6

3 HPT makes frozen food products. The Finance Director wants to improve HPTs 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 ($000s)

Month 1 Month 2 Month 3

Opening balance (50 000) (30 000) (40 000)
Cash inflows 200 000 180 000 200 000
Cash outflows:
Wages 60 000 60 000 60 000
Packaging 20 000 20 000 20 000
Raw materials 45 000 55 000 45 000
Fixed costs 55 000 55 000 55 000
Total cash X 190 000 180 000
outflows
Net cash flow 20 000 Y 20 000
Closing balance (30 000) (40 000) (20 000)

Note: numbers in brackets are negative.

(a) Identify two fixed costs that HPT might have.

Fixed cost 1: ..............................................................................................................................

Fixed cost 2: ..........................................................................................................................[2]

(b) Calculate the following.

Month 1 total cash outflows (X): ................................................................................................

...................................................................................................................................................

Month 2 net cash flow (Y): ........................................................................................................

...............................................................................................................................................[2]

(c) Identify and explain two benefits to HPT of having a cash flow forecast. You should refer to
Table 1 in your answer.

Benefit 1: ...................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...................................................................................................................................................

Benefit 2: ...................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...............................................................................................................................................[4]
UCLES 2014 0450/11/M/J/14
 7

(d) Identity and explain two reasons why packaging might be important for HPT.

Reason 1: .................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Reason 2: .................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[6]

(e) The Finance Director is worried that new Government health & safety laws will not benefit the
company and will only add to its costs. Do you agree? Justify your answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[6]

UCLES 2014 0450/11/M/J/14 [Turn over

 8

3 Bowland manufactures bicycles from components purchased from suppliers. The production
method makes use of specialisation. The Finance manager said: It has been a successful year
because profit is up. However cash flow is still negative. Trade receivables (debtors) have increased
and we have purchased a lot of new equipment. Bowlands management believes that improving
quality has been the most important reason why bicycle sales have increased.

(a) What is meant by specialisation?

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[2]

(b) Identify two ways (other than profit) that Bowland could use to measure its success.

Way 1: .......................................................................................................................................

...................................................................................................................................................

Way 2: .......................................................................................................................................

...............................................................................................................................................[2]

(c) Identify and explain two reasons why cash flow is important to Bowland.

Reason 1: .................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...................................................................................................................................................

Reason 2: .................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

.............................................................................................................................................. [4]

UCLES 2015 0450/13/M/J/15

 9

(d) Identify and explain two ways in which Bowland could improve its cash flow.

Way 1: .......................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

Way 2: .......................................................................................................................................

...................................................................................................................................................

Explanation: ..............................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[6]

(e) Bowlands management believes that improving quality has been the most important reason
why sales have increased. Do you agree? Justify your answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

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...................................................................................................................................................

...............................................................................................................................................[6]

UCLES 2015 0450/13/M/J/15 [Turn over

 5 For
Examiners
Use
2 Gurinder Singh runs a small business that manufactures office furniture. His best selling
products are office desks and chairs. Sales turnover has risen but profits have stayed
constant. The business is also experiencing cash flow problems.

(a) Explain two reasons why Gurinders profit might have stayed the same despite sales
turnover increasing.

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

......................................................................................................................................[4]

(b) Identify and explain two possible causes of his cash flow problem.

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

......................................................................................................................................[4]

0450/01/M/J/03 [Turn over

 6 For
Examiners
Use
(c) Gurinders accounts show that the business owns both fixed assets and current assets.
Give an example of a:

(i) fixed asset

...................................................................................................................................

(ii) current asset.

...................................................................................................................................
[2]

(d) Gurinder helps to finance his business activities by borrowing from a bank. His business
has a secured loan.

What are the disadvantages to a business of using bank loans to finance their
activities?

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

......................................................................................................................................[4]

(e) The success of a business can be assessed by looking at its final accounts. Explain
how this can be done.

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

......................................................................................................................................[6]
0450/01/M/J/03