CIMA G1 Practice Test Questions Answers

The Marketing Director stops you in the corridor and says the following:

"I need your help. A firm of consultants has pitched a proposal to the Board to conduct a value chain analysis for Pizzatime. The Chief Executive is interested, but he would like us to discuss the proposal further at the next Board meeting before we decide whether to brief the consultants. He also feels that there are other areas we should explore, particularly the strategic focus of the company. I have left a copy of the consultants' presentation on your desk.

The Chief Executive has asked me to prepare a board paper on two issues.

Firstly, what would a value chain analysis involve in the case of Pizzatime and how might we involve our staff more in creating value?

Secondly, the Chief Executive is unsure whether we should focus our value chain analysis in a low-cost strategy or a differentiation strategy.

Please draft the board paper for me. I will review it and present it at the next board meeting."

You have received the following email:

From: Matt Spot, Finance Director

To: Financial Manager

Subject: all-day opening proposal – CONFIDENTIAL

Hello

I have just had an interesting meeting with Bilal Mukherjee, our Marketing Director. Bilal has been thinking of ways to put our restaurants to work during the day. At present, most of our restaurants are closed all morning and the afternoon between the end of lunch and the start of the evening rush. We are all well aware of the rapid growth of coffee shops in I-land over last 12 months; please see the attached newspaper article.

Bilal believes that we should open our restaurants to sell snacks, coffees, and light meals from early morning until early evening, with the exception of lunchtime when we would offer restaurant meals, so we wouldn't be interfering with our core business.

The main issue is the surprising expense required to start this venture. We would have to invest heavily in advertising and other promotions and would also need to seek separate permission from local government. Finally, we would have to buy a sophisticated coffee machine and equipment to heat and serve hot snacks for each restaurant. Our restaurants are equipped to cook pizza, not hot breakfast. Needless to say, we can't just buy the equipment and plug it in.

We will have to adapt our premises to make space for the new equipment. Bilal is suggesting that we introduce more family-friendly seating areas, removing a number of tables and replacing them with sofas and a toy kitchen area for young children to enjoy.

Bilal is concerned that the heavy outlays on advice for the local government applications, along with the significant investment in property, plant and equipment, will mean that this venture will have a very low accounting rate of return (ARR) for the first year. I rarely look beyond the net present value of a project, but he may have a point.

Please reply as soon as possible on the following:

Firstly, is this proposed all-day opening venture consistent with our strategic objectives?

Secondly, draft an explanation that I can take to the Board on possible reasons why the project's forecast ARR in the first year is so poor. Are forecast ARR results likely to give a good indication of the overall performance of the venture?

Matt

Partial transcript of television documentary entitled 'Did you enjoy that?'

You have received the following email:

From: Monica Lall, Chief Executive

To: Financial Manager

Subject: television documentary

Hi,

I have attached a transcript of a documentary on food hygiene that was broadcast last night. The broadcaster did not seek our response and so we were unaware of it until it was broadcast.

We have only had a few hours to investigate but the basic story appears to be true. The manager in charge of the factory has interviewed the supervisor who was filmed and it appears that the main flour supplier is guilty of shipping goods that are almost at, or even slightly beyond, their 'use by' dates. We operate on a just-in-time basis and so our factory would have to suspend production for anything up to 24 hours if a shipment was rejected.

We will, of course, check all inventories immediately. We will also find a new flour supplier for our factory in I-land. That will mean closing every restaurant for at least 72 hours until the factory can recommence production.

We have consulted our lawyers, who believe that we can expect large numbers of claims from customers. We can expect to be blamed for almost any form of ill-health suffered after eating one of our pizzas, regardless of whether we were to blame, as well as for psychological distress. Even though the year end is several months away, we will have to be ready to make a provision in the financial statements for the year ended 31 December 2016. This presents the company with a significant risk from our supply chain, which we need to consider.

I need you to email me your thoughts on the following:

How can we organise our supply chain better to prevent a recurrence? Clearly, flour is only one of many ingredients that we purchase.

How can we address the inevitable claims that we have acted unethically and against the public interest?

What are the accounting issues associated with determining the need for a provision in the financial statements?

Regards

Monica Lall

Chief Executive

Pizzatime

Two weeks have passed since your conversation with the Finance Director. You have received the following email:

From: Matt Spot, Finance Director

To: Financial Manager

Subject: proposed delivery business

Hi,

The working party has agreed that we need to develop some more detailed plans before we make any final decisions about proceeding with the proposal to offer a home delivery service.

Most members of the working party believed that there would be a steep learning curve associated with this new venture. I disagree, but I was in a very small minority so perhaps I was mistaken.

The implementation of this project will be a major undertaking in itself and we will need to think about the most efficient way to break it down into sensible phases. I need you to reply to this email with your thoughts on the following questions:

What are the significant learning curve issues associated with providing a home delivery service? Also, how would you establish the learning rate?

What are the major stages in this project's implementation and how might we organise these?

Matt

Forecast financial statements for the year ended 31 December 2016

You have received the following email:

From: Monica Lall, Chief Executive

To: Financial Manager

Subject: projected profits

Hi,

The controversy over Town Logistics continues. The Board is feeling a little sensitive to criticism over their management of Pizzatime's relationship with the company. With that in mind, I have had the Finance Director prepare a set of forecast financial statements, which I have attached to this email.

The new home delivery service will have been fully operational for almost six months by the year end. The service has already been hugely successful and has significantly increased both revenue and profit.

The directors' bonuses are linked to reported revenue according to the financial statements. As a retail organisation, our survival depends on sales revenue. Also, our restaurant managers' revenue targets are based on total revenue, including home delivery sales, although many of them have refused to accept responsibility for these sales.

I need your advice on two matters:

The first is that we are planning to argue that the shareholders should take comfort from these figures and should relax and allow the Board to manage Pizzatime without undue interference. Do you agree that these figures show that the Board is excelling?

Can we argue that the present directors' bonus scheme continues to align our interests with those of the shareholders? On a related matter, is the refusal of the restaurant managers to accept responsibility for home delivery sales justified?

Regards

Monica Lall

Chief Executive

Pizzatime