The November 2021 CIMA OCS pre seen materials were released last week, so I’ve had time to go through them and make a few observations and pointers that will help you prepare for exam day.
You can find the official pre seen materials from CIMA here.
It’s a staple of the CIMA operational case study, as it’s a highly examinable topic as well as a fundamental topic with the operational level. The TreadCushy pre-seen materials tell us that;
The company operates a standard absorption costing system using departmental overhead absorption rates based on either direct labour hours or machine hours for both variable and fixed production overheads. Standard cost cards are produced for each shoe design and are updated annually.
As a reminder, the traditional methods of costing are variable costing, absorption costing and activity based costing (ABC). CIMA have also introduced digital costing into the mix, so it’s important you are comfortable with the principles behind these and the advantages and disadvantages.
The issues TreadCushy are likely to face in the OCS exam is the fact their method of costing is fairly inaccruate. Not too mention the standard cost cards are only updated on an annual basis
A switch to ABC activity based costing could see a more reliable and accruate picture of how much their products cost and will lead to better management decision making. They might discover that one of their products is significantly more expensive to produce than imagined, so they can focus their attention elsewhere on more profitable products.
There are no set right or wrong answers for the case study exam, it’s important that you use the pre-seen and “unseen” information you are provided with in the exam to justify your recommendations.
There is a useful article from CIMA here on the subject of activity based costing.
In a similar vein, budgeting is an easy area for their examiner to bring up on exam day and it feels like the scene could already be set when we look at the pre seen materials.
Budgets are prepared annually on an incremental basis. Managers have limited involvement in budget setting and limited budget responsibility for their respective areas.
TreadCushy use a fairly outdated method of budgeting. While incremental budgets that are “top down” are quick to produce, they can lead to demotivation among managers and employees due to the lack of involvement they have in the process and the unrealistic targets they could have imposed on them.
Incremental budgeting also fails to look at the bigger picture of the business and factor in real life events and strategic decisions. Adding 5% or 10% on last years spend for the current year can lead to departments wasting money so not to have their budget cut the following year.
You should be comfortable with the different types of budgeting methods, the pro’s and con’s and being able to relate them to the TreadCushy scenario.
Outsourcing and Offshoring
The subject of offshoring and outsourcing appear in the CIMA E1 syllabus and there were a couple of references in the pre seen materials that caught my attention.
The vast majority of athletic shoes are manufactured in Asia.
All four of the major brands outsource production as a means of keeping cost down.
However, over the past 10 years there have been a number of small companies proving that manufacturing in-house can be profitable. One such example is TreadCushy.
A few snippets from the pre seen tell us that the industry generally sees alot of outsourcing of production to Asia. That said, it’s clear that TreadCushy is successful without having the need to outsource production to Asia.
What’s more, part of it’s competitive advantage are the materials and eco-friendly production they use to produce thier trainers so would outsourcing really be an option for them? It wouldn’t seem to fit with their profile.
Nevertheless, their could be a scenario that comes up in the exam where TreadCushy are looking at offshoring or outsourcing. So I would suggest to cover this area of the E1 syallabus and think how you can relate to TreadCushy.
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