Page 17 - CIMA OCS August 2018 Day 2 Tasks

Chapter 10

FINANCIAL REPORTING AND

TAXATION (F1)

PRACTICE TASKS

EXERCISE 1 (WORKING CAPITAL)

UPDATE

At the last meeting of the Thomas Fine Teas Board there was heated discussion about how best to
improve the company’s profitability. Christie Smith explained how targets for both revenue and
profit had not been hit, mainly due to increased price pressure from major supermarket
customers and increased competitive rivalry from the green tea and infusions tea sellers. She
argued that, while selling our well known and respected blend of traditional teas should continue,
it was not enough to achieve the growth the family wanted and that Thomas Fine Teas needed to
find new markets to sell into and develop new products. Fred Thomas agreed and suggested that
new products could include developing new green tea blends or infusion blends and that these
should be sold not only through existing channels but also to smaller artisan retailers and health
food shops. Christie Smith felt that, in the short term at least, the business should look at cost
cutting to boost margins. The Board was given the task of investigating these issues and their
implications in more detail.

TRIGGER
This morning you received the following email from Christie Smith:

From: Christie Smith, Finance Director.
To: Finance Officer
Subject: New product development.

Hi.

In light of revenue and profit targets not being met recently, the directors have been discussing
ways that we could improve the company’s profitability.

Various suggestions have been made in terms of a plan of action, one being the widening of our
product base to include new green tea blends and expanding our range of infusion teas.

KAPLAN PUBLISHING 39