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 | (9000) | 6000 | Y | | Cash inflows: | | | | | Cash sales | 90000 | 30000 | 50000 | | Cash from debtors | 50000 | 80000 | 70000 | | Total cash inflows | 140000 | 110000 | 120000 | | Cash outflows: | | | | | Fixed costs | 70000 | 70000 | 70000 | | Wages | 20000 | 18000 | 19000 | | Raw materials | 35000 | 30000 | 30000 | | Total cash outflows | 125000 | 118000 | 119000 | | Net cash flow | X | (8000) | 1000 | | Closing balance | 6000 | (2000) | (1000) | 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] (a) Clear understanding [2] e.g. when bank allows business to borrow/spend more money [1] than is available in their bank account [+1].
2. [1] Some understanding or identifies one feature [1] e.g. repayable on demand OR ask for it back at any time, interest calculated daily OR only pay if use, short term source of finance, negative amount in bank.
3. [0] Do not accept explanation of loan or short-term loan as this is different to an overdraft.
4. [2] (b) Application [2 × 1] - award 1 mark for each correct value.
5. [0] $ sign not required. Note Y must be shown as negative value.
6. [0] Note: Answer should be in millions but accept 15,000 and (2000) due to question layout.
7. [4] (c) Knowledge [2 × 1] – award 1 mark for each advantage.
8. [2] Application [2 × 1] – award 1 mark for each relevant explanation in context.
9. [0] Do not accept 'increased output' as too vague.
10. [6] (d) Knowledge [2 × 1] - award 1 mark for each relevant reason identified.
11. [2] Application [2 × 1] – award 1 mark if relevant reference made to data.
12. [2] Analysis [2 × 1] – award 1 mark for each relevant explanation (calculations not necessary).
13. [3] For each reason: maximum 3 marks [1k + 1ap + 1an].
14. [0] Note: Can accept comments based on general trend e.g. cash sales have fallen [k].
15. [6] (e) Knowledge [2] – award 1 mark for identification of relevant issue(s).
16. [1] Application [1] – award 1 mark if relevant reference made to Anyshade.
17. [1] Analysis [1] – award 1 mark for relevant development of point(s).
18. [2] Evaluation [2] – justified decision made as to whether low prices are the best way for Anyshade to increase sales revenue.
19. [0] Note: If candidate takes the view that reducing prices is not the best strategy, explains alternative strategies but does NOT discuss the advantages and/or disadvantages of reducing prices then max of 4 marks (with no marks for evaluation).