mock 4 questions bpp.pdf

IEPT423

MOCK EXAM 4

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CH22 – T4 ME4 Exam Identification Code

Please note: students on a BPP course to August 2013 are entitled to have Mock Exam 4 marked as

part of their course fee; this does not apply to students studying for the November 2013 sitting,

or buying the Toolkit for independent study.

Mock Exam 4

TOPCIMA – PAPER T4 – Part B Case Study Examination

Mock exam 4 IEPT423 2

IEPT423 Mock Exam 4 3

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N – Multi-channel retailer case. Unseen material provided for mock exam 4

Additional (Unseen) information relating to the case is given on the following pages.

Read all of the additional material before you answer the question

ANSWER THE FOLLOWING QUESTIONS

You are the management accountant within N.

The Finance Director of N, has asked you to provide advice and recommendations on the issues facing the company.

Question 1 part (a)

Prepare a report that prioritises, analyses and evaluates the issues facing N and makes appropriate recommendations.

(Total marks for question 1a = 90 Marks)

Question 1 part (b)

As an appendix to the main report draft two PowerPoint slides outlining in no more than 10 bullet points in total how N can develop a systematic approach to risk management, with reference to the proposal to open outlets in autoroute service stations

(Total marks for question 1b = 10 Marks)

Note: Marks for calculations, relevant to Question 1 part (b), are awarded within the Assessment Criterion of Application included in Question 1 part (a).

Your script will be marked against the TOPCIMA assessment criteria shown on the next page


Case Study Assessment Criteria

Analysis of Issues 25

Technical 5

Application 15

Diversity 5

Strategic Choices 35

Focus 5

Prioritisation 5

Judgement 20

Ethics 5

Recommendations 40

Logic 30

Integration 5

Ethics 5


N – Multi-channel retailer case – unseen material provided for mock exam 4.

Read this information before you answer the question

Overseas trading subsidiary

The growth in online sales has encouraged N to investigate opening up a separate trading company in order to manage this thriving sales channel.

The International Operations Director (IOD) has suggested that an overseas trading company be set up in order to handle the sales and administration of goods sold via the company’s website. His view is that a suitable location for a subsidiary would be one of the smaller European states that exist outside the European Union. In some of these countries very low levels of corporation tax are payable. Despite the fact that the majority of physical sales and delivery of items would still be within Country Z he thought that with the aid of some smart legal and accounting manoeuvres these could be presented as technically occurring overseas, thus reducing N’s overall tax liability.

Some of the other directors were openly hostile to this idea, to which the IOD reminded them of their overriding duty to shareholders, not the Exchequer of Country Z.

Marketing complaints

When sales are made via N’s website customers are asked to express their marketing preference. The two options presented are to opt out of N sharing customer data with third party partner companies, and to opt in if the customer does not want to be contacted by N itself with promotional emails and literature.

In common with many other retailers N has ensured that the opt-in and opt-out options are phrased in a manner than is not entirely straightforward. This results in some customers receiving marketing from N and its partner companies when then did in fact not wish to. Whenever a customer receives a marketing email from N, or one of its partners, there is always a link in the email footer that allows the customer to very easily unsubscribe from future marketing messages with a single click.

After a recent surge in complaints about unwanted marketing emails the Sales and Marketing Director (SMD) ordered a review from one of his team. The final submission concluded that the most likely causes of unwanted emails were:

1) Customers who return to the N website having previously opted out of marketing emails failing to correctly express their preferences via the opt-in, opt-out system and therefore re-enrolling themselves onto the marketing database

2) A fault within the database itself that results in customers who have opted-out still receiving marketing messages from N’s partners, though not N itself

Building an integrated online platform

The IT and Logistics Director (ITLD) had been tasked by the Board with presenting the options that N has in order to move towards an integrated online sales platform. The terms of reference stipulated that bricks and clicks capability was a minimum requirement. Having spent a couple of months working on this with some senior members of his team the ITLD reported back on 2 possible solutions with a polished PowerPoint presentation. A summary of the 2 options is given below.

Option 1 – Acquire Jotty Clothing

Jotty Clothing is a much smaller own-branded womenswear retailer than N, with sales of Z$52m and net profits of Z$4m last year. It does however posses a highly respected multi-channel sales and fully automated distribution centre located in centre of Country Z.

The ITLD believes that the platform that Jotty possesses is scalable such that with a further investment of Z$15m spread evenly over the next 5 years the IT could handle a maximum of 30% annual growth in each of N’s 6 product categories over the next 5 years. (Assume that missed growth opportunities cannot be taken in subsequent years so that if a category could have grown 35% in Year 1 and 25% in Year 2, then it


will grow 30% in Year 1 and still 25% in Year 2). However due to the complexities of the system spare capacity in one product area cannot be transferred to another.

Informal negotiations have taken place with the married couple who own Jotty. They have indicated that they are receptive to any cash bids that meet their valuation of Z$35m, having received advice from their company auditors on the matter.

The ITLD believes that existing sales of Jotty’s clothes can be maintained, but its operating costs reduced by Z$3m per annum once its administrative function is merged into N’s.

Option 2 – License with VeeJay

VeeJay is a specialised online-only grocery retailer, servicing the premium market in Country Z. VeeJay was formed by 2 graduates 10 years ago who foresaw the potential for online sales ahead of any of the established supermarkets. Its business also operates an integrated web platform and has sufficient capacity to allow for annual growth of 25% in each of N’s 6 product categories year on year for the next 5 years, with the same restrictions as Jotty on spare capacity. It has established a nationwide network that allows it to make deliveries to 85% of Country Z’s population.

The outline agreement with VeeJay provides for it delivering the website management and logistics support for N, who in turn would provide the physical goods. Sales would be made on a new N branded website, and deliveries in N branded trucks. The only restriction proposed is that N cannot move into the grocery market in Country Z for the duration of any agreement with VeeJay.

VeeJay will require an initial payment of Z$10m, followed by annual payments of Z$5m to provide web and distribution services.

The ITLD has produced the following estimates of growth for N’s online business over the next 5 years on the assumption that a fully operational bricks and clicks offering was rolled out. The assumption is that the extra on-line sales will begin to occur in April 2014, at the start of the next accounting period.

Although the growth figures look spectacular the SMD confirmed that they were in line with his expectations. However he thought that possibly up to 30% of any additional online sales would have been made instore anyway.

Forecast growth, year on year

2014 Forecast online sales 2015 2016 2017 2018 2019

Womenswear 12.9 17% 19% 19% 12% 10%

Menswear 11.2 21% 23% 24% 15% 10%

Childrenswear 6.8 15% 21% 22% 17% 15%

Health & Beauty 19.2 28% 35% 37% 22% 15%

Accessories 14.7 25% 33% 34% 23% 18%

Home (Household) 14.3 30% 30% 30% 14% 14%

The Finance Director (FD) has briefly reviewed the data and estimates that either proposal will yield an operating profit margin of 13%. In terms of assessing the financial returns the FD felt a cost of capital of 12% would be appropriate for both options.

Autoroute outlets

The Merchandising Director (MD) has been working closely with the Estates Management Director (EMD) in order to find a suitable partner for autoroute outlets. The majority of the Board believes that such a move would represent a low risk expansion of N’s operations in Country Z.

Having been in negotiations with 2 different outlet operators N has now been approached by a third operator who has been left with 15 empty units following the sudden collapse of a music and film retailer. The FD of this business is an old friend of the MD of N and has offered first refusal on the empty units to N at very competitive rates. The outline details of the arrangement have been given to you for analysis below.


• Expected sales will be an average of Z$495 per m2, increasing by 8% per annum, with the following split of revenues

Sales Percentage of revenues

Womenswear 20%

Menswear 10%

Health & Beauty 20%

Accessories 50%

• The product mix reflects customer focus group feedback, which indicated that whilst some seasonal clothing items maybe purchased such as scarves and sunglasses the main demand will be for lower priced items like makeup and costume jewellery

• The gross margin generated on each product line will be the same as the current levels on page 15 of the pre-seen

• The average retail floor space for each outlet would be 40m x 30m

• Rent has been reduced by 40% from the usual rates to Z$140 per m2 per year fixed for 5 years

• Distribution costs will equate to 8% of sales generated reflecting the remote locations of most of the outlets

• Administrative costs will be Z$58,000 per month in the first year, rising by 4% per annum

• The initial agreement will last for 5 years, with N paying a rent premium upfront of Z$50,000 per unit

• Shop fitting costs will be Z$350,000 per unit

Given the company’s desperation to fill the units N has been given 3 weeks to make a decision at which point they will be offered to other businesses on the same terms. The FD is very keen on this proposal on the proviso that the stores are profitable and that they payback in cash terms within the 5 year period.

The CEO is very interested in this proposal but is concerned about the risks. Before giving her blessing Ms. Bilder has insisted that N demonstrates that it can devise and apply a systematic approach to risk management on this project.

Charity request

A number of N’s employees have engaged in charitable events from time to time, raising money for various good causes. In recent months a large group of shop workers have got together with the aim of completing a challenging mountain climb in order to raise Z$100,000 for a local children’s hospital. Despite their best efforts the workers are struggling to meet their target and have now asked the FD if N would consider matching in whole or part their fund raising efforts. Matching the funds raised in whole could cost N as much as Z$50,000 and on cost grounds the FD politely declined the request, instead donating Z$500 personally.

The shop workers are quite upset at what they perceive to be unnecessary cost control by the company. A few have stated that they are ashamed to work for a business with so little concern for its social responsibilities.

Customer retention

One of the weaknesses of the IT systems of N is the inability to track customer activity unless they purchase goods online, in which case the customer’s account page provides an activity log. Country Z has very restrictive data protection laws which prevent N using customer’s credit or debit card purchase history to track buyer behaviour.

The Store Performance Report (SPR) does attempt to analyse customer retention but this is compiled in a rather arbitrary way based upon a composite measure derived from online orders and goods sold instore for home delivery. The data does not inspire senior management confidence and the Sales and Marketing


Director (SMD) has stated that he is unable to place any meaningful reliance on it. The SMD had previously worked for a supermarket chain in Country Z whose systems were so sophisticated they were not only able to track every individual purchase made by a customer but also perform some basic predictions on future customer purchases at an individual and entire customer base level.

The Finance Director (FD) is keen to be involved in any developments in this area and has asked you for advice on:

1) How N could track customer retention more accurately, but in a legally compliant manner

2) What steps N could take to boost customer retention levels

The FD has briefed you not be constrained by N’s current business processes i.e. you should consider what N could achieve irrespective of its current capabilities.

Having sent an email around the head office staff, asking for input from anyone who had previously had experience of customer retention, you have received a reply from a newly recruited member of the sales and marketing team. The email was from a junior analyst and it contained a spreadsheet attachment containing confidential information about his former employer MFY, a direct rival of N. The analyst stated in his email that having been forced out of his job with MFY he had decided to hold onto some company data for future use.

Change management

The new CEO is determined to drive higher sales of N’s merchandise through the company’s website. However even in the early stages of her attempts to turnaround the company Ms. Bilder is aware that there is a lot of negative sentiment towards online selling within N’s lower management and operational staff levels. Some of this negativity came out in the results of the recent staff survey. A selection of anonymous comments, that are representative of the survey as whole, are given below:

Store manager – the emphasis should remain on our physical instore offering, how else will N differentiate itself against our rivals? In any event most goods bought from our website can be purchased instore so we will end up increasing our costs to service the same customers; where’s the sense in that?

Shop worker – I’m worried that the internet will cost me my job. I mean if no-one visits N’s shops what use will the company have for me?

Warehouse operative – more web selling will make my life harder as we start to dispatch to peoples’ homes as well as the stores. If previous experiences are anything to go by this will mean more work for the same pay.

The CEO is determined to drive through a change in attitude and culture towards online sales, but previous experiences have taught her the need to manage change in an appropriate manner to avoid creating further hostility.

The FD and ITLD were tasked by the CEO with formulating a programme to change attitudes within N to online selling. Aware that you have recently studied change management whilst qualifying as an ACMA they have asked you to outline how N can formulate and institute such a programme.


End of Unseen

mock 4 questions bpp.pdf

Documents

page iept423 mock exam

marks question

marks note

finance director of

overseas trading company

additional material

topcima assessment criteria

thriving sales channel