Paul's Clothes (PC) PC is a sole trader business that is owned and managed by Paul. Paul financed the business using a mortgage on his home. PC has two retail clothes shops in neighbouring towns in country A. Both shops sell a range of suits, shirts, ties and footwear for men. PC has been trading for four years and Paul has been pleased with the profits made. Paul is now deciding on a new business objective. PC has a Unique Selling Point (USP) that focuses on quality. The range of clothes sells at high prices. Unemployment has started rising in the country and average incomes are falling. Paul has prepared an overall cash flow forecast for both shops, as shown below in Table 1. Paul is considering buying a computerised inventory management system. Table 1: Cash flow forecast for the next six months ($000s) Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Cash in: Revenue 12 10 9 5 4 X Cash out: New computerised inventory system 10 0 0 0 0 0 Employee costs 3 3 3 3 3 2 Purchases 5 4 4 4 4 2 Marketing 2 2 2 2 2 1 Opening Balance 15 7 8 8 4 (1) Closing Balance 7 8 8 4 (1) 1 *Numbers in brackets indicate a negative figure. The purchase of a new computerised inventory management system will be an important innovation for PC. It will ensure that Paul can access sales information about products quickly and place orders with suppliers before items are sold out.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2018). The mark or mark type is shown in brackets.

1. [2] A correct definition (covering aspects of differentiation and features)
2. [1] A partially correct definition
3. [0] No creditable content
4. [Max 2] A correct definition should cover the following aspects: Differentiates
5. [Max 2] A correct definition should cover the following aspects: Features
6. [Max 2] A unique selling point is something that makes a product stand out from its competitors, such as a phone with a new feature that no other phones have.
7. [Max 2] It is a feature that none of the other businesses have and means the product can be sold for a higher price.
8. [1] A: Something a business is trying to achieve, direction, aim, target, goal etc.
9. [1] B: A feature of business objectives, e.g. specific, measurable, achievable, realistic, time-based, based on market research, resourced, short-term, long-term, can change over time/in response to factors, set by management, SMART etc.
10. [1] C: Example or some other way of showing good understanding
11. [Exemplar for C] This is a specific target that a business aims to achieve. Examples include survival, profit and entering new markets.
12. [2] Correct calculation of the value of X (no $ or 000s required) with or without correct working
13. [1] Correct formula or correct calculation of cash out (with working)
14. [0] No creditable content
15. [Calculation Formula] Opening Balance + cash in - cash out = closing balance
16. [Calculation Step] Cash out for Month 6 = $5000 (allow 5)
17. [Calculation Step] -1 + X − 5 = closing balance of 1
18. [Calculation Step] -1 + 7 - 5 = closing balance of 1
19. [Calculation Answer] X = 7
20. [Calculation Answer] Answer = 7 ($7000)
21. [Common Answer] 7 (no working) – Correct answer
22. [Common Answer] 2+2+1= 5 – Correct calculation of cash out
23. [Common Answer] 5 (no working) – Without working there is no way to know where this figure came from
24. [4] Explanation of two methods of improving cash flow in context (Level 2 APP+APP)
25. [3] Explanation of one method of improving cash flow in context (Level 2 APP)
26. [2] Identification of two methods of improving cash flow (Level 1b K+K)
27. [1] Identification of one method of improving cash flow (Level 1a K)
28. [0] No creditable content
29. [Method] Cash flow could be improved by: Decreasing cash out (without decreasing cash in)
30. [Method] Cash flow could be improved by: Increasing cash in (without increasing cash out)
31. [Context] Revenue: Declining in forecast
32. [Context] Revenue: Focus on market segment suitable for country with rising unemployment
33. [Context] New computerised inventory system: $10 000 – could use a different source of finance (i.e. not cash)
34. [Context] Employee costs: Reduce number of workers in one/both stores
35. [Context] Employee costs: Reduce wages (seems to be happening in month 6 anyway – can this be done earlier)
36. [Context] Employee costs: Unemployment in country is rising, so may be able to reduce wages.
37. [Context] Purchases: Revenue is forecast to fall significantly but purchases do not fall by same proportion – can these be reduced?
38. [Context] Marketing: Will reduction in the marketing budget mean sales reduce further?
39. [Context] Marketing: High spending on marketing budget (50% of revenue in Month 6) – is this necessary?
40. [Context] Sources of finance: To cover short term issue in Month 5
41. [4] Good analysis of one advantage and one disadvantage of purchasing an inventory management system in context
42. [3] Good analysis of one advantage or one disadvantage of purchasing an inventory management system in context
43. [2] Limited analysis of one advantage and one disadvantage of purchasing an inventory management system
44. [1] Limited analysis of one advantage or one disadvantage of purchasing an inventory management system
45. [0] No creditable content
46. [Definition] Inventory management is the control of stock – this could be raw materials, work in progress of finished products.
47. [Contextual Advantage] PC is in fashion business so being able to respond to customer need important e.g., not running out of sizes or style of clothes
48. [Contextual Advantage] Will allow PC to identify sales patterns quickly and respond to demand, boost revenue and cash in, possibly improve cash flow
49. [Contextual Disadvantage] Economy slowing down so making sure not over ordering is important so not left with clothes/footwear that does not sell
50. [Contextual Disadvantage] Initial outlay expensive and economy slowing down, is this the best time to be investing in a stock control system?
51. [Contextual Disadvantage] Training for Paul on using the new system – will he have time as a sole trader running two shops? Can he afford it?
52. [7] Justified evaluation based on argument(s) in context
53. [6] Developed evaluation based on argument(s) in context
54. [5] An evaluative statement based on argument(s) in context
55. [3-4] Argument about Paul's decision to set up PC as a sole trader
56. [1-2] Limited analysis of being a sole trader
57. [0] No creditable content
58. [Guidance] A candidate may evaluate the decision in terms of setting up as a sole trader or in terms of not setting up as another legal structure (or both).
59. [Contextual Point] Paul gets to make his own decisions – he has been through survival and now focusing on maximising profits/sales. Gets to decide what he wants to do with the business e.g., opened up the second shop, investing in the new stock control system
60. [Contextual Point] Paul keeps the profits to himself and he has been pleased with the level of profit made. Rewards for his investment/entrepreneurial skills.
61. [Contextual Point] Unlimited liability = higher risk especially if economy slowing down and considering Paul's market, cash flow slowing down and so if the business fails Paul is liable.
62. [Contextual Point] Unlimited liability – heightened risk as Paul financed PC with mortgage on his home
63. [Contextual Point] Loss of income for Paul as revenue expected to slow for at least the next 6 months. This will affect his livelihood and his standard of living.
64. [Contextual Point] More susceptible to competition/changes in the economy.