operational case study: focusing on the pre-seen events europe/webinars...first class bakery...

Operational case study: Focusing on the pre-seen

Thursday 18th January Tutor: Sandy Hood

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First Class Bakery

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Operational case study: Focusing on the pre-seen

King Crystal

Assumptions

1. You have either passed the E1, P1 and F1 exams or

passed something similar to give you an exemption.

2. You have read the King Crystal case study pre-seen

material already.

3. You would like my guidance on how to immerse yourself

into King Crystal.

4. I will use scenarios to try to help you immerse yourself

into King Crystal. These use syllabus topics.

5. I do not know what the examiner will test. The scenarios

are to help you feel more like a Finance Officer at King

Crystal.

3

King Crystal

1. 50 years old manufacturer of high quality, hand-blown

crystal.

2. Drinking glasses, jugs, bowls & vases in a number of

sizes and ranges.

3. Single site on the edge of Templeton, a large town in

Gigland.

4. Worldwide reputation. Popular gifts.

5. 55% owned by MD. 45% split between 3 former

directors.

6. Fair employer. Champion of local community.

4

King Crystal~ similar companies??

5

https://www.dartington.co.uk

https://www.dartington.co.uk/

King Crystal

King Crystal is a fictitious company but the industry is real.

The pre-seen enables you to research this company as you

would before a job interview.

There will be no additional credit for researching the

real life business that has been used as a basis for the

fictitious company. You could even lose marks by trying to

force pre-learnt material into your answer instead of hitting

the points the examiner is looking for.

6

King Crystal

Looking at other businesses is a way to help you to have a

greater understanding of the industry.

It is supplementary to studying the pre-seen.

There are very many possible scenarios the exam might

have.

You can’t expect to be successful by only trying to guess

that King Crystal will be exactly the same as a real

business. A lot more work is needed.

7

Who are you?

Who are you?

Where do you fit in within King

Crystal?

8

Who are you?

Who are you?

Where do you fit in within King

Crystal?

9

Finance Officer reporting to The Head of Finance

Your role: CIMA gives you the name “Robyn”.

1. You are responsible for implementing strategy. Your

focus is short-term

2. You need to understand costs and cost accounting, to

start preparing budgets, and to advise about short-term

changes in products, volume and prices.

3. You need to understand how the business is structured,

and how to communicate aspects of the budget to non-

finance staff

4. You need to know about the regulatory environment,

financial reporting and business tax

5. You may make decisions on working capital, cash and

short-term finance.

10

Where you fit into the organisation

11

Some pre-seen pointers linked to the syllabus

1.P1 Variance Analysis

2. F1 Trade Receivables

3. E1 Marketing Mix

4. E1 Procurement

5. F1 Consolidation

12

www.ultimateaccess.net

P1Variance Analysis

1. Discuss costing methods and their results

c) Apply standard costing methods including the

reconciliation of budgeted and actual profit

margins, distinguishing between planning and

operational variances.

d) Interpret material, labour, variable overhead, fixed

overhead and sales variances.

e) Explain the advantages and disadvantages of

standard costing in various sectors and its

appropriateness in the contemporary business

environment.

P1 A Cost Accounting Systems (30%)


Indicative Content

P1 A Cost Accounting Systems (30%)


Indicative Content

Some variances are more likely

November 2017

Task: Analyse sales price, mix and quantity variances

Recent examiner reports

Task: Explain materials mix & yield variances & the

benefits of splitting the variances into their planning &

operational elements.As variance analysis is an important part of the P1 syllabus and a subject that has been

tested in many case studies to date, it was very disappointing that the first element of

this task highlighted a total lack of understanding of the advanced variances. Very few

candidates could explain either a mix or yield variance, although many did explain the

price variance even though this was not part of the task. It is likely that mix and yield

and planning and operational variances will continue to be examined at operational case

study and future candidates should prepare for this examination by ensuring that they

understand and are able to explain these variances in context.

Recent exam questions

Task N17V4S1T1

Task N17V5S4T1

Task N17V3S4T1

Task N17V2S4T1

Key clues

1. All products are hand crafted by highly skilled

glassblowers. – expect labour to be a high of % cost.

2. To be Grade A crystal, it needs to contain over 24% of

a lead based compound such as lead oxide. – the mix

is significant

3. Temperature is critical to the molten glass, it may

become brittle if the process is abnormal

4. Cullett is reused glass. Labour time is wasted but

materials are reused.

Key clues

5. Wastage rates will probably link to the level of

training of glassblowers

this could combine labour mix variances with

material usage

6. Tobias Phipps is in charge of 15 master craftsmen, 15

qualified and 9 trainee glassblowers.

7. Other minerals are sourced from a number of

different suppliers, usually on the basis of least cost

rather than quality. this could lead to material usage and price variances

Key clues

8. Tonya Shah and her sales and marketing team have

the authority to amend prices charged to customers

9. For the national department store chains, the

independent retailers and the distribution agents a

lower price is negotiated with each customer to allow

the retailer to generate a margin

Scope for sales price variances

10.Scope for sales mix variances

Key clues

Key clues

11.Management accounting information and production

schedules are maintained on spreadsheets. Variance

reports are prepared on a monthly basis.

This could link to timely control information and

implementing a more integrated IT system.

12.Standards for hours worked are based on the working

conditions at the time the standard is set.

Key clues

13.Standards for prices and rates are based on the price

or rate at the start of the year. Annual pay rises

usually occur with effect from 1 January.

We are likely to be carrying out the variance

analysis for December (out of date standards)

If it is January, the standards should be up to date

Key clues

14.Standard Cost Card for 100 pairs of Medium Stemmed

Crystal Glasses & 100 medium Crystal Water Jugs for

2018 provided.

Lots of detail. Scope to look at:

a) Material mix and yield

b) Labour mix and yield and idle time

Key clues15.Artisan glassblowers and environmentally conscious

consumers.

Possible impact on sales (particularly to the two

department stores)

Fit with the scenario so far

Could you explain a variance report?


Interpreting sales variance analysis at


Could you interpret this sales variance

analysis?Sales variance analysis Crystal water jugs (100 per batch)

Jan-18

Sales price variance

Actual sales

quantity

Standard

selling price

Actual selling

priceVariance Total variance

(units) G$ G$ G$ G$

Large 850 62 63 1 F 850 F

Medium 1,100 58 55 3 A 3,300 A

Small 2,850 50 45 5 A 14,250 A

4,800 16,700 A

Sales mix variance

Actual sales

quantity

Actual sales @

budgeted mix Variance

Standard

contributionTotal variance

(units) (units) (units) G$ G$

Large 850 806 44 F 46.5 2,027 F

Medium 1,100 1,190 90 A 41.49 3,751 A

Small 2,850 2,803 47 F 32.77 1,534 F

4,800 4,800 190 A

Sales quantity variance

Budget sales

quantity

Actual sales @

budgeted mix

VarianceStandard



Large 840 806 34 A 46.5 1,562 A

Medium 1,240 1,190 50 A 41.49 2,058 A

Small 2,920 2,803 117 A 32.77 3,828 A

5,000 4,800 7,448 A


What do the variances on the

sales variance analysis sheet

tell us about our customers’

preferences and market

conditions?


Sales variance analysis Crystal water jugs (100 per batch)

Jan-18


Actual sales

quantity

Standard selling

price

Actual selling


(units) G$ G$ G$ G$

Large 850 62 63 1 F 850 F

Medium 1,100 58 55 3 A 3,300 A

Small 2,850 50 45 5 A 14,250 A

4,800 16,700 A

Sales mix variance

Actual sales

quantity

Actual sales @


Standard



Large 850 806 44 F 46.50 2,027 F

Medium 1,100 1,190 90 A 41.49 3,751 A

Small 2,850 2,803 47 F 32.77 1,534 F

4,800 4,800 190 A


Budget sales

quantity

Actual sales @

budgeted mix

VarianceStandard



Large 840 806 34 A 46.50 1,562 A

Medium 1,240 1,190 50 A 41.49 2,058 A

Small 2,920 2,803 117 A 32.77 3,828 A

5,000 4,800 7,448 A


Very often one task leads onto another


Additional information relating to January

2018

1.We had a problem with our delivery

service.

2.Potters Crystal carried out a major jug

promotion.


Do you think it might be

beneficial, in future, to split

the variances into their

planning and operational

elements?


Sales variance analysis Crystal water jugs (100 per batch)

Jan-18


Actual sales

quantity

Standard selling

price

Actual selling


(units) G$ G$ G$ G$

Large 850 62 63 1 F 850 F

Medium 1,100 58 55 3 A 3,300 A

Small 2,850 50 45 5 A 14,250 A

4,800 16,700 A

Sales mix variance

Actual sales

quantity

Actual sales @


Standard



Large 850 806 44 F 46.50 2,027 F

Medium 1,100 1,190 90 A 41.49 3,751 A

Small 2,850 2,803 47 F 32.77 1,534 F

4,800 4,800 190 A


Budget sales

quantity

Actual sales @

budgeted mix

VarianceStandard



Large 840 806 34 A 46.50 1,562 A

Medium 1,240 1,190 50 A 41.49 2,058 A

Small 2,920 2,803 117 A 32.77 3,828 A

5,000 4,800 7,448 A

Variances are a common

feature of many case study

exams

I recommend preparing for:

1. Sales quantity & mix

2. Material yield & mix

3. Labour yield & mix

4. Planning & operational


F1Trade Receivables

We are looking at Trade Receivables

In the context of:

Background F1 knowledge

Trade receivables are

…………………………………………………………………

• Offering credit terms will generally attract

customers and should ultimately lead to

higher profit.

• But trade credit must be managed and this

has a cost.

Background F1 knowledge

Working Capital ratios - comparison to the industry

Industry example:

Industry knowledge


Working Capital Ratios

King CrystalDartington

Crystal

days days days days

2017 2016 2016 2015

Inventory holding period 105 106 134 142

Trade receivables period 51 56 73 51

Trade payables period 109 109 27 33

Working capital cycles 47 53 180 160

Industry knowledge


Commentary

1. Inventory days are consistent but lower than

Dartington Crystal. Lead time requirement?

2. Receivables are fairly consistent and similar to

Dartington in 2015.

3. Payables are fairly consistent but much longer than

Dartington. Supplier relations suffering?

Inconsistency with the text

Inconsistency with the text

Standard credit terms are 30 days for the department

stores. Independent retailers are initially given seven-

day terms but once they have established that they

can and do pay on time are also given 30-day terms.

Sales at the factory shop or through the website are

paid for at the time of purchase either in cash or by

debit or credit card.

King Crystal products are also sold internationally

through distribution agents located in those countries.

These distributing agents are given 60-day credit

terms.

Quick Question

How can I find the trade receivables collection

period?

Do you know the formula?

Quick Question

How can I find the trade receivables collection

period?

Do you know the formula?

Trade receivables x 365

credit sales .

Route to market

Sales

value

Credit

period

Factory shop 5% 755.4 0 0.0

Gamma Dept St 15% 2266.2 30 186.3

Alpha Dept Store 15% 2266.2 30 186.3

Independent Stores 30% 4532.4 7 to 30 86.9 372.5

Website 15% 2266.2 0 0.0

International 20% 3021.6 60 496.7

Total 15108 956.2 1241.8

15108 30 days

Actual trade receivables 2130

51.5 days

King Crystal Trade ReceivablesForecast trade

receivables

Trade receivables appear unusual

1. King Crystal are consistent with Dartington Crystal

2. But their sales mix and terms of trade with

customers should give a maximum 30 day TR

collection period

3. And instead the period is 51 days.

How can this be tested?

Paulo Aldo has asked you a question:

Hello Finance Officer, I saw the average time we take to turn sales revenue into cash has decreased from 56 to 51 days.

As far as I know, it is only the international customers who are given terms over 30 days.

What can you suggest we should do to help reduce the time it is taking to collect the cash from our credit customers?

Working Capital

Could you imagine scenarios where the exam

might expect you to answer a question in

relation to working capital?

Why am I looking at these scenarios?

1.Your exam is about application.



2.Your examiner will ask you to write to

managers of King Crystal. They need

information to help them to do a better

job.



2.Your examiner will ask you to write to

managers of King Crystal. They need

information to help them to do a better

job.

3.These managers need to understand the

accountancy in the context of King Crystal.



2.Your examiner will ask you to write to managers of King

Crystal. They need information to help them to do a better

job.

3.These managers need to understand the accountancy in the

context of King Crystal.

4.We are interested in the application of

accountancy knowledge within King Crystal


E1The Marketing Mix


We are looking at The Marketing Mix

In the context of:


Marketing mix for King Crystal glassware

Product

Place

Price

Promotion

Processes

People

Physical

evidence



Product High quality – extensive inspections

Fully or part crafted by hand

Extensive training to support quality

Place

Price

Promotion

Processes



Product High quality – extensive inspections

Fully or part crafted by hand

Extensive training to support quality

Place Three routes to market

Price

Promotion

Processes


PLACE



Place Three routes to market

End customers Factory shop (5%)

Website (15%)

Gigland shops 2 Department Stores (30%)

Many Independent Stores (30%)

International Through agents (20%)



Place Sales through retailers – association with quality.

Attractive environment

Associated with high quality high priced products

Factory shop

- Clear destination shopping

- Factory association/scope to ask very specific

questions

Internet

- Little information

- Courier deliveries (does this matter?)



Promotion Reputation for high quality

Personal selling at retailers

Specialist life-style magazines

King Crystal website

Processes

People

Physical

evidence



Factory shop

Processes Card payments?

Touch before buying

People Knowledgeable?

Able to contact specific experts?

Physical

evidence

Smell?

Support the “hand-crafted” image



Gigland stores (our customers)

Processes Ease of ordering?

Credit facilities

People Knowledgeable sales team

Contact with sales team

Training for the store’s own staff?

Physical

evidence

Samples

Promotional material (point of sale)



International (agents are our customers)

Processes Ease of ordering?

Credit facilities

Despatch through intermediaries or

direct to customers (retailers)

People Contact with sales team

Sales team have authority to discount

Physical

evidence

Samples

Promotional material (point of sale)


Do you feel that you are the Finance Officer (YES)?

Or do you feel like a student learning things for an exam(NO)?


E1Procurement


Procurement - the acquisition of inputs, or resources, for the firm.


D. Learning outcomes On completion of their studies, students should be

able to:

Demonstrate the purpose of the operations function and its relationships

with other parts of the organisation.

a) Demonstrate the contribution of operations management to the efficient

production and delivery of fit-for-purpose goods and services.

b) Demonstrate how supply chains can be established and managed.

E1 D OPERATIONS MANAGEMENT (15%)


November 2017 V2

Task: The main factors we should consider when sourcing a new supplier

Most candidates were able to identify a number of different factors to consider when selecting new

suppliers, however, for a high mark there needed to be both breadth and depth to the explanation,

which was often lacking. It is not sufficient to just say that the location of the supplier should be

considered; for a good mark the candidate must also explain why this is the case (for example,

implications on lead times and ease of being able to forge close relationships with the supplier). Also,

it is important to focus on more than one area: for example, some candidates discussed quality at

length but failed to mention anything about price, location or continuity of supply.



May 2017 V1

Task: Explain how to improve management of the supply chain to enhance the effectiveness of the

manufacturing operation.


It was expected that candidates would comment on the current supply problems, and suggest how this might

be improved. However, many candidates seemed unsure how to answer this point. Instead, a number of

candidates resorted to writing everything they could think of on a range of topics from TQM, through to Porter’s

Value Chain and 6Sigma, without directly applying their answer to the task. In other words, some candidates’

answers read like a “knowledge dump” in the hope that they could earn some marks.


May 2017 V2

Task: Explain the factors to be considered when selecting new suppliers and the impact of

different supply strategies. [half of a 35 minute section]

Most candidates were able to comment on the factors to consider when selecting suppliers very

well with excellent application to the facts in the case and some well-considered points. The

application, or even mention of a supply strategy, in the answers submitted was much less in

evidence and the main reason why some answers scored poorly on this task.



Feb 2017 V1

Task: Apply Cousins strategic supply wheel in respect of the selection and retention of new

suppliers.

The application of Cousin’s strategic supply wheel was reasonably well answered. Most candidates

were able to provide at least some sensible comments in respect of Mavis Venderby and selecting

and retaining a new supplier of poly hives.



What are the key points to look

for when selecting a supplier?In general we tend to look for:

1. Q

2. P

3. C




1. Quality

2. P

3. C




1. Quality

2. Price

3. C




1. Quality

2. Price

3. Continuity of supply




1. Quality - self-explanatory

2. Price – the total cost involved

3. Continuity of supply

Location

Financial stability


Cousin’s strategic supply wheel


When this was tested the

examiner stated the spokes


If this was your question:

Apply Cousins strategic supply wheel in respect of

the selection and retention of new suppliers.

How would you plan your answer?


If this was your question:

Apply Cousins strategic supply wheel in respect of

the selection and retention of new suppliers.

How would you plan your answer?

Hopefully – by using the spokes as your headings and

applying each to King Crystal


Have you seen the clues in the

pre-seen?


Page 14 - SuppliersThe main raw materials: silica sand, potash and lead oxide.

King Crystal has a single supplier strategy. Quality rather than cost.

The potash supplier is based in Gigland,

The silica sand and lead oxide suppliers are based in Beeland.

Lead time for supplies of silica sand & lead oxide is over two weeks from the date of

order. Relatively high levels of raw material inventory are kept so that production is

not compromised.

Supplier payment terms are 30-days for all raw material suppliers.

Other minerals are sourced from a number of different suppliers, usually on the basis

of least

cost rather than quality.

Packaging is sourced from a local supplier. This supplier works closely with Paulo

Aldo, Managing Director so that the packaging reflects the quality of King Crystal

products.

The clay pots that are used in the furnace (replaced in each furnace every six weeks

on average) The graphite moulds (that need to be replaced once a week for popular

items).Both clay pots and graphite moulds are sourced in Gigland


Page 14 - SuppliersItem Quality Price Continuity Delivery Relationship Terms

Potash important secondary In Gigland ? Single

supplier

Probably

collaborative

30

days

Silica sand important secondary Beeland Lead time

> 2 weeks

Single

supplier

Probably

collaborative

30

days

Lead oxide important secondary Beeland Lead time

> 2 weeks

Single

supplier

Probably

collaborative

30

days

Other

minerals

secondary important ? ? Multiple Competitive 30

days

Packaging important ? local ? Single

supplier

Probably

collaborative

?

Clay pots ? ? In Gigland ? ? ? ?

Graphite

moulds

? ? In Gigland ? ? ? ?


Have you spotted any other clues that could lead to procurement questions?


F1 Consolidation

Key clue

King Crystal

F1 question:

We often assume that “control” means having more

than 50% of the shares of another for that company.

According to IFRS10 Consolidated Financial

Statements control comprises 3 elements.

The examiner could ask you to explain to a non-

finance manager how we define control.

IFRS10 Definition of control

1. Power over investee

2. Exposure, or rights, to variable returns

3. Power to affect the amount of returns

This means control can be achieved with a holding lower than

50%.






50%.

We might look for the remaining shares to be distributed

among a lot of different shareholders.






50%.

We might look for the remaining shares to be distributed

among a lot of different shareholders. So that it becomes very

unlikely that they would all vote together to oppose us.






50%.

We might look for the remaining shares to be distributed among a lot of

different shareholders. So that it becomes very unlikely that they would

all vote together to oppose us.

Or we might reach an agreement with other shareholders so

that we have the majority of the voting rights.

IFRS10 Consolidation criteria

IAS28 Definition of significant influence

• Associate: an entity in which an investor has

significant influence but not control or joint control.

• Significant influence: power to participate in the

financial and operating policy decisions but not

control them.

• Equity method: a method of accounting by which an

equity investment is initially recorded at cost and

subsequently adjusted to reflect the investor's share

of the net assets of the associate (investee).

IAS28 Identification of associates

• 20% or more of the voting power will indicate significant

influence unless it can be clearly demonstrated otherwise.

• A holding of less than 20% will be presumed not to have

significant influence unless such influence can be clearly

demonstrated.

IAS28 Significant influence

The existence of significant influence by an investor is usually

evidenced in one or more of the following ways:

1. representation on the board of directors or equivalent

governing body of the investee

2. participation in the policy-making process

3. material transactions between the investor and the investee

4. interchange of managerial personnel

5. provision of essential technical information

IAS28 Applying the equity method of accounting

• Basic principle. Under the equity method of accounting, an

equity investment is initially recorded at cost and is

subsequently adjusted to reflect the investor's share of the

net profit or loss of the associate.

• Distributions and other adjustments to carrying amount.

Distributions received from the investee reduce the carrying

amount of the investment. Adjustments to the carrying

amount may also be required arising from changes in the

investee's other comprehensive income that have not been

included in profit or loss (for example, revaluations).

• Impairment. If impairment is indicated, the entire carrying

amount of the investment is tested for impairment as a

single asset.


Do you feel that you are the Finance Officer (YES)?

Or do you feel like a student learning things for an exam(NO)?

Theory – think about it

You are the Finance Officer at King Crystal

Do the managers know the theory and models you know?

Do they need to know them?

What do they need from you?

Time for me to

stop and give you

a chance to ask

questions

106

But ………..

I need to

check out all

the crystal

glasses first!

107

Question Time

operational case study: focusing on the pre-seen events europe/webinars...first class bakery...

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