Fiveable
💼AP Business with Personal Finance
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💼AP Business with Personal Finance

FRQ 4 – Business Decision
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Unit 4: Management and Strategy
FRQ Types & Units

Each FRQ type tests specific skills taught in particular units. Here's why certain units appear for each question type:

This mapping reflects College Board's exam structure - each FRQ type tests specific skills that are taught in particular units.

Practice FRQ 1 of 161/16

4. You have been retained as a consultant to help the business described in the scenario decide between two alternative courses of action.

Oak & Iron Furniture Co. (O&I) is a mid-sized custom furniture manufacturer based in Portland, Oregon. Founded 15 years ago, O&I currently operates out of two separate, aging workshops located five miles apart. Recently, O&I has experienced a 30% surge in demand from commercial clients outfitting new office spaces. However, managing two separate facilities has created significant logistical bottlenecks and communication issues among the staff. Furthermore, a recent city zoning change has significantly increased property taxes on both of O&I's current buildings, squeezing profit margins.

Expansion Proposal — Open a Third Location: The first option is to keep the two existing workshops and lease a third, 15,000-square-foot facility in nearby Beaverton. This new location would be dedicated entirely to fulfilling the new commercial orders. The expansion would allow O&I to quickly meet current demand without disrupting its existing residential furniture production, and the facility would be fully operational in just 4 months.

Consolidation Proposal — Move to a Single Mega-Facility: The second option is to close the two existing workshops and relocate all operations into a single, modern 40,000-square-foot warehouse in Salem, 45 miles away. This consolidation would eliminate the logistical bottlenecks of split operations, reduce overall overhead, and improve team communication. However, the extensive build-out and moving process would take 12 months to complete.

Financial Analysis: O&I's management has prepared summaries to capture the financial implications of each option, as shown in Figure 1. The projections reveal an annual ROI of 16% for the Expansion Proposal and 22% for the Consolidation Proposal. O&I has $500,000 in cash reserves to cover the one-time transition costs, which are estimated at $100,000 for the expansion and $350,000 for the consolidation. To fund the respective projects, O&I would need to raise an additional $600,000 in capital for the Expansion Proposal or $1,800,000 for the Consolidation Proposal.

Figure 1. Financial Summary by Proposal

Table 1
A.

Oak & Iron Furniture Co. is affected by internal, market, and external factors that have an impact on its ability to achieve its goals.

i.

Describe an internal, a market, or an external factor indicated in the scenario that affects Oak & Iron Furniture Co.

ii.

Explain how the factor you selected in part A (i) creates an opportunity or a problem for Oak & Iron Furniture Co.

B.

There are several financial and nonfinancial criteria that can be used to compare the Expansion and Consolidation proposals.

i.

Using projected annual return on investment as a criterion, describe a difference or similarity between the two courses of action. Include specific evidence related to each course of action in your response.

ii.

Using one additional financial criterion relevant to the decision, describe a difference or similarity between the two courses of action. Include specific evidence related to each course of action in your response.

iii.

Using one nonfinancial criterion relevant to the decision, describe a difference or similarity between the two courses of action. Include specific evidence related to each course of action in your response.

C.

Recommend a course of action for Oak & Iron Furniture Co.

Timed

00:00

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Free Response Question Practice

This practice environment simulates the AP AP Business with Personal Finance Free Response Questions section. Here are some guidelines:

  • Read each question carefullybefore responding. Pay attention to command verbs like "identify," "explain," "analyze," or "evaluate."
  • Use the timer to practice time management. You can pause, restart, or hide the timer as needed.
  • Mark for Review if you want to come back to a question later.
  • Your responses are saved automatically as you type. You can also use the drawing tool for questions that require diagrams or graphs.
  • Use the toolbar for formatting options like bold, italic, subscript, and superscript.
  • Navigate between questions using the Previous and Next buttons at the bottom of the screen.

Tip: Answer all parts of each question. Partial credit is often available, so even if you are unsure, provide what you know.