Page 7 - CIMA MCS Workbook August 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

2 BUDGETING

EXERCISE 2(A) - FORECASTING

Question Your response

Discuss whether Time series analysis is most useful when there is a clear pattern to sales –
time series analysis i.e. trend + some type of seasonal or regular variation
would be a useful Seasonal trends
technique for There is likely to be a seasonal element
GymFiT to use for
forecasting future • Many people will join gyms as part of “new year resolutions”
revenue. • People may be more likely to use a gym in the winter when the
alternative of exercising outside is less attractive
Day of the week variations
There is more likely to be a difference in demand on different days of the
week – weekends will be busier

In conclusion, time series analysis will have value to GymFiT.

EXERCISE 2(B) - BUDGET PREPARATION

Question Your response

Identify the likely It is unlikely that gyms are operating at full capacity, so the limiting factor
budget limiting will be customer numbers (= sales demand)
factor for GymFiT.

EXERCISE 2(C) - BUDGETING APPROACHES

Question Your response

Discuss whether GymFiT currently does incremental budgeting.
an incremental or
ZBB approach Incremental budgeting is generally seen to be appropriate when there is no
would be most change in product range – this is true for GymFiT.
suitable for
GymFiT. Incremental budgeting is also useful where there is no change in customers
or target markets. This is less true as 31 new gyms were opened in 2017
with plans for an additional 14 in 2018 (p19). Every time there is a new
gym, then it could be argued that a ZBB would be more appropriate.

Furthermore, GymFiT has grown by acquisition. Again ZBB will be more
useful here as GymFiT will want to make changes to gyms acquired and
may not be able to trust previous budgets.

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