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 | (50000) | (30000) | (40000) | | Cash inflows | 200000 | 180000 | 200000 | | Cash outflows: | | | | | Wages | 60000 | 60000 | 60000 | | Packaging | 20000 | 20000 | 20000 | | Raw materials | 45000 | 55000 | 45000 | | Fixed costs | 55000 | 55000 | 55000 | | Total cash outflows | X | 190000 | 180000 | | Net cash flow | 20000 | Y | 20000 | | Closing balance | (30000) | (40000) | (20000) | Note: numbers in brackets are negative.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [2] Application [2 × 1] 1 mark per fixed cost
2. Fixed costs could include: rent, rates, interest payments, electricity, gas, water, salaries. Allow practical examples such as freezers.
3. Note: Do not accept wages and packaging as fixed costs are identified in the data.
4. [2] Application [2 × 1] award 1 mark for each correct value. $ symbol not required but Y must be shown as a negative value
5. X = $180000; Y= (10000)
6. Note: Answers should be in millions but accept 180000 and (10000) due to question layout.
7. [4] Knowledge [2 × 1] – award 1 mark for each relevant benefit identified
8. Application [2 × 1] – award 1 mark for each relevant explanation in context
9. Relevant points might include:
10. • Arrange a short term loan [k] or arrange an overdraft [k] as in each month the closing balance is negative [app]
11. • Can identify possible causes of cash flow problems [k] e.g. as in month 2, sales are $20000 lower than the other two months [app]
12. • Help manage cash flow better [k] as could try to reduce amount spent on packaging to less than $20000 per month [app]
13. • Supports a loan application [k] as shows that the cash flow is improving slowly [app]
14. • Shows how much is spent each month [k].
15. Note: Do not reward a definition of cash flow forecast as the question asks for the benefits
16. [6] Knowledge [2 × 1] - award 1 mark for each relevant reason
17. Application [2 × 1] – award 1 mark for each relevant reference to HPT
18. Analysis [2 × 1] - award 1 mark for each relevant explanation
19. For each reason maximum 3 marks [1k + 1app + 1an].
20. Relevant points might include:
21. • Protection [k] as (frozen) food could be easily damaged / perish [app]
22. • Inform [k] could include nutritional information on labels or how to cook the food [app]
23. • Promotion [k] attractive wrappings could encourage people to buy the food to taste [app]
24. • Style or colour of packaging could help boost brand image [k] as it could help products stand out on the shelves [app]
25. • Easier to store [k].
26. Note: Do not accept HPT/Frozen food alone as application.
27. [6] Knowledge [2] – award up to 2 marks for identification of relevant issue(s)
28. Application [1] – award 1 mark if relevant reference made to aspects of HPT's business
29. Analysis [1] - award 1 mark for relevant development of point(s)
30. Evaluation [2] – justified decision made as to whether the costs of meeting the H&S laws will be greater than the benefits for HPT. Either viewpoint is acceptable.
31. Points / additional costs could include:
32. • Cost of training, new equipment, wastage of food [k]
33. • Costs increase expenditure[an] and add to the cash flow problems of HPT [app] / or costs negatively affect the profitability [an]
34. • Worker motivation might increase [k] if workers feel safe [an] they may work harder and output / quality might improve [app].
35. • All businesses will be affected by the new laws [k] so even if costs rise, they can still remain competitive [an]
36. • Following health and safety laws will mean people will have trust in the food [k] because the food will be hygienic [app] this will lead to an increase in sales [an].