NMBJ makes a range of cookies (biscuits) using batch production. Last year profit increased by $1.5 million. The directors think this is because of an increase in productivity and better management of working capital. NMBJ has a low level of inventory. NMBJ plans to increase the wages of all 300 employees by $50 per month from March. The Finance Director is worried: 'This decision will add 15000 to wages each month. Many employees are leaving. Is paying higher wages the best way to improve motivation?' Table 2: Cash flow forecast for the period January - March 2018 (000) [Table 2] January February March Cash inflow 560 520 600 Cash outflows: Wages 60 60 X Other costs 500 480 520 Total cash outflows 560 540 595 Net cash flow 0 (20) Y Opening balance 5 W (15) Closing balance 5 (15) Z

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [2] Clear understanding [2] e.g. a measure of the output of a business in relation to its inputs [2] OR effective utilisation of resources in a time period [2] Equation: output divided by Input [2]
2. Some understanding [1] e.g. output per worker OR measure of efficiency OR rate at which they produce goods
3. [2] Knowledge [2 × 1] award one mark per reason
4. Points might include: Paying invoices/bills; Day to day expenses; Buying raw materials; Paying wages; Paying salaries; Paying rent; Re-payment of short term debts; Paying utilities; Use in an emergency; Evidence to support requests for finance
5. [4] Application [4] award one mark per correct answer
6. W: 5 or 5000
7. X: 75 or 75 000
8. Y: 5 or 5000
9. Z: (10) or (10000)
10. Note: Z must be shown as a negative number to be credited.
11. [6] Knowledge [2 × 1] – award 1 mark for one advantage and one disadvantage identified
12. Application [2 × 1] - award 1 mark for each relevant reference made to this business
13. Analysis [2 × 1] – award 1 mark for each relevant explanation
14. Possible points might include: Advantages: Lower inventory holding costs [k] help reduce variable costs [an]; Lower security OR rent costs OR insurance [k] as less space needed [an] for ingredients [app]; More flexible [k] as adapt to each different batch [app] to keep customers returning [an]; Help cash flow [k]; Less risk of waste OR damage OR obsolescence [k] which could lower productivity [app]
15. Disadvantages: Possible delays in production [k] as batches delayed [app] leadingto lower output [an]; Few OR no purchasing economies of scale [k] which could help reduce cash outflows [app]; Not able to meet orders [k] for cookies [app] so could damage reputation [an]
16. [6] Knowledge [1] – award 1 mark for identification of relevant points (s)
17. Application [1] – award 1 mark for relevant reference made to this business
18. Analysis [2] – award up to 2 marks for relevant development of point(s)
19. Evaluation [2] award up to 2 marks for justified decision as to whether paying higher wages is the best way for NMBJ to improve employee motivation
20. Points might include: Only a short term incentive [k] have to pay, whatever the output [an]; Money is the main motivator [k]; Other ways to motivate e.g. job rotation, enrichment, fringe benefits [k]; Help retain workers [k] so not as many people leave [app] leading to lower recruitment costs [an]; This will increase costs for the business [k] by $15000 per month [app] so output per worker would need to rise [an]