Favell is a woodworker. He is planning to set up his own woodworking business. He plans to use marketing to help his business become established in the local area. Favell thinks cash flow will be a problem because his business will have a lot of cash outflows. A friend has suggested he prepares a cash flow forecast. What is meant by ‘marketing’? Identify two possible cash outflows for Favell’s business. Cash outflow 1: Cash outflow 2: Identify and explain two benefits for any business of preparing a cash flow forecast. Benefit 1: Explanation: Benefit 2: Explanation: Favell is looking at various methods of promotion for his business. Identify and explain three suitable methods of promotion that Favell could use to attract customers. Method 1: Explanation: Method 2: Explanation: Method 3: Explanation: Favell needs $10 000 to buy a motor vehicle so that he can carry all his equipment. He is planning to ask the bank for an overdraft. Do you think this is the most suitable source of finance for him to choose? Justify your answer.

7115_s12_qp_11

THEORY

2012

Paper 1, Variant 1

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HPT makes frozen food products. The Finance Director wants to improve HPT’s cash flow position. Table 1 is an incomplete cash flow forecast for the next 3 months. The Finance Director thinks HPT should not use expensive packaging. He is also worried that new Government health & safety laws will not benefit the company and will only add to its costs. Table 1: Cash flow forecast ($000’s) Month 1 Month 2 Month 3 Opening balance (50 000) (30 000) (40 000) Cash inflows 200 000 180 000 200 000 Cash outflows: Wages 60 000 60 000 60 000 Packaging 20 000 20 000 20 000 Raw materials 45 000 55 000 45 000 Fixed costs 55 000 55 000 55 000 Total cash outflows X 190 000 180 000 Net cash flow 20 000 Y 20 000 Closing balance (30 000) (40 000) (20 000) Note: numbers in brackets are negative. Identify two fixed costs that HPT might have. Fixed cost 1: Fixed cost 2: Calculate the following. Month 1 total cash outflows (: Month 2 net cash flow (Y): Identify and explain two benefits to HPT of having a cash flow forecast. You should refer to Table 1 in your answer. Benefit 1: Explanation: Benefit 2: Explanation: Identity and explain two reasons why packaging might be important for HPT. Reason 1: Explanation: Reason 2: Explanation: The Finance Director is worried that new Government health & safety laws will not benefit the company and will only add to its costs. Do you agree? Justify your answer.

7115_s14_qp_11

THEORY

2014

Paper 1, Variant 1

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Anyshade manufactures a range of paints. It uses flow production. The Finance manager has produced a cash flow forecast as the business wants to arrange an overdraft with its bank. The Finance manager believes that reducing prices is the best way to increase sales revenue. Anyshade’s paints are well known for quality. Table 1: Cash flow forecast ($000’s) July August September Opening balance (9 000) 6 000 Y Cash inflows: Cash sales 90 000 30 000 50 000 Cash from debtors 50 000 80 000 70 000 Total cash inflows 140 000 110 000 120 000 Cash outflows: Fixed costs 70 000 70 000 70 000 Wages 20 000 18 000 19 000 Raw materials 35 000 30 000 30 000 Total cash outflows 125 000 118 000 119 000 Net cash flow X (8 000) 1 000 Closing balance 6 000 (2 000) (1 000) Note: numbers in brackets are negative. What is meant by an ‘overdraft’? Calculate the following. July net cash flow (: September opening balance (Y): Identify and explain two advantages to Anyshade of using flow production. Advantage 1: Explanation: Advantage 2: Explanation: Identify and explain two possible reasons why Anyshade has cash flow problems. Reason 1: Explanation: Reason 2: Explanation: Anyshade’s Finance manager believes that reducing prices is the best way to increase sales revenue. Do you agree? Justify your answer.

7115_s14_qp_12

THEORY

2014

Paper 1, Variant 2

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JSF is a business in the private sector. It has 50 production workers who operate machines. JSF makes a range of household products including towels and bed sheets. Most of the products are sold to retail businesses that take two months to pay JSF. The business is given two weeks’ credit to pay its suppliers. The Finance manager has just prepared a cash flow forecast. He said: ‘Cash outflows are too high. I have already reduced the budget for market research to zero. Training costs are $1000 per month and cannot be reduced as training is important.’ The Finance manager is thinking of other ways to improve cash flow. Table 1: Cash flow forecast for JSF for the period July–September 2017 ($000) September August July Cash inflows Cash outflows (30) (20) X Net cash flow Opening balance Y Closing balance What is meant by a cash flow forecast? Calculate the values for X and Y. X: Y: Identify and explain two benefits to JSF of market research. Benefit 1: Explanation: Benefit 2: Explanation: 1 1 Identify and explain two reasons why training is important to JSF. Reason 1: Explanation: Reason 2: Explanation: Explain two ways (other than lower training costs) that JSF could improve its cash flow position. Which way do you think JSF should use? Justify your answer. [ 1 1

7115_s18_qp_12

THEORY

2018

Paper 1, Variant 2

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BVC makes a range of paints. It exports 60% of its products. The Managing Director has been looking at BVC’s cash-flow forecast shown in Table 2. He said: ‘Success is not just about our return on capital employed.’ The Managing Director is worried about the introduction of new legal controls to protect the environment. This will mean BVC will have to reduce the number of chemicals that are used to make paint. He thinks these new legal controls will be bad for business. Table 2: Extract of cash flow forecast for the period July–September 2019 ($000) September August July Cash inflow Cash outflow Y Net cash flow X Opening balance Closing balance What is meant by ‘return on capital employed’? Calculate the following values: X: Y: Identify and explain two reasons why a cash flow forecast might be important for BVC. Reason 1: Explanation: Reason 2: Explanation: 1 1 Identify and explain two possible problems for BVC when exporting its products. Problem 1: Explanation: Problem 2: Explanation: The Managing Director thinks the new legal controls to protect the environment will be bad for business. Do you agree? Justify your answer. [ 1 1

7115_s19_qp_11

THEORY

2019

Paper 1, Variant 1

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NPX is an online retail business. All orders are sent directly to customers from its warehouse. NPX employs 60 full-time workers. The Operations Manager is analysing NPX’s cash-flow forecast. An extract is shown in Table 2.1. To improve productivity, the manager plans to introduce new technology that can select and pack all the items for each order. This will make 35 workers redundant. The technology will cost $40000. The manager is considering using either internal sources or external sources to finance this technology. Table 2.1 NPX’s cash-flow forecast for the period July – September 2021 ($000) September August July Cash inflows Cash outflows Net cash flow Opening balance Closing balance Define ‘opening balance’. State two ways a business can increase productivity. Way 1: Way 2: Identify four sources of internal finance a business might use. Source 1: Source 2: Source 3: Source 4: 1 2 Explain two possible effects on NPX’s cash-flow forecast of introducing the new technology. Effect 1: Explanation: Effect 2: Explanation: Do you think it is better for a tertiary sector business to use full-time employees rather than part-time employees? Justify your answer. [ 1 2

7115_s21_qp_12

THEORY

2021

Paper 1, Variant 2

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LMA is a family-owned restaurant. The business was started 20 years ago and has remained small. LMA is a partnership. The partners are considering whether LMA should become a private limited company. The Finance Manager is analysing LMA’s cash-flow forecast. An extract is shown in Table 2.1. Table 2.1 Extract from LMA’s cash-flow forecast 2023 ($000) September August July Cash inflow Cash outflow (30) (20) X Net cash flow Opening balance Y Closing balance Identify two reasons why a business might have cash-flow problems. Reason 1: Reason 2: Calculate X and Y. X: Y: Identify four examples of a cash inflow. Example 1: Example 2: Example 3: Example 4: 1 2 Explain one advantage and one disadvantage to LMA of becoming a private limited company. Advantage: Explanation: Disadvantage: Explanation: Explain two reasons why a business might remain small. Which reason is likely to be most important? Justify your answer. [ 1 2

7115_s23_qp_11

THEORY

2023

Paper 1, Variant 1

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Durban Dragons is a big football club. Recently fewer people have been watching its matches and ticket revenue is falling. Some people say that ticket prices for matches are too high and should be reduced. The club has high fixed costs and needs to improve its cash flow. The club directors have been trying to gain sponsorship and a number of businesses are very interested. What is meant by ‘cash flow’? Give two examples of fixed costs that a business like a football club would incur. Example 1: Example 2: Identify and explain two ways the cash flow of Durban Dragons could be improved. Way 1: Explanation: Way 2: Explanation: Identify and explain two reasons why businesses might want to sponsor football clubs like Durban Dragons. Reason 1: Explanation: Reason 2: Explanation: Do you think if Durban Dragons reduce ticket prices for matches this will increase revenue? Justify your answer.

7115_w12_qp_11

THEORY

2012

Paper 1, Variant 1

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Sarah is the owner of a small business making children’s toys. She sells her toys to retailers on 3 months’ credit. She receives 1 month’s credit from her suppliers. Her cash flow forecast for the start of 2015 is given below. Table 1 ($000) January February March Cash inflow Cash outflows: Purchases of stock Wages X Other payments Total cash outflows Y Net cash flow (7) (1) (5) Opening balance Closing balance (3) Note: numbers in brackets are negative. Calculate the following: Wages in January (: Total cash outflows in February (Y): Identify two examples of Sarah’s ‘other payments’. Example 1: Example 2: Identify and explain two reasons why the business has a negative closing balance in March. Reason 1: Explanation: Reason 2: Explanation: Identify and explain two advantages to Sarah’s business of producing a cash flow forecast. Advantage 1: Explanation: Advantage 2: Explanation: Sarah’s accountant told her that a positive cash flow is more important to the business than profits. Do you agree? Justify your answer.

7115_w14_qp_12

THEORY

2014

Paper 1, Variant 2

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TKF makes furniture such as beds and tables using job production. TKF has 3 part-time office employees, 8 production workers and 1 manager who is expected to carry out quality control. As the factory is busy, most communication is by email. After a number of customer complaints, the manager thinks TKF has some communication barriers. He believes good internal communication can help TKF be more efficient. The manager is also worried about TKF’s cash flow position. Table 1: Cash flow forecast for TKF ($000) February January December Cash in Cash out (5) Net cash flow (2) (3) Opening balance (2) Closing balance Figures in brackets are negative. What is meant by ‘job production’? What is meant by ‘quality control’? 1 3 Identify and explain two possible communication barriers for TKF. Barrier 1: Explanation: Barrier 2: Explanation: Identify and explain two ways in which good internal communication can help TKF be more efficient. Way 1: Explanation: Way 2: Explanation: [ 1 3 Do you think the manager is right to be worried about TKF’s cash flow position? Justify your answer. 1 3

7115_w16_qp_12

THEORY

2016

Paper 1, Variant 2

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