Page 11 - CIMA OCS Workbook February 2019 - Day 2 Tasks

MANAGEMENT ACCOUNTING (P1) - PRACTICE TASKS

EXERCISE 3 (RISK)

UPDATE
At a recent Board meeting of Trigg Adventure, Tony Trigg (MD) put forward a proposal to design
and sell a range of indoor play equipment aimed at families who don’t have enough outdoor
space for a full system. Having considered a range of methods, strategies and investment vehicles,
the Board have decided that selling via a single major retailer within Fawland would be less risky
than other alternatives and would allow customers to see the equipment in person and allow
Trigg to learn more about consumer tastes and trends before committing to a larger investment
and selling to other national retailers, toy shops and via the website.

The Board is now considering the specific details of the proposal. To help make the decision an
external consultancy has been asked to prepare a report on the financial implications of the
investment. This report can be found in the reference materials below.

TRIGGER

This morning you received the following email from Ping Bennett (FD):

From: Ping Bennett (FD)
Date: Today
Subject: Indoor Toys

As you may have heard, the Board are considering a proposal to make and sell some inddor
climbing frames. To assist the decision making process Yamazaki and Co, a firm of consultants,
have been asked to do some preliminary calculations. Extracts of their report are given in the
attachment to this email (see reference materials).

I have a meeting with the Board to discuss whether or not to proceed with the proposal and the
main emphasis will be on risk and return as far as the financial aspects are concerned. I am
concerned that some Board members will not understand the report but Freddie Williams and I
are tied up with auditors today, so would appreciate you preparing me something on the
following that I could use to communicate to the Board:

• Can you start by outlining why we consider risk as well as return and what each of these
terms means.
• Which measures suggested by the consultants give an indication of the project “return”
and how the Board should interpret them.
• Similarly, which measures give an indication of the project “risk” and how the Board
should interpret them.
• Finally, your recommendations - do you think the risks are reasonable? Have all risks
been accounted for here?

Can you prepare me a draft report addressing the above issues.

TASK
Prepare the report requested by Ping.
(Time allocation: 40 minutes)

KAPLAN PUBLISHING 33