Identify and explain two ways Neil and Jin could improve QC's cash flow.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [2x1] Knowledge - award one mark for each way
2. [2x1] Analysis - award one mark for a relevant explanation for each way
3. [2x2] Application – award two application marks for each way
4. Answers are likely to include:
5. Arrange trade credit for ingredients – delay outflows of cash for payments of ingredients so improves cash flow as money held in account for longer.
6. Reduce trade credit for clients – speeds up inflow of money as payment for catering services are made more quickly so increases speed at which cash flows into account.
7. Arrange an overdraft facility / short term bank loan
8. Change to local supplier as ingredients are cheaper
9. Get deposits from customers before the events
10. Sell off unwanted non-current assets/Sell unused capital asset
11. Increase cash inflows
12. Reduce cash outflows
13. Note: Do not reward advertising unless part of an explanation
14. Note: Bank loan is TV - should be short-term bank loan
15. Indicative response: Neil can arrange trade credit (1) for ingredients purchased from abroad. (ap) This will delay outflow of cash for payments of ingredients so improves cash flow as money held in account for longer. (1) So QC will keep money in its account for longer and make it easier to pay the wages of the 90 part-time employees. (ap)
16. Possible application marks: Catering services; wants to expand; weddings; birthday parties; events; provides catering for businesses such as for conferences; 90 part-time employees; 10 full-time employees; imports food ingredients; offers trade credit; pays cash for ingredients; plans to expand; two shareholders; may run out of working capital.
17. Relevant points might include:
18. Increase in income tax: Increase tax - lower disposable income – reduce amount spent on weddings and birthday parties – lower demand for catering services; May need to reduce prices to attract customers; Employees may ask for an increase in wages as disposable income has gone down
19. Appreciation of country Z's currency: Local ingredients may still be cheaper than imported ingredients – difference is narrowed; Imported ingredients are cheaper – effect is lower prices of services or improved profit margins
20. Country Z's business cycle enters the boom stage: Boom leads to increased economic growth – increased incomes from higher employment levels – increased demand for catering services – easier for employees to find alternative jobs – may experience increased competition
21. Level 1 1 mark for each L1 statement (max of 3 marks) e.g. Increased income tax will lower disposable income and reduce spending.
22. Level 2 - 1 x L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) e.g. Increased income tax will lower disposable income and reduce spending. This is because people will have less money to spend on essential items and will reduce the amount they spend on luxury items such as birthday parties. Hence QC will probably have a reduction in sales. (L2 plus application for referring to luxury items such as birthday parties)
23. Level 3 - For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion of which change is likely to have the biggest effect on QC's profit
24. Award up to 2 additional marks for relevant application.
25. Possible application marks: Catering services; established 10 years ago; two shareholders; wants to expand; weddings; birthday parties; events; provides catering for businesses such as for conferences; 90 part-time employees; 10 full-time employees; has a cash flow problem; imports food ingredients; increased spending on luxury goods; competitors paying higher wages.