Polar Ices questions: Explain why Polar Ices needs to build up stocks in the early part of the year

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Polar Ices

Q. 2. [a] (i)        Explain why Polar Ices needs to build up stocks in the early part of the year.        (4 marks)

Q. 2. [a] (ii)        State and explain three likely effects of the company building up stocks.                (6 marks)


Q. 2. [b        ] (i)         Explain the meaning of the term “Just in Time production”.                        (3 marks)

Q. 2. [b] (ii)        Discuss whether Polar Ices should switch to Just in Time production.                (8 marks)

Q. 2. [c]        The managing director has thought about batch production of chocolate in the winter months. Would you advise him to do this? Justify your answer.                                        (9 marks)

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A. 2. [a] (i)       The demand for Polar Ices’ products are concentrated in the summer months and the firm currently only has the capacity to produce 140,000 units per month – which is insufficient to meet their period of peak demand, unless they build up stocks of finished products earlier in the year. These stocks can then be used during the summer months to supplement the monthly output from the plant.

A. 2. [a] (ii)      One effect would be that the holding of finished products as stock also allows Polar Ices to react to any sudden and unexpected increase in demand (e.g. as might happen if there were an unusually warm Spring).

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                          A second effect could be a detrimental effect on the firm’s cash flow position. Holding stock is costly (for a number of reasons) and polar Ices would be paying for the production (and storage) of much of its stock many months before it would be receiving revenue from its sale. This could place the firm in cash flow difficulties and could even lead to its failure. (Even if the firm’s cash flow position remained viable, however, there would still be an opportunity cost involved in having ...

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