Page 21 - CIMA OCS August 2018 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 Thomas Fine Teas.

EXERCISE 4(B) – USING EXPECTED VALUES

Ben Jones (Sales and Marketing Director) is considering the possibility of producing a range of
luxury biscuits to reinforce the Thomas Fine Teas brand. The plan would be to run the idea as a
pilot study, use an external supplier rather than develop the biscuits in-house and sell the new
product in one supermarket in Deeland. This is a new venture for Thomas Fine Teas so the Board
are concerned about the risks.

A range of scenarios have been discussed and outcomes have been estimated as follows:

Scenario I probability = 0.6 profit of D$500,000

Scenario II probability = 0.3 profit of D$120,000

Scenario III probability = 0.1 loss of D$205,000

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

KAPLAN PUBLISHING 17