Page 11 - CIMA OCS August 2018 Day 2 Tasks

MANAGEMENT ACCOUNTING (P1) - PRACTICE TASKS

EXERCISE 3 (RISK)

UPDATE
At a recent Board meeting of Thomas Fine Teas, Ben Jones, Sales and Marketing Director, put
forward a proposal for the company to introduce a range of enhanced ’super teas’ aimed at
health-conscious consumers. The new range would include the following:

• a ‘detox’ mint infusion with added selenium,
• a ‘beauty’ apple infusion with added vitamin B7 to help heathy skin,
• a ‘brain’ green tea with added zinc for improved cognitive function and
• a ‘sunshine’ green tea with added vitamin D to help maintain normal bones and teeth.

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 Christie Smith:

From: Christie Smith (Finance Director)
Date: Today
Subject: New range of super teas

As you may have heard, the Board are considering extending the product range to include a new
range of enhanced ‘super teas’. 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 Jack Ford and myself
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 Christie.
(Time allocation: 40 minutes)

KAPLAN PUBLISHING 33