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An Australian tyre manufacturer is expanding its business - HSC - SSCE Business Studies - Question 21 - 2023 - Paper 1
Question 21
An Australian tyre manufacturer is expanding its business. In order to reduce operating costs and increase sales and profit, rubber will be sourced from the global m... show full transcript
Worked Solution & Example Answer:An Australian tyre manufacturer is expanding its business - HSC - SSCE Business Studies - Question 21 - 2023 - Paper 1
Step 1
Outline ONE potential issue this business could face in relation to both cost and quality of outputs.
Answer
Sourcing rubber globally can lead to fluctuations in quality. Cheaper imports may reduce costs but might not meet the required quality standards for tyre production. This can result in lower quality tyres that do not perform well, affecting customer satisfaction and brand reputation.
Step 2
Explain the benefits of achieving economies of scale for both the business and consumers.
Answer
Achieving economies of scale allows the business to reduce the cost per unit by increasing production volume. As production scales up, fixed costs are spread over a larger number of units, lowering the overall production cost.
For consumers, this can result in lower prices for tyres. As the manufacturer's cost decreases, these savings can be passed on to consumers, making the product more affordable. Additionally, the increased production can lead to better quality controls and enhancements in product development, benefiting both the manufacturer and its customers.