | 10 (A) |
| Hardware and hosting | 25 | 20 | 5 (F) |
| Office rent | 15 | 15 | 0 |
| Marketing spend | 20 | 25 | 5 (A) |
| Utilities and admin | 10 | 12 | 2 (A) |
| Total costs | 170 | 182 | 12 (A) |
| Excess of revenue over costs | 100 | 88 | 12 (A) |
Additional data:
- Accounts receivable = $15 million
- Annual sales = $120 million
- CoreByte Ltd. has no long-term debts but is experiencing frequent short-term cash shortages.
1.[2]
Referring to Table 1, state: (i) Which revenue stream showed the most favourable variance (ii) Which cost item caused the largest adverse variance
2.[2]
Calculate CoreByte Ltd.'s debtor days
3.[2]
Explain one benefit and one limitation of using variance analysis for CoreByte Ltd.’s managers.
4.[2]
Explain how job enlargement and employee share ownership schemes may support employee motivation at CoreByte Ltd.
5.[2]
Distinguish between scientific and intuitive approaches to management decision-making, using CoreByte Ltd. as context.
Question 5
HLPaper 2
GreenGadget Innovations
GreenGadget Innovations is a technology company that produces environmentally friendly electronic devices. The company has grown steadily over the past three years and is now planning a major investment to enhance its market share. Management is evaluating two projects: (1) launching a new product line of solar-powered smartwatches or (2) upgrading its manufacturing facilities to improve efficiency and reduce costs.
Both options require significant financial investment. To ensure the company manages its resources effectively, GreenGadget also plans to implement a more detailed budgeting system to control expenses and forecast revenues accurately.
The following financial data is provided:
1.[6]
Calculate the payback period and net present value (NPV) for both investment options (Solar Smartwatch and Facility Upgrade). Recommend which project GreenGadget should pursue based on your calculations.
2.[4]
Discuss the importance of budgeting for GreenGadget Innovations in managing its financial resources, especially when implementing a significant investment.
3.[4]
Analyze how GreenGadget can use capital budgeting techniques to prioritize between these two investment projects.
4.[10]
Evaluate the potential risks and rewards of launching the solar smartwatch compared to upgrading the manufacturing facilities.
Question 6
HLPaper 2
RapidFit Gym
RapidFit Gym is a small chain of fitness centers offering affordable memberships and group classes. The company has seen consistent growth over the past five years but is now facing increased competition from boutique fitness studios and online fitness platforms.
RapidFit is considering investing in a new gym location or upgrading its existing facilities to attract more members. The management is also concerned about operational inefficiencies, particularly with inventory management for gym equipment and receivables from corporate clients who pay for bulk memberships.
The following financial data is provided for the year ending December 31, 2023:
| Financial Metric | Value (USD) |
|---|---|
| Revenue | 2,000,000 |
| Cost of Goods Sold (COGS) | 1,200,000 |
| Operating Expenses | 600,000 |
| Net Profit | 200,000 |
| Average Inventory | 100,000 |
| Average Accounts Receivable | 120,000 |
| Initial Investment for New Gym | 1,000,000 |
| Initial Investment for Upgrade | 500,000 |
| Projected Annual Cash Flow (Gym) | 200,000 |
| Projected Annual Cash Flow (Upgrade) | 120,000 |
| Discount Rate | 10% |
| Useful Life (years) | 5 |
1.[4]
Calculate the payback period and net present value (NPV) for both investment options (new gym location and upgrade).
2.[4]
Using the provided data, analyze RapidFit’s inventory turnover ratio and evaluate its operational efficiency.
3.[4]
Explain the impact of inefficiencies in receivables management on RapidFit’s liquidity and suggest strategies to address this issue.
Question 7
HLPaper 2
ClearView Tech
ClearView Tech is a company that designs and manufactures innovative smart glass products for residential and commercial buildings. These products allow users to control the amount of light and heat entering a room, reducing energy consumption. The company has been profitable in recent years but faces rising production costs and increasing competition from new entrants.
To address these challenges, ClearView Tech is considering two investment options: (1) launching a new automated production line to improve efficiency and reduce costs, or (2) expanding its product range to include a budget-friendly version of its smart glass. The management is also planning to refine its budgeting system to better control operating expenses and improve cash flow management.
Below is selected financial data for ClearView Tech for the year ending December 31, 2023:
Investment Options
| Financial Metric | Automated Line | New Product Range |
|---|---|---|
| Initial Investment (USD) | 2,500,000 | 1,800,000 |
| Projected Annual Cash Flow (USD) | 600,000 | 450,000 |
| Useful Life (years) | 5 | 5 |
| Residual Value (USD) | 500,000 | 200,000 |
| Discount Rate | 10% | 10% |
Additional Company Financial Data
| Financial Metric | Value (USD) |
|---|---|
| Revenue | 10,000,000 |
| Cost of Goods Sold (COGS) | 6,000,000 |
| Operating Expenses | 2,500,000 |
| Net Profit | 1,500,000 |
| Average Inventory | 400,000 |
| Average Accounts Receivable | 600,000 |
| Average Accounts Payable | 350,000 |
| Marketing Budget | 700,000 |
| Capital Budget | 3,000,000 |
1.[4]
Using the data provided, calculate and analyze the inventory turnover and receivables days ratios for ClearView Tech. Evaluate how these ratios reflect the company’s efficiency.
2.[4]
Calculate the net present value (NPV) for both investment options (Automated Line and New Product Range). Recommend which investment ClearView Tech should pursue based on your calculations.
3.[4]
Analyze the importance of budgeting in managing ClearView Tech’s financial resources, particularly in relation to these investment decisions.
4.[10]
Evaluate the strategic implications of the automated production line compared to the new product range in addressing ClearView Tech’s challenges.
Question 8
HLPaper 2
SwiftTech Ltd (ST)
SwiftTech Ltd (ST) is a UK-based technology manufacturer specializing in smart home devices. The company recently experienced a product defect crisis, where a software bug in its flagship security system led to customer complaints and negative media coverage. As a result, ST had to issue refunds and recalls, leading to financial strain and reputational damage.
To improve efficiency and reduce future risks, ST is considering adopting lean production methods, such as Just-in-Time (JIT) and Kaizen, to minimize waste and improve product quality. However, some managers worry that JIT may leave the company vulnerable to supply chain disruptions.
ST is also evaluating the implementation of a management information system (MIS) to enhance decision-making and financial planning. Currently, ST’s finance department struggles with budgeting inconsistencies and poor forecasting, affecting investment decisions.
To recover from the crisis and regain financial stability, ST's senior management is reviewing its budgeting process, ensuring tighter cost control and improved financial planning.
1.[2]
Define the term ‘budget’.
2.[4]
Explain two reasons why crisis management is important for ST following the product defect crisis.
3.[4]
Explain two benefits for ST of using lean production methods.
4.[4]
Explain two advantages for ST of implementing a management information system (MIS).
5.[10]
Examine how ST should improve its budgeting process to strengthen financial planning.
Question 9
HLPaper 3
Zenith Electronics – Balancing Growth, HR, and Finance
Resource 1 – News Article
Zenith Electronics faces growing financial strain amid rapid global expansion.
Zenith Electronics, a publicly traded multinational, specializes in manufacturing smart home technology. Over the past five years, the company has expanded operations across Europe and Asia, growing its workforce from 5,000 to 15,000 employees.
Despite its success, Zenith faces serious financial and HR challenges:
Declining profit margins due to rising costs of production and supply chain disruptions.
High employee turnover as workers feel undervalued and disengaged.
Managers struggle with organizational communication and workplace motivation, impacting productivity.
To address these issues, Zenith’s CEO, Lisa Wong, is considering two strategies:
(1) Restructuring the organization to improve efficiency and motivation.
(2) Securing external funding to support ongoing expansion and cash flow stability.
Investors remain divided on the best course of action.
Resource 2 – Internal Employee Survey Results
Recent HR data from Zenith Electronics employees:
Employees feel disconnected from leadership and lack incentives to stay engaged.
| Issue | Percentage of Employees Concerned |
|---|---|
| Lack of motivation at work | 45% |
| Weak communication from managers | 38% |
| High workload and job stress | 50% |
| Poor work-life balance | 42% |
Resource 3 – Financial Report Summary
Zenith Electronics – Key Financial Data (Last Fiscal Year)
Key Concerns:
(1) Low liquidity (current ratio < 1) may threaten short-term financial stability.
(2) High gearing (55%) suggests heavy reliance on external finance.
| Financial Indicator | Value |
|---|---|
| Revenue | $800 million |
| Net Profit | $50 million |
| Gross Profit Margin | 38% |
| Current Ratio | 0.8 |
| Gearing Ratio | 55% |
1.[2]
Using an appropriate business management theory, describe a human resources issue affecting Zenith Electronics.
2.[6]
Explain two financial challenges Zenith Electronics faces in maintaining both profitability and liquidity.
3.[17]
Using all the resources provided and your knowledge of business management, recommend a possible plan of action to ensure both financial stability and employee motivation at Zenith Electronics.
Question 10
HLPaper 3
AeroTech Drones – Scaling Production While Maintaining Financial Stability
Resource 1 – News Article
AeroTech Drones Faces Challenges Scaling Its Production Line
AeroTech Drones, a technology start-up specializing in high-performance drones for commercial use, has seen rapid demand growth in the last two years. The company was founded in 2018 as a private limited company, but it is now considering an IPO (initial public offering) to raise additional capital for expansion.
Despite strong revenue growth, AeroTech is facing operational bottlenecks and financial pressures.
Key Challenges:
(1) High production costs due to inefficiencies in manufacturing and inconsistent supplier lead times.
(2) Limited cash flow despite strong revenues, causing delays in R&D investments for next-generation drones.
(3) Difficulty in deciding whether to expand the current factory or relocate to a larger facility to accommodate increasing orders.
The CEO, Jake Mitchell, is considering three key strategies:
(1) Raising capital through an IPO or alternative external funding sources.
(2) Optimizing production efficiency through lean production techniques to reduce costs.
(3) Expanding into a new location with greater production capacity while balancing cost and operational feasibility.
Resource 2 – Financial Report Summary
AeroTech Drones – Financial Data (Last Fiscal Year)
Key Insights:
(1) The low current ratio (0.9) suggests short-term liquidity risks, meaning the company may struggle to meet immediate obligations.
(2) The high gearing ratio (62%) indicates heavy reliance on debt financing, increasing financial risk if interest rates rise.
(3) Profit margins remain solid, but production inefficiencies are increasing costs, reducing overall profitability.
| Financial Indicator | Value |
|---|---|
| Revenue | $200 million |
| Gross Profit Margin | 40% |
| Net Profit Margin | 8% |
| Current Ratio | 0.9 |
| Gearing Ratio | 62% |
Resource 3 – Break-even Analysis for Factory Expansion
Key Takeaways:
(1) Expanding the current factory has lower fixed costs, but it may not support long-term growth.
(2) A new facility reduces variable costs, but has higher fixed costs and a higher break-even point.
| Option | Fixed Costs ($M) | Variable Cost per Unit ($) | Selling Price per Unit ($) | Break-even Output (Units) |
|---|---|---|---|---|
| Expand Current Facility | 20M | 200 | 400 | 100,000 |
| Relocate to New Facility | 35M | 180 | 400 | 116,667 |
1.[2]
Using an appropriate business management theory, describe a financial challenge AeroTech Drones is facing.
2.[6]
Explain two operational challenges AeroTech Drones faces in scaling its production efficiently.
3.[17]
Using all the resources provided and your knowledge of business management, recommend a possible plan of action to ensure AeroTech Drones achieves both financial stability and operational efficiency.