Page 21 - CIMA OCS Workbook February 2019 - Day 1 Tasks

MANAGEMENT ACCOUNTING (P1) - FAMILIARISATION

4 RISK AND UNCERTAINTY

EXERCISE 4(A) – KEY RISKS

Question Your response

Identify four significant areas
of risk for Trigg Adventure.

EXERCISE 4(B) – USING EXPECTED VALUES
Grace Lukas (Design Manager) is considering the possibility of introducing a new “Pirate Swing
Boat” that can be attached to extension arms on frames and allow two children to swing back and
forth by pulling on ropes (“rigging”). The plan would be to run the idea as a pilot study, using a
single national retailer. If successful, then the option could be offered through all sales channels.
Sally Gomez is concerned about the risks, so a range of scenarios have been discussed and
outcomes have been estimated as follows:

Scenario I probability = 0.6 profit of F$50,000

Scenario II probability = 0.3 profit of F$12,000

Scenario III probability = 0.1 loss ofF$25,000

Calculate the expected value of the profit and comment on the acceptability of the project.

KAPLAN PUBLISHING 17