Page 9 - CIMA OCS Workbook May 2019 - Day 1 Tasks

MANAGEMENT ACCOUNTING (P1) ‐ PRACTICE TASKS

EXERCISE 2 (DECISION MAKING)

UPDATE

At the last Board meeting the Directors discussed how best to launch a new product range of
herbal additives that customers can add to meals. The concept came about after discussions with
Atkins, a major health food chain, who have proposed a contract where Atkins will get exclusive
sales of the range and the products will be sold under the Atkins brand. While all directors were
enthusiastic about the concept, there was disagreement whether to agree to the proposed
contract or sell as VitaMine own‐brand products via a range of channels. If the latter, then
additional marketing costs would be incurred.

TRIGGER

This morning you received the following email from Juliette Goh:

To: You
From: Juliette Goh (Finance Director)
Subject: New product range

Hi

I’ve been working closely with Melanie Tan concerning a new product range of food
supplements. There are currently two main options being considered in the short term:

1. Accept a six month contract with Atkins to sell these products as Atkins’ own brand
under an exclusivity clause. This would mean that we would not be able to sell them via
any other channels.
2. Sell the range under own label and undertake a six month marketing campaign, either at
a spend of E$10,000 or E$4,000

I’ve already drawn up a decision tree for the above decision but please can you prepare an
explanation of what each branch of the tree represents, what the values at the points A, B, C and
D represent and an explanation of the optimum decision based on the diagram.

Can you also include any limitations of this technique for this decision.

I’ve attached the decision tree diagram to this email. There is no need to prepare any further
calculations regarding the decision tree.

Many thanks
Juliette

TASK

Respond to Juliette Goh’s email.
Time allowed (36 Minutes)

KAPLAN PUBLISHING 27