Page 10 - CIMA OCS Workbook May 2019 - Day 1 Tasks

CIMA MAY 2019 – OPERATIONAL CASE STUDY

Financial performance
Revenue grew by 49% from 2017 to 2018, resulting in an increase of 60% in operating profit. On a
negative note, gross margins fell from 26.3% to 24.4%, due to cost of sales rising by more than
revenue.
In terms of working capital and liquidity, cash increased by E$64,000, despite a net investment of
E$1,859,000 in non-current assets and a dividend payment of E$1,200,000. However, this was
only possible because of an increase in borrowing of F$434,000. It is questionable how future
growth will be financed.
Despite inventory days and receivables days decreasing, the overall investment in working capital
increased by E$504,000.
The future

Budgeted sales for 2019 give an increase in revenue of 19.8% over 2018, which is lower than
previous company growth but still significantly higher than predicted industry growth of 5-6%.

This will depend very heavily on the extent to which VitaMine can develop and bring new
products to market across a range of sales channels.

3 KEY TOPICS

The key topics that this case would suggest are as follows:
P1
The environment

We are told that the company aims to continue to develop its product range while meeting
environmental standards and CSR and environmental accounting are common exam themes.
Given this, ensure you revise both the E1 and P1 aspects of these and can discuss how VitaMine
could measure and improve its green footprint.
Quality

VitaMine emphasises the high quality of products and we are told about quality control
procedures within manufacturing. Given this there could be an exam task that focusses on
assessing the costs of quality and discussing whether full-blown TQM should be adopted by the
company.
Costing

VitaMine currently uses absorption costing based on direct labour hours. Revise the
pros/cons/difficulties of switching to ABC as this has been a very common task in previous exams
and could be particularly relevant here as VitaMine is planning to increase its product range.
Budgeting systems

VitaMine current uses an incremental approach for budgeting, so it is likely that in one variant
there will a task asking you to discuss whether they should switch to ZBB. Make sure you can
discuss pros, cons and suitability of ZBB, especially in the context of industry trends and plans for
new products.
Furthermore, VitaMine has a “top-down” approach to setting budgets with little participation
from individual functional managers. An obvious task would thus be to discuss whether the
company should switch to more participation in terms of pros/cons/suitability.

6 KAPLAN PUBLISHING