Page 12 - CIMA OCS Workbook May 2019 - Day 1 Tasks
P. 12

CIMA MAY 2019 – OPERATIONAL CASE STUDY


               Question                Response

               Comment on the         Cost of sales
               increase in costs       •   You would normally expect COS to change by less than revenue as
               between 2017 and 18         1. Not all of the gain in revenue will be due to volume increases –
                                              it could also be due to price or mix changes.
                                           2. A significant element of cost of sales is fixed in nature
                                       •   However, here COS increased by 53%. Possible explanations could
                                           include
                                           o  some costs are stepped
                                           o  underlying raw ingredient costs have increased, perhaps due to
                                              scarcity in a growing market
                                           o  poor cost control
                                           o  VitaMine may have had to pay higher wages to attract enough
                                              staff to match the growth rate
                                      Operating costs
                                       •   These have risen by less that revenue, probably due to many
                                           (especially admin costs) being fixed in nature.

               Had the working capital   Positives
               position worsened or    •   Have E$64k more cash compared to previous year despite paying a
               improved? Explain.          dividend of E$1.2m
                                       •   Operating cycle may have worsened from 28 to 30 days but is still
                                           very short
                                       •   Receivables days decreased from 67 to 53
                                       Negatives
                                       •   Additional E$504k tied up in working capital
                                       •   Payables days have decreased from 61 to 44. Could argue that we
                                           are paying too quickly and not benefiting from using creditors as a
                                           source of finance OR could argue this is a good idea to keep
                                           suppliers happy and facilitate JiT system.

               Comment on              •   Debt increased by E$434k but overall gearing still low
               VitaMine’s financial    •   Possible concern is why the debt was raised – was it to finance
               gearing.                    investment or simply to facilitate the payment of the dividend? If
                                           the latter, then this is not a sensible approach to long term debt
                                           management.


               Comment on              Positives
               VitaMine’s cash flow.   •   Have E$64k more cash compared to previous year despite paying a
                                           dividend of E$1.2m
                                       •   Cash generated from operations increased from E$2.7m to E$3.7m
                                       •   E$1,883k investment in PPE
                                       Negatives
                                       •   Additional E$504k tied up in working capital
                                       •   Is dividend sustainable going forwards?











               52                                                                  KAPLAN PUBLISHING
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