Page 14 - CIMA MCS Workbook August 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY

Discuss whether the Aspects that seem realistic / reasonable
2018 budget is realistic. • Average sales revenue per member only increasing by 1%
• Only opening 14 new gyms in 2018 compared with 31 in 2017

Aspects that seem to be overoptimistic
• 26% growth in revenue compared to 24% in 2017 seems high,
especially given that we are only opening 14 new gyms vs 31. The
growth must therefore be heavily dependent on retaining existing
customers and winning new ones for existing gyms as well as
looking for growth by opening gyms. This is seen in the average
gym membership increasing from 4,143 to 4,500 but it is unclear
how such confidence can be justified, particularly as average gym
membership fell from 2016 to 2017.
• Most costs expected to increase by less than they did in 2017 – no
real justification why. If we argue that they are mainly fixed, then
why didn’t that argument work in 2017?
• Operating margin increasing from 11.7% to 17.1%
• Operating profit increasing by 84%
Overall, the budget looks very optimistic / challenging

56 KAPLAN PUBLISHING