Page 7 - CIMA OCS Workbook February 2019 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

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 • We are told that there is a significant seasonal aspect to domestic sales
technique for Trigg (and, to a lesser extent, commercial sales) – more play equipment will
Adventure to use be sold in summer months.
for forecasting
future revenue. Given this, then time series analysis would be very useful for forecasting
sales patterns.

EXERCISE 2(B) - BUDGET PREPARATION

Question Your response

Identify the likely In 2018 there was spare capacity, so the budget limiting factor would have
budget limiting been sales demand.
factor for Trigg
Adventure. We are told that there may be a need for overtime in 2019 during busy
periods (p24) indicating that production capacity will be an issue. Despite
this it is likely that the board have prepared budgets on estimated sales
demand rather than limiting it to production capacity

EXERCISE 2(C) - BUDGETING APPROACHES

Question Your response

Discuss whether Historically there has been little change to the business so an incremental
an incremental or approach would have been acceptably accurate
ZBB approach
would be most • No change in customers or target markets
suitable for Trigg • No change in product range
Adventure. • Also, an incremental approach was likely to be cheaper.

However, going forwards the change in MD and appointment of Grace
Lucas strongly indicate that there will be changes in products.
Furthermore, government initiatives should mean greater opportunities to

win commercial contracts.

Given this, there is more justification for ZBB in 2019.

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