study - cimapaper p6 management accounting – business strategy a co-examiner for paper p6discusses...

FINANCIAL September 2005 MANAGEMENT 41

STUDYNOTES

You scored 98 per cent in the November 2004 intermediatelevel Systems and Project Management paper. Were youexpecting to do quite as well as that?I was a bit shocked, to be perfectly honest. I actually called theCIMA office in Dublin after I received my results to make surethat there hadn’t been a mistake. I didn’t feel any differentcoming out of that exam from how I felt after any of the others.That’s the thing with CIMA exams – I can never guess how wellI have done.

Why do you think you did so well in this particular exam?I put a lot of work into it, but I also had a really good lecturerin college. This paper is pretty hard to revise for, because it’s all theory. But our lecturer, Des Hayes of BPP in Dublin, wentout of his way to make things easier to understand. He brokethe subject up into smaller pieces and he was so bright andfunny that he made the whole subject much more interesting.

You must be very disciplined when it comes to revising.My sister also studied for the CIMA qualification, so I knewabout the pressure and the commitment needed. But nothingreally prepares you for how hard it’s going to be. I will alwaysgo to lectures and put in the work – if I’m on study leave,for example, I will study for 12 hours a day.

Sometimes it is hard to find the energy to keep everythinggoing. Holding down a full-time job and attending eveningclasses three times a week – and all weekend in the lead-up to the exams – can certainly take it out of you. I’m really intoplaying football and golf, but when exams come up you have to put all that on hold.

How do you like working at a TV station?I was a bit lucky to find the job. I used to work for a health andfitness centre, but it was a very long commute, so I decided to

join an agency to find a job that was closer to home. It couldn’t have been a better decision. TV3 is a great place towork and the company has been really supportive with mystudies. My boss has always been 100 per cent behind me when it comes to arranging study leave, time off and flexibleworking hours. He’s always looking for ways to help develop my work in line with my CIMA studies.

Every time the exams come round I sit down with thefinancial controller and the CFO to work out how they canhelp me. The managing director was also very pleased with my ISPM result and I was promoted to the role of financialaccountant shortly afterwards.

Have you met any celebrities during your time at TV3?There are usually a few celebs around when I arrive in themorning, because our breakfast show is broadcast live. I’m a Liverpool FC fan and I’ve been lucky enough to talk to someof my heroes, including Mark Lawrenson and John Toshack,who have come in to do our sports programme. I’ve alsospoken to Ireland’s former goalkeeper, Pat Bonner, which wasa real privilege. Checking out accounts-payable queries hasits bonuses in a place like this!

Where do you see yourself in five years’ time?I’d like to be a financial controller or manager, preferably in amedium-sized firm in industry. I’ve always enjoyed working withfigures, but I’d also like to expand into a broader managementrole. That’s why I chose CIMA, because I could see it would helpme to develop in both accounting and general management.

Or you could become TV3’s on-screen financial expert.I think I’d be a lot more use staying behind my desk. Comparedwith some of the presenters here, I’m not sure I’ve got the righttalent for television. FM

STUDENT ONE2ONE

John Irvin Financial accountant, TV3

CIMA Services wasrelaunched as CIMAContact from 1 July2004 to reflect thatstudents and membersnow contact us via e-mail, from ourwebsite, via fax and via telephone, and thatwe offer information to students, members,organisations and thepublic, as well assupport and services.E: [email protected]: +44 (0)20 8849 2251F: +44 (0)20 8849 2450

� Australia officeLevel 3, The PlazaBuilding, AustraliaSquare, 95 Pitt Street,Sydney NSW 2000E: [email protected]: 1800 679 996 (toll-free within Australia) or: +61 (0)2 9776 7982F: +61 (0)2 9262 5979

� CIMA BotswanaPlot 50370 Ground FloorAcumen Park BuildingFairgrounds Office Park GaboroneE: [email protected]: +267 395 2362F: +267 397 2982

� Hong Kong DivisionSuites 1414 – 1415 14th Floor Jardine House Central Hong Kong E: [email protected]: +852 2511 2003 F: +852 2507 4701

Continued on page 43.

GLOBAL CONTACTDETAILS

This issuePaper P6MABSPaper P2MADMPaper C1MAF

Illustration: Patrick Morgan

p41-52 Study notes_FM Sep 05 F 19/8/05 10:46 am Page 41

Global contact detailscontinued from page 41.

� India liaison office11/12 Himalaya House79 Palton RoadMumbai 400 001E: [email protected]: +91 (0)22 2265 4343F: +91 (0)22 2270 4195

� Malaysia Division123 Jalan SS6/12Kelana Jaya Urban Centre47301 Petaling JayaSelangor Darul Ehsan E: [email protected]: +60 (0)3 7803 5531/5536F: +60 (0)3 7803 9404

� Republic ofIreland Division44 Upper Mount StreetDublin 2 E: [email protected]: +353 (0)1 676 1721F: +353 (0)1 676 1796

� Singapore office54-A South Bridge RoadSingapore 058685 E: [email protected]: +65 6535 6822F: +65 6534 3992

� South Africa DivisionPostal: PO Box 745Northlands 2116Physical: Second FloorThrupps Centre204 Oxford RoadIllovo E: [email protected]: +27 (0)11 268 2555F: +27 (0)11 268 2556

� Sri Lanka Division356 Elvitigala MawathaColombo 05 E: [email protected]: + 94 (0)11 250 3880F: + 94 (0)11 250 3881

� CIMA ZambiaBox 30640 Lusaka, ZambiaE: [email protected]: +260 1290 219F: +260 1290 548

� CIMA ZimbabwePO Box 3831Harare, Zimbabwe E: [email protected]: +263 (0)4 250475F: +263 (0)4 708600/720379


It’s easy to get carried away with all the models covered in thepaper P6 syllabus and forget why it’s there in the first place. Thesyllabus is at the top of the business management pillar, but itstitle is very clear. It isn’t a business strategy exam; it’s an exam in business strategy in the context of management accounting.

The point of having a business strategy exam in amanagement accounting qualification is to encourage studentsto see how an organisation’s strategy affects its managementaccounting system – ie, all management accounting activity in an organisation, whether it’s automated or not. In section A of the syllabus, for example, there are learning outcomes relatingto stakeholders, regulatory regimes and the competitiveenvironment. Models such as Pest, Swot, the Porter diamondand five forces are listed. Let’s consider how the first and last of these can affect the management accounting system.

Many organisations analyse business environments under theheadings of political, economic, social and technological factors(Pest analysis). It would, therefore, be fair to ask you to producea Pest analysis based on a scenario in the exam. But, since this is a management accounting qualification, it would also be fairto ask why, and how, a management accounting system could be modified to incorporate Pest data. Most organisations have a management accounting reporting system (Mars) thatprovides internal data only. This is a major weakness, because it can lead managers to forget that the organisation needs to fitwith the external environment. Simply adding a couple of pagesrelating to environmental factors to the monthly “briefing book”would vastly improve a firm’s strategic decision-making.

Michael Porter’s five forces model is widely used in business,so exam questions on it are quite common. But some of themmay focus on the management accounting aspects of the modelas well as, or instead of, the model itself. You may be asked toexplain how the Mars could be modified to incorporate data oncompetitors. In the context of this model, of course, competitorsinclude customers, suppliers, substitutes and new entrants, aswell as direct rivals.

You might be asked about the relationship between the five forces model and some relevant management accountingtechnique. Consider how your knowledge of rivalry and thebargaining power of customers should affect the way your firm’sgoods and services are priced. Similarly, think about therelationship between the bargaining power of suppliers and theway raw materials are bought and costed. You might even get a

question that looks at the relative customer/supplier bargainingpower between divisions in a vertically integrated organisationand asks how this would affect transfer pricing decisions.

There’s no point in setting more complicated calculations in P6 than the ones you’ve been asked to do in the manageriallevel management accounting papers. The reason for settingcalculations in this exam is to see what you can do with thenumbers after you’ve worked them out. You might be asked toperform a range of calculations. These could include:� Company valuations.� Discounted cash flow (NPV/IRR/ARR), possibly including fairly

basic tax, inflation or foreign exchange content.� Costing (DPP/CVP/CAP/absorption/marginal etc), pricing

or transfer pricing.� Ratios, particularly ROCE, ROI, RI and liquidity, but

also those that consider the performance and efficiency of resources – for example, sales or profit per employee.

� Variances, including planning variances.� Expected values, because of their relationship to risk.� Cost of capital (debt/equity/WACC).

There will always be calculations in question one. Youshould expect ten to 30 marks for calculation and discussion,but remember that the calculation is in a strategic context.This means the discussion element is probably more important.Be guided by the mark allocation within the question and ensurethat you consider what the calculation is really telling you.Think about the strategic consequences, the limitations of thecalculation, the source and reliability of the data and whetherthe calculation is leading you to the “wrong” strategic decision.Think also about sensitivity analysis and the non-financialbenefits that are, by definition, excluded from the calculation.

Section B may sometimes require calculations, too. These will relate directly to the strategic model or dilemma that is thetopic of the whole 25-mark question. You might, for example,be asked to calculate and discuss a series of ratios for productsat different stages of their life cycles. Or you might be asked tocalculate a net present value for a major investment and then to discuss why it could lead you to the wrong strategic decision.

It’s important that you remember why the P6 exam is here.When you’re studying for it, never forget that the name of thepaper is “Management Accounting – Business Strategy”. As youconsider each strategy model, ask yourself: “What’s this got todo with management accounting?” FM

PAPER P6

Management Accounting – Business StrategyA co-examiner for paper P6 discusses the relationship between strategy andmanagement accounting, and the scope for numerical analysis in the exam.


FINANCIAL 44 MANAGEMENT September 2005

We all have different expectations, aspirations and fears.Some people have an optimistic view of life, whereas others are pessimists. It follows that two people, when faced with thesame opportunity, could well arrive at two different decisionsabout it based upon their different outlooks.

The concepts of risk and uncertainty are based on therecognition that a number of possible outcomes can emergefrom a decision. The wider the range of these outcomes, themore risky (or uncertain) the situation. The difference betweenrisk and uncertainty is the extent to which the number, valueand likelihood of the outcomes can be confidently quantified.

An example of risk can be derived from a pack of playingcards. If we are presented with a full pack and draw one card at random, we can calculate with confidence the probabilitythat this card will be the ace of spades. We know that 52outcomes are possible, because there are that many cards in thepack. We also know exactly what these outcomes are, becauseeach card is unique and identifiable. So, we can state withconfidence that the probability of drawing the ace of spades is one in 52 or 1.923 per cent.

But the analogy of picking a playing card doesn’t reallyreflect the unpredictable nature of business decision-making.Such decisions are characterised by a high degree of uniqueness.Accordingly, it’s difficult to identify every possible outcome andeven harder to establish the likelihood of each of theseoutcomes. This is called uncertainty.

Despite the clear difference between risk and uncertainty,there is a paradox: managers tend to ignore (or at least workaround) this distinction for decision-making purposes. To evaluatea business decision involving uncertainty, managers will use their judgment – ie, educated guesswork – to predict as bestthey can all of the possible outcomes and their associatedprobabilities. In so doing, they treat an uncertain situation as if it were characterised by risk. In practice, management accountingtechniques also usually treat risk and uncertainty as the samething. From now on, therefore, I will use risk as the blanket termto cover both risk and uncertainty.

One of the models used to describe different individuals’attitudes to risk identifies three classifications as follows:� Risk-seeking. This term means that an individual seeks risk

not as an end itself, but rather as a means to an end.Recognising the established link between risk and return, theindividual seeks a very high return and accepts the high levelof risk that normally accompanies it. This attitude may,for example, be exhibited by an entrepreneur who plans toset up a new business in the hope of becoming a millionaire.In order to achieve this, he might need to take out asubstantial loan and he will willingly risk all of his personalassets as security for his borrowings.

� Risk-averse. This attitude is concerned with limiting risk.At an extreme level, it’s where an individual adopts an ultra-cautious approach and eliminates as much risk as possible.In so doing, the individual must accept the low returns thatnormally accompany this low risk level. In practice, though,

PAPER P2

Management Accounting –Decision ManagementWhat effect do risk and uncertainty have on decision-making? Tim Thompsonconsiders some of the techniques that can be used to evaluate an opportunity.

Illustrations: Kelly Dyson



the term is not usually perceived in this extreme way. A lessradical interpretation is that risk-aversion describes the waythat rational individuals are expected to deal with risk. For agiven level of risk, rational decision-makers will seek thehighest rate of return. Alternatively, for a given rate of return,they will seek the lowest level of associated risk.

� Risk-neutral. A risk-neutral individual pays no attention to the range of the outcomes that may emerge from adecision. Instead he focuses on a single value that representsthe situation facing him. Statistical averages are often usedfor this, although simply focusing on the most likely outcomewould also fall under the risk-neutral classification.Let’s consider a practical example. A fruit trader plans to

travel to market tomorrow. He has a small stall at the marketand a limited amount of cash available to buy stock to sell.Accordingly, he can select only one type of fruit to buy from thewholesaler today ready for tomorrow’s market. There arefour types of fruit to choose from: apples,oranges, pears andstrawberries. From pastexperience, the traderexpects that tradingconditions tomorrowwill fall under one offour categories: bad,poor, fair or good. Theseconditions are equallylikely. Again, drawing fromhis experience, the traderhas quantified the profit orloss that he thinks he willearn tomorrow, dependingupon his choice of fruit andthe trading conditions. Theseare shown in table 1 at the topof the page.

Let’s now consider some ofthe alternative approaches thatour trader might take to determine which type of fruit he willbuy and take to the market, depending on his attitude to risk.

The maximin approach This involves looking only at the worst possible outcome for each of the four types of fruit we can choose from – ie, wewill focus on bad trading conditions only. We need to seek thebest result among the four types of fruit in these conditions,although it might be more accurate to say that, since all ofthese outcomes are loss-making, we’re looking for the leastworst result. In so doing, we completely ignore the outcomesthat might emerge if trading conditions turn out to be better.Clearly, the fruit of choice under the maximin approach will be

oranges, since the anticipated loss of £300 is the least worstof the four. Such an ultra-cautious approach indicates anaversion to risk that may be based upon some deep-rootedfear of failure.

The maximax approachHere we are looking for the opportunity that offers thehighest possible return. We will consider only the besttrading conditions, completely ignoring what mighthappen under fair, poor and bad conditions. This wouldlead us to choose pears, because they offer the highestpossible profit of £1,200.

In hoping that good trading conditions will prevail,we are taking an optimistic view of the situation. We don’tworry about the possibility of trying to sell pears under badtrading conditions and the potential loss of £1,200.

The minimax-regret approachSometimes known simply as “regret”, this approach informs a decision today based upon how our trader might feel at theend of tomorrow’s trading. Having chosen the type of fruit hewill sell, his success at the market will depend on the tradingconditions that emerge, which he cannot choose.

His choice of fruit may turn out to be the best for thetrading conditions that emerge and, if so, he will be happy.Alternatively, the trader may come to the end of tomorrow’strading feeling regretful. This will happen if he failed tochoose the right fruit for the trading conditions that actually

Paper P2

2 QUANTIFICATION OF REGRET FELT ACCORDING TOFRUIT CHOICE AND TRADING CONDITIONS

Apples Pears Oranges Strawberries

Bad conditions £700 £900 None £300

Poor conditions £100 £300 None £200

Fair conditions £100 None £500 £600

Good conditions £200 None £800 £760

1 PROFIT (LOSS) ESTIMATION ACCORDING TOFRUIT CHOICE AND TRADING CONDITIONS

Apples Pears Oranges Strawberries

Bad conditions (£1,000) (£1,200) (£300) (£600)

Poor conditions (£200) (£400) (£100) (£300)

Fair conditions £600 £700 £200 £100

Good conditions £1,000 £1,200 £400 £440

p41-52 Study notes_FM Sep 05 F 19/8/05 10:46 am 7


There is evidence of an aversion to risk in this approach.The trader does not make profit or loss the prime focus of hisdecision-making, but he does consider how badly he might feeltomorrow if things do not work out well.

The expected-value approachThe trader will calculate a single figure for each fruit type thatrepresents all of the possible outcomes for that fruit and theirrespective probabilities. In other words, the expected value is theweighted average of the probability distribution.

The formula for this is: expected value = ∑px, where x is thevalue of each outcome and p is the associated probability. Seetables 3 to 6, above, for the expected-value calculations for each

emerged. If, for example, the trader selects oranges andtrading conditions turn out to be bad, he will not regret hischoice, as this fruit will have yielded the least worst loss of£300. But, if trading conditions turn out to be good, the traderwill regret having chosen oranges rather than pears, whichwould have provided a much higher profit of £1,200. We cannot only identify that this regret will exist; we can also quantifyit. Having earned a profit of only £400 with oranges instead of£1,200, the amount of regret will be £800.

For each trading condition, one type of fruit will yield noregret, since it would represent the best choice. Oranges willbe the regret-free choice under bad or poor conditions, whilepears will be the regret-free choice under fair or goodconditions. From this, we can derive table 2 (see previous page),which quantifies the regret that the trader would feel inhindsight for each combination of fruit and trading condition.The key point here is that, although regret is a retrospectivefeeling, these figures are known in advance and the trader canuse the information to choose the fruit for tomorrow’s market.The trader will select the type of fruit whose maximumpotential regret is the lowest of the four. He will thereforechoose apples, which will give him a maximum possible regretof only £700, compared with £900 for pears, £800 for orangesand £760 for strawberries.

Paper P2

4 EXPECTED-VALUE CALCULATION FOR PEARS

x p px

Bad conditions (£1,200) 0.25 (£300)

Poor conditions (£400) 0.25 (£100)

Fair conditions £700 0.25 £175

Good conditions £1,200 0.25 £300

£75 = ∑px

3 EXPECTED-VALUE CALCULATION FOR APPLES

x p px

Bad conditions (£1,000) 0.25 (£250)



Good conditions £1,000 0.25 £250

£100 = ∑px


type of fruit. The trader will choose the type of fruit with thehighest expected value – in this case apples, with £100. Althoughthis is called the expected value, one thing that the trader willnot expect tomorrow is a profit of £100. This is not one of thefour possible outcomes that selling apples offers on a single dayof trading. What this expected value means is that, if the traderwent regularly to market and sold apples every time, over timehis average profit would be expected to be £100.

In focusing solely on the weighted average of the outcomes,the trader ignores the danger of losing £1,000 on any one day.He also ignores the possibility of making a £1,000 profit. For thisreason the expected-value approach is described as risk-neutral.It tells us that selling apples is the best long-term decision. This

is also the recommendation if we take the expected-valueapproach for our short-term decision about tomorrow’s market.

Commercial organisations exist to make profits for theirowners and it’s the responsibility of managers to makedecisions that will yield these profits. But managers are humanand so are subject to the fears, hopes and expectations thataffect us all. The way that they react to these pressures helps todetermine their view of risk, which can influence their decisions.

The maximin and minimax-regret approaches both reflect anaversion to risk, whereas maximax is clearly a risk-seekingapproach. On the other hand, the expected-value approach isseen as risk-neutral – it does not actively seek risk, but it doesimply at least a tacit willingness to accept it.

In summary, the following decisions would emerge fromtaking each of the four approaches under consideration: underthe maximin approach the trader would choose oranges; undermaximax he would choose pears; under minimax-regret hewould choose apples; and under expected-value he would also choose apples. There is a consensus that choosing to sellstrawberries is inappropriate, but any of the remaining threetypes of fruit could be chosen otherwise, depending on thetrader’s attitude. FM

Tim Thompson FCMA is a senior lecturer in accountancy andfinance at Lincoln Business School, University of Lincoln.


P2 Recommended readingC Wilks, Management Accounting – Decision ManagementStudy System, 2005 edition, CIMA Publishing, 2004.C Drury, Management and Cost Accounting, InternationalThomson Business Press, 2000.C Horngren et al, Management and Cost Accounting,FT/Prentice Hall, 2002.

6 EXPECTED-VALUE CALCULATION FOR STRAWBERRIES

x p px

Bad conditions (£600) 0.25 (£150)



Good conditions £440 0.25 £110

(£90) = ∑px

5 EXPECTED-VALUE CALCULATION FOR ORANGES

x p px

Bad conditions (£300) 0.25 (£75)



Good conditions £400 0.25 £100

£50 = ∑px


Cost/volume/profit (CVP) analysis can be used to determinehow many products must be sold in order to break even or reacha target profit and also to calculate the margin of safety for abusiness proposal. Panel 1 contains the formulas for thesecalculations. Although the information it provides is extremelyuseful, CVP analysis can also offer a valuable insight into thebusiness issues that underpin a venture.

Good Food for You (GFFY), which is run by a sole trader, isconsidering selling freshly cooked venison baguettes at Rock in a Hard Place, an annual two-day heavy metal festival held at thefoot of Ben Nevis. Table 2 contains the information obtained byGFFY for the forthcoming festival.

To begin the CVP analysis we must determine the break-evenpoint for the proposal – ie, the sales figure (in units) that willgenerate neither a profit nor a loss. The first step is to classifywhich costs are fixed and which are variable. Fixed costs are thosethat aren’t affected by activity – ie, the number of sales. Variablecosts are those that have a linear or close relationship withactivity. Although most costs for simple projects can be classifiedreadily in this way, it’s not always a straightforward task.

With regard to the GFFY proposal, the costs of the festivalpitch, accommodation, food and petrol are clearly fixed, becausethey will be incurred however many baguettes are sold. Theaverage cost per baguette is variable, because it is directly linkedto the number of units sold. Costs will increase by £1 every timea baguette is sold. The cost of the gas used for cooking is moreproblematical. Although the number of baguettes sold will affectgas usage, it’s highly unlikely that the gas will be turned on andoff each time a baguette is produced, since that would be aninefficient way to operate. So, while gas is not a fixed cost, itshould be treated as such for this analysis because it’s morefixed than variable in nature.

The second step is to calculate the contribution: the moneymade from the sale of each baguette. This is the selling price perunit minus the variable cost per unit: £3 – £1 = £2.

The fixed costs are then totalled: (£350 x 2) + £200 + £120+ £80 + £300 = £1,400. The lost rental income is included inthe calculations because it is an opportunity cost – ie, itrepresents money that will not be earned if the van is used atRock in a Hard Place.

The final step is to calculate the break-even point by dividingtotal fixed costs by contribution per unit: £1,400 ÷ £2 = 700.So GFFY has to sell 700 baguettes at the festival to break even,

but it needs to do better than that. The owner’s profit target forthis project is £600. The number of sales required to achieve thisis calculated by adding the profit target to fixed costs and thendividing it by the contribution: (£600 + £1,400) ÷ £2 = 1,000.

The margin of safety indicates how far sales can deviate fromthe budget or profit target before a loss is incurred. The marginfor this project is: (1,000 – 700) ÷ 1,000 = 30 per cent. Althoughthis figure seems reassuring, it depends on the profit target, sincean overoptimistic target will produce an unreliable figure.

The calculations have produced two important figures so far: the break-even point and the quantity of sales required to hit the profit target. But what are the operational implications of these figures? A key issue is the length of time the van will be

1 FORMULAS FOR COST/VOLUME/PROFIT ANALYSIS

� Contribution = selling price per unit – variable cost per unit

� Break-even sales (units) = fixed costs ÷ contribution per unit

� Profit target (units) = (fixed costs + profit target) ÷ contribution per unit

� Margin of safety (percentage) = (target sales – break-even sales) x 100break-even sales

2 INFORMATION FOR GOOD FOOD FOR YOU’SPROPOSED PROJECT AT ROCK IN A HARD PLACE

� Sales price: £3 per baguette.� Average cost of each baguette: £1.� Cost of pitch: £350 per day.� Total accommodation and food cost for three nights: £200.� Cost of petrol for van: £120.� Cost of gas for cooking: £80.� Lost rental income on van: £300. (The van can be rented out to a third party

if it is not used at Rock in a Hard Place.)NB: it’s assumed that food wastage will be negligible, since the mobile kitchenhas a freezer compartment and a quick-defrost facility.


PAPER C1

Management AccountingFundamentalsCVP analysis is more than a number-crunching device to obtain simple answers.Grahame Steven shows how it also provides a mechanism for further evaluation.



� November 2005 exam datesTuesday November 22.Wednesday November 23.Thursday November 24.

� Exam entryEnter for the November exams online at www.cimaglobal.com/examentry fromAugust 3.

The standard closing date for entriesis September 14. If you enter after thisdate, you will be accepted only as a lateentry and you will have to pay a lateentry fee. The deadline for late entries isSeptember 21.

� Exam feesYou must pay your exam fees and clearany outstanding balance by September 30in order to sit the November exams.CIMA reserves the right to withdraw yourentry and apply an administration chargeof £50 should payment not be receivedby this date. Managerial level papers cost£55 per subject, strategic level papers cost£60 per subject and TOPCIMA costs £80.The late entry fee is £160.

Please read the rules of exam entry forfurther information.

� November 2005 exam resultsResults will be communicated to studentsin the last week of January 2006.

� Cancellations and changesWe do not accept cancellations and will not refund entry fees.

To change papers or exam centresyou must e-mail [email protected] and pay theadministration fees by September 30.Changes made before September 14will cost £25. Changes made betweenSeptember 15 and 30 will cost £50.

EXAM NOTICEVisit www.cimaglobal.com regularly for updates.

� Pre-seen material for theTOPCIMA case studyThe pre-seen material and assessmentmatrix will be available to download fromCIMA’s website from September 12.It’s your responsibility to download thismaterial and familiarise yourself with itbefore the exam. A “clean” copy of thepre-seen material and assessment matrixwill be given to you in the exam. Youcannot take any notes into the exam hall.

� Ask a tutor – September eventVisit CIMA’s website to find out about the next event under the newqualification. Use this opportunity toobtain advice from an experienced tutor.

� CBA deadline for the CIMACertificate in Business AccountingIf you wish to sit managerial level examsin November you must complete all ofyour certificate level subjects viacomputer-based assessment (CBA) bySeptember 1. Visit www.cimaglobal.com/certificateentry for full information onentering for a certificate level CBA.

� CIMA Professional DevelopmentCertificate in Business TaxationIf you have passed intermediate level paper6 Financial Accounting, but not paper 5Business Taxation (under the old syllabus),you can use a pass in the computer-basedassessment Introduction to BusinessTaxation (UK) to gain credit for manageriallevel paper P7, Financial Accounting andTax Principles.Visit www.cimaglobal.com/certificateinbusinesstax for more details,the full syllabus and sample questions.

� QueriesVisit www.cimaglobal.com or get in touchwith CIMA Contact or your local office. FM

open for business. The owner might decide,based on experience, to operate for 10 hourseach day. This assumption can be used incalculating the average number of sales thatmust be made every hour to break even overthe two days. The average hourly salesneeded to achieve break-even are: 700 ÷ (10x 2) = 35.

Although 35 sales an hour seems possible,some periods will be quiet and others will bevery busy. The owner may consider it to beachievable, but what about the profit target?The average number of hourly sales requiredto meet the target is: 1,000 ÷ (10 x 2) = 50,which is far tougher. Although the ownercould reduce the target profit to reduce theaverage number of sales required, a morefruitful idea could be to review theassumptions that underpin the calculations – selling price, variable costs and fixed costs –to see whether there is room for manoeuvre.

The first items to consider are fixed costs.While it’s probably not possible to negotiatea lower price for the festival pitch or toreduce the van’s petrol and gas consumption,the accommodation cost will be reduced by£140 if the owner stays at the camp siteinstead of a guest house for the three nights.

The owner may be reluctant to change theselling price, since it has been set in relationto the expected prices of competing caterers.Using lower-quality venison and bread wouldreduce the variable cost. The owner maychoose this course of action because mostpotential customers at a heavy metal festivalare unlikely to be gourmets. It would reducethe variable cost per unit from £1 to £0.75.

The two identified savings would reducefixed costs by £140 to £1,260 and increasethe contribution per unit by £0.25 to £2.25.All this produces a revised average hourlybreak-even baguette sales figure of:(£1,260 ÷ £2.25) ÷ 20 = 28. The number ofhourly sales required to hit the profit targetwould be: (£1,860 ÷ £2.25) ÷ 20 = 41.3.

The owner would then either proceed onthis basis or consider other courses of actionthat could make the proposal more viable. FM

Grahame Steven is a lecturer at NapierUniversity, Edinburgh.

Paper C1

The institute is seeking nominations for the CIMA Financial Management Awards2005 and would welcome submissions from students for the tutor of the yearcategory. If your tutor is innovative, enthusiastic and gets great results, why notput them forward? Visit www.cimaglobal.com/awards2005 for further details.

NOMINATE

YOURTUTOROF THE YEAR


study - cimapaper p6 management accounting – business strategy a co-examiner for paper p6discusses...

Documents