Page 7 - CIMA OCS August 2018 Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

EXERCISE 2 - BUDGETING

Exercise 2(a) - Forecasting

Question Your response

Discuss whether • Time series analysis is most useful when there is a clear pattern to sales –
time series i.e. trend + some type of seasonal or regular variation.
analysis would be • We are not told whether there is a significant seasonal aspect to sales
a useful other than customers buying more green teas in warmer summer months
technique for P25).
Thomas Fine Teas • Given this, then time series analysis would be useful for forecasting sales
to use for patterns.
forecasting
future revenue.

Exercise 2(b) - Budget Preparation

Question Your response

Identify the likely No suggestion that we are operating at full capacity, so the budget limiting
budget limiting factor will be sales demand.
factor for Thomas
Fine Teas.

Exercise 2(c) – Budgeting Approaches

Question Your response

Discuss whether an As far as we know, there has been little change to the business over the last
incremental or ZBB year and going forwards so an incremental approach is likely to be
approach would be acceptably accurate
most suitable for
Thomas Fine Teas. • Revenue expected to increase by 3.5% this year
• No change in customers or target markets
• No change in product range
• Also, an incremental approach is likely to be cheaper.

However, if Thomas Fine Teas introduces new products, as has been hinted
at, then there is more justification for ZBB going forwards.

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