Table 1 shows selected cash movements forecast by PedalPower, a mobile bicycle-repair business. The owner is reviewing the forecast before buying new tools....
Question 1 Report
Table 1 shows selected cash movements forecast by PedalPower, a mobile bicycle-repair business. The owner is reviewing the forecast before buying new tools. Customers pay after repairs are completed, while the manufacturer requires payment for spare parts at the start of each month.
| Month | Cash received from customers ($) | Cash paid for parts and wages ($) |
|---|---|---|
| April | 4800 | 6200 |
| May | 7100 | 5900 |
| June | 7600 | 6100 |
Table 1
(a) Which one of the following describes the cash-flow position in April? [1]
A cash surplus
B cash deficit
C profit margin
D market share
(b) Identify the April net cash flow for the business. [2]
(c) Explain one reason why PedalPower could have a cash-flow problem in April even if sales are increasing. [3]
(d) Which one action could the owner take to improve April cash flow without reducing the product range? [2]
Answer Details
(a) The April position is a cash deficit. [1] Cash paid is greater than cash received.
(b) Net cash flow is cash received minus cash paid:
\[\$4800-\$6200=-\$1400\]
This earns the method mark. [1] April has a cash deficit of $1400. [1]
(c) Customers pay only after repairs are completed, so cash from sales may arrive later. [1] However, PedalPower must pay the manufacturer for spare parts at the start of the month. [1] Therefore cash payments can exceed cash receipts in April even when sales are increasing. [1] Sales growth does not automatically mean cash is received at the same time.
(d) The owner could ask customers for a deposit or payment when booking. [1] This brings cash into the business earlier and improves April cash flow. [1] Negotiating longer credit with the manufacturer, or arranging an overdraft to cover the temporary deficit, would also be acceptable with a linked explanation.
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