Business Studies · May / June 2021 · Paper 12 · Question 2

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NPX is an online retail business. All orders are sent directly to customers from its warehouse. NPX employs 60 full-time workers. The Operations Manager is analysing NPX’s cash-flow forecast. An 2 extract is shown in Table 2.1. To improve productivity, the manager plans to introduce new technology that can select and pack all the items for each order. This will make 35 workers redundant. The technology will cost $40000. The manager is considering using either internal sources or external sources to finance this technology. Table 2.1 NPX’s cash-flow forecast for the period July – September 2021 ($000) September August July 140 120 100 Cash inflows 110 90 90 Cash outflows 30 30 10 Net cash flow 45 15 5 Opening balance 75 45 15 Closing balance

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2(a)[2]
Define ‘opening balance’. Award 2 marks for a full definition. Award 1 mark for a partial definition. Amount of cash held by a business at the start of the month / trading period [2]
Partial definition e.g. cash that a business has [1]
2(b)[2]
State two ways a business can increase productivity. Award 1 mark per way. Points might include:
Improve labour skills / (improve) training
(Increase) motivation (or examples – max 1)
Automation / replace workers with machines
Use more automation
(Introduce) new technology / (use) better machinery
Improve quality of materials / improve quality control / introduce quality assurance
Improve/introduce inventory control / kaizen / JIT / lean production
Reorganise layout of factory / eliminate bottleneck. Other appropriate responses should also be credited. 2 Only award the first two responses given.
2(c)[4]
Identify four sources of internal finance a business might use. Award 1 mark per source. Four from:
(Retained) profit
Sale of (existing) non-current assets
Sale of inventories / reduce inventory levels / sell current assets
Owner’s savings
Reduce trade receivables / ask customers to pay more quickly / reduce time given for customers to pay Other appropriate responses should also be credited. 4 Only award the first four responses given.
2(d)[6]
Explain two possible effects on NPX’s cash-flow forecast of introducing the new technology. Award 1 mark for identification of each relevant effect (max 2). Award 1 mark for each relevant reference made to this business (max 2). Award 1 mark for each relevant explanation (max 2.) Points might include:
Higher repayment costs / initial cost to buy machinery [k] which increases cash outflow [an] as need to pay $40 000 [app]
Reduce wage costs [k] as need 35 fewer employees [app] lowering cash outflow [an]
Increased training costs [k] increasing cash outflows [an]
Possible redundancy payments [k] increasing cash- outflow [an]
Sell old machinery / use an external source of finance [k] which would generate a cash inflow [an] Other appropriate responses should also be credited. 6 Note: To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
$40 000
35 / 60 full-time (employees) / redundant
Correct use of data e.g. $110 000 cash outflow in September
Online retailer
Warehouse
Selecting and packing items
To improve productivity
Internal/external source of finance Other appropriate examples in context can still be credited. For analysis answers must focus on the impact on cash outflow or cash inflow.
2(e)[6]
Do you think it is better for a tertiary sector business to use full-time employees rather than part-time employees? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award 2 marks for justified decision as to whether it is better for a tertiary sector business to employ full-time workers rather than part-time employees. Points might include: Full-time:
Consistent service / more familiar with business [k] which helps build / maintain customer relationships / better reputation [an]
Workers likely to be loyal / more committed / less likely to leave business [k] reducing recruitment costs [an]
Easy to communicate / update (compared to part-time employees) [k] leading to fewer errors / misunderstandings [an]
Need to recruit / train fewer employees [k] saving time or cost of recruitment / training [an] 6 This is a general question so there are no marks for application. Do not award answers about manufacturing/production as question about tertiary sector Do not award definitions or statements such as full-time employees work longer hours. Do not award vague statements about skills, experience, tiredness. Advantages of one method can be presented as disadvantages of the other method but do not award the same point twice as mirror answers are not accepted. Some points could be awarded as [k] or [an] but do not award same point twice. To gain both evaluation marks, response must clearly relate to a tertiary sector business. Guidance Part-time:
Able to extend business hours [k] to maximise potential sales [an]
More flexible in hours of work [k] so able to cover absent workers / cover busy times [an]
Reduces labour costs (compared to full time) [k] as only pay employees for hours worked / when needed [an]
Provide different / more skills / increase the experience / more ideas [k] which otherwise may not be able to afford on a full-time basis [an]
(Some employees may not want full-time jobs so) may miss out on possible candidates if not offered part-time option [k]
Can attract well qualified employees who want to return to work but need to have flexible hours [k] Other appropriate responses should also be credited. Justification might include: A business only has to pay part-time employees for the hours worked [k] reducing its wages costs [an]. However, using full-time workers means they can provide a consistent service [k] leading to customer loyalty [an]. Therefore, I think full-time employees are better especially for a tertiary sector business as quality of service is likely to be an important way customers judge the business [eval] and therefore more likely to return, ensuring sales. [eval] Other appropriate responses should also be credited.

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