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
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 4
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 5
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 6
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 7
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 8
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.
Question 9
SLPaper 2
Flavor Burst (FB)
In 2006, Jacob launched a street-food stall specializing in fusion cuisine, which quickly gained popularity. Ben kept marketing expenses low by focusing on advertising directly on the stall and relocating it to high-traffic locations and events.
In 2009, Jacob reinvested the stall's profits to open a restaurant called Flavor Burst (FB), starting with a staff of 16. Over the years, employee turnover remained low, as staff received an annual bonus that grew with their length of service.
In 2017, Jacob expanded FB's reach by creating a website and embracing social media marketing. Customers were encouraged to share their experiences online, where reviews consistently praised FB's skilled staff and the food's exceptional value. Jacob responded to all reviews, and many customers joined an FB social media group, regularly engaging with the restaurant and each other. For many, the combination of vegan dining and social interaction created a club-like atmosphere.
Despite the positive reception, high labor costs, decent profits, and the use of premium ingredients resulted in FB's gross and net profit margins falling below industry standards.
Recognizing the rising demand for fusion options, Jacob borrowed funds from a family member in 2018 to open two additional FB locations in different cities, adding 32 employees to the team. However, in January 2019, a loyal customer of the original FB visited one of the new locations and left a negative review. The review quickly went viral, leading to a decline in sales across all three FB restaurants.
1.[2]
State two appropriate sources of finance Jacob may have used when he first opened his vegan food stall.
2.[4]
Explain one positive impact and one negative impact on FB as a result of having low labour turnover.
3.[4]
Explain one advantage and one disadvantage for FB as a result of its use of social media.
4.[8]
Discuss Ben’s decision to enlarge the scale of BTO from one restaurant to three restaurants.
Question 10
HLPaper 2
BigCharacter Aims (BCA)
Alex and Jamie, the co-founders of BCA was encountering lots of disagreements. They seemed to be always arguing but Alex could also see new issues emerge. At their latest meeting early 2024, Jamie provided the following financial information to illustrate the declining trend in gross profit margin.
Table 1: Selected financial information for BCA
| Year | Gross profit | Sales revenue |
|---|---|---|
| 2022 | 142,888 | 2,164,486 |
| 2023 | 124,211 | 2,400,625 |
In addition, the recruitment of new staff was becoming a problem, as the wages that BCA offered were much lower than fair trade competitors. In a meeting between Alex and Jamie, they argued over the best way to financially reward and motivate newly recruited workers, given the lower wages paid by BCA.
Jamie argued for a reward system based on fringe payments (perks), as this was being offered by BCA's main competitors, the supermarkets. Alex countered that BCA should form a cooperative involving all physical stores. He argued that creating a worker cooperative could give all members a sense of community and fulfillment and motivate them so that all members of the cooperative would benefit. There would also be additional stakeholder benefits.
Jamie argued that a worker cooperative was too difficult to organize and operate and would not solve the problem of recruiting staff. In the meantime, BCA was continuing to attract a good deal of publicity. Alex had appeared on a national television show about young, innovative entrepreneurs. After the television show ended, one very large international retailer with a strong online presence contacted Alex about the possibility of a takeover.
Alex initially refused, but as the details of the takeover became clear he started to seriously consider the opportunity. By selling the business Alex would have enough fresh capital to start new, innovative businesses and make some of his other visions and ideas into reality.
In addition to the corporate social responsibility (CSR) BCA was generating, the takeover would give BCA access to other intangible assets. However, the international retailer had indicated that it could not guarantee keeping all existing and newly recruited employees and managers. Jamie and Taylor were both very worried that Alex would even contemplate the takeover, which they felt was an act of betrayal to all the stakeholders of BCA.
1.[2]
Calculate the gross profit margin of BCA for 2022 and 2023.
2.[2]
Define the term intangible asset.
3.[4]
Explain one possible reason for the trend in gross profit margin for BCA between 2022 and 2023.
4.[6]
Explain one benefit and one cost to BCA of using fringe payments (perks) to financially reward staff.
5.[10]
Discuss whether Alex should accept the offer of a takeover.