Page 26 - CIMA MCS Workbook November 2018 - Day 2 Tasks

CIMA NOVEMBER 2018 – MANAGEMENT CASE STUDY

After twelve months of research activity, I will commission a firm of consultants to conduct a
feasibility study to determine whether it is worthwhile continuing with the project. I estimate that
the feasibility study will cost Z$100,000. Based upon the results of the study, Grapple will either
continue to commercial production, or the project will be abandoned. I expect that Nisha’s time
will be substantially taken up during the time that the consultants are doing the feasibility study,
which should take approximately six months.

If the feasibility study indicates that it is possible and practical to develop ‘the stub’, Roger
Grapple has assured me that Grapple will commit sufficient resources to progress the project to a
commercial and profitable conclusion. It is a great opportunity to establish a competitive
advantage over our rivals.

Currently, it is estimated that development of the heavy duty production mould would take three
years for it to be fully functioning and operational. An external consultant would be retained at an
annual cost of Z$100,000 throughout this time. It is also expected that collaboration between the
external consultant and our in‐house R&D and production managers would continue to be
required. It is estimated that the total cost of the time requirement of our managers would be
Z$100,000 per annum during this three‐year period. It is expected that, if ‘the stub’ can be
developed, it will probably lead to an increase in future economic benefits generated by Grapple
in the form of:

● another product to sell which will be distinctive and targeted at supermarkets who sell to
domestic consumers and/or
● an improved market share of business in the airlines sector as they see the practical
benefits of the size and shape of the new bottle.

Finally, if ‘the stub’ does go into commercial production, it is estimated that all members of the
production team will require training to adapt to production of the different size and shape of the
bottle, including storage and transport logistics. This training is expected to cost Z$500,000.

Please let me have your thoughts on the above issues, including:

● Your guidance on the accounting principles that should be applied to the costs incurred
for the feasibility study and, if progressed, the subsequent costs incurred in the
development of ‘the stub’ bottle and subsequent training costs, including reference to
relevant financial reporting standards, where applicable.

Matthew

Prepare a response to Matthew’s email. (45 minutes)

46 KAPLAN PUBLISHING