Markus is an entrepreneur and is planning to set up a private limited company called OFD in four weeks' time. OFD will be an online retailer selling office furniture directly to business customers. Products will be sent directly to customers from OFD's warehouse. OFD's product range will include office chairs, desks and filing cabinets. Markus will have limited start-up funds. OFD will operate in a competitive market and Markus is keen to offer high-quality customer service. He also will have to think carefully about opportunity cost. As part of his business planning, Markus has prepared a cash flow forecast (see Table 1.1). Table 1.1 OFD's cash flow forecast June – August 2023 ($ 000) June July August Cash inflow Cash sales 8 12 15 Credit sales 0 15 24 Total inflow 8 27 39 Cash outflow Supplies 25 32 34 Utilities 3 3 4 Rent 15 15 15 Salaries 10 11 11 Operating expenses 5 7 8 Total outflow 58 68 72 Net cash flow (50) (41) Opening balance 10 (40) (81) Closing balance (40) (81) Markus plans to offer all customers one month trade credit. However, as OFD is a new business, suppliers may insist on payment on delivery. Markus is currently researching sources of finance to improve OFD's cash flow. OFD will need five employees who will work in the warehouse and three customer service assistants. Markus plans to offer two weeks of induction training to all employees.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. [1] Identification of a quality may include: • Creativity • Innovation • Risk-taking • Effective communicator • Ability to negotiate • Confidence • Determination • Hard-working. Accept all valid responses.
2. [1] Knowledge of opportunity cost is the benefits forgone/lost of the next best alternative/when a decision is made. / What is lost when a decision is made.
3. [2] Developed application of opportunity cost to a choice/decision AND to the lost benefit, in context (e.g., Markus/OFD or any other scenario/context/business/person).
4. [1] Formula: Closing balance = Net cashflow for month + Opening balance
5. [1] Calculation of August Net Cash Flow: (39 - 72) = (33)
6. [1] Identification of August Opening Balance: (81)
7. [1] Final Answer: (33) + (81) = (114) or ($114000) or –114000 (allow OFR)
8. [1] Knowledge of a factor that may affect the choice of source of finance (e.g., Cost of finance / Flexibility / Need to retain control / The use/reason/amount needed / Level of existing debt/cashflow.)
9. [2] Developed application of the factor to Markus/OFD twice (e.g., OFD is a new business, Markus will have limited start-up funds, OFD will operate in a highly competitive market, data from Table 1.1, etc.)
10. [AO1 Knowledge] Benefits of induction training (e.g., Understanding workplace issues / Knowing who you are working with; organisational structure / Information about basic terms and conditions, e.g. holiday entitlement / Information about the goods/services sold, e.g. desks and office chairs / IT training to help new employee use the IT system / Basic customer service training/expectations / How to ensure that the products are fit for purpose).
11. [AO2 Application] Application to OFD context (e.g., OFD is a new business, Entrepreneur, Private limited company, Opening in four weeks' time, Business took several months to set up, Limited start-up funds, Eight employees; five employees in warehouse, three in customer service, All employees are new / undergo induction together, Two-week induction training, Competitive service, High-quality customer service, Operate in a warehouse, Sell direct to customers).
12. [AO3 Analysis] Developed analysis that identifies connections between causes, impacts and/or consequences of two points (e.g., helps 'build' the new team and work productively quicker / employees agree processes/procedures and solve issues before opening / embeds high-quality culture / employees familiar with technology / motivates employees, feel valued, work hard / settle in quicker, reducing labour turnover, saving recruitment costs).
13. [AO1 Knowledge] Knowledge of cost information (e.g., Costs are amounts a business incurs / data for setting up and operating, including pricing / allows calculation of profit, margins, break-even / types of costs: fixed, variable, direct, indirect / estimates versus actuals).
14. [AO2 Application] Application of cost information to OFD (e.g., OFD is a new business / opening in four weeks / Use of data from Table 1.1 / OFD will operate in a competitive market / Limited start-up funds / Five warehouse employees, three customer service assistants).
15. [AO3 Analysis] Analysis of importance/implications of cost information (e.g., used to create financial forecasts, inaccurate data leads to overspending/debt / supports cashflow forecast, poor decision making on pricing/finance / challenging to predict everything for new business, unexpected events impact costs / used for profit predictions and monitoring business performance).
16. [AO4 Evaluation] Evaluative judgements/comments (e.g., Relative importance of cost information compared to other issues like customer demand, marketing, entrepreneur skills / Accuracy depends on Markus' market research/experience, significant events like global pandemic / Is this Markus' first business? / Impact of inaccurate cost predictions reduced by higher-than-expected income / Time spent on predictions vs. opportunity cost / Other factors more important than cost information).