Page 18 - SCS May 2018 - Day 1 Suggested Solutions

CIMA MAY 2018 – STRATEGIC CASE STUDY

more than counteracted the higher rise in R&D expense, resulting in an increase of 21.38% in
operating profit.

As finance charges have only risen by 8.24%, and the tax charge has risen less than profit before
tax, profit after tax has increased by almost 30%

HomeVideo:

HomeVideo has not had a good year.

Both revenue and cost of sales have risen by just 10% resulting in a 10% increase in gross profit.
However, both R&D expense (up 12.01%) and other operating expenses (up by a significant 30%)
have risen more than this, resulting in a fall in operating profit of 16.03%.

A significant rise (77.4%) in finance charges has then resulted in a 28.75% reduction in profit
before tax but, as with Couchweb, a fall in the effective rate of tax has ended up with a smaller
decrease in profit after tax of 25.7%

54 KAPLAN PUBLISHING