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T4 Part B Case Study Exam

The document provides guidance for candidates who took the March 2010 T4 Part B case study exam on the CeeCee retail fashion case. It outlines the case background, exam structure, and common mistakes. The key issues in the case were CeeCee's forecast of being 11% short of its profit target for 2010, and its need to address issues around bonuses and closing 300 underperforming stores. The guidance emphasizes thoroughly analyzing and applying technical models to these key issues, with a focus on calculations related to the bonus scheme and store closures. Common errors included incomplete analysis and incorrect calculations regarding bonuses and financial impacts of store changes.

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0% found this document useful (0 votes)
200 views20 pages

T4 Part B Case Study Exam

The document provides guidance for candidates who took the March 2010 T4 Part B case study exam on the CeeCee retail fashion case. It outlines the case background, exam structure, and common mistakes. The key issues in the case were CeeCee's forecast of being 11% short of its profit target for 2010, and its need to address issues around bonuses and closing 300 underperforming stores. The guidance emphasizes thoroughly analyzing and applying technical models to these key issues, with a focus on calculations related to the bonus scheme and store closures. Common errors included incomplete analysis and incorrect calculations regarding bonuses and financial impacts of store changes.

Uploaded by

Raechel Obrador
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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T4 Part B Case Study Exam March 2010 Post Exam Guidance Report General Overview The main purpose

se of this report is to give help to candidates who were not successful in the March 2010 examination of the CeeCee retail fashion case. It is also intended to provide guidance to prospective candidates who plan to take future T4 Part B case study examinations. This report explains the basic rationale behind the case and the suggested approach to each of the assessment criteria. It also provides a brief marking guide, general comments by the Examiner and a statement of common errors, including omissions, which were made by candidates. This case was concerned with CeeCee, a fashion retailer, founded in 1989 based in Europe, which prided itself on being a differentiator providing up to the minute fashion styles through a business model known as Fast Fashion. CeeCee has 44,000 employees and operates in 18 different countries in Europe. The firm began by selling look alike clothing ranges which were popular with young professional women and had expanded into menswear, childrens clothing and home furnishings. CeeCee, listed on a European stock exchange, achieved an operating profit of 616 million in the year to 31 December 2008 and achieved its forecast operating profit for the year to 31 December 2009 of 634 million. However, the operating profit forecast for the year ending 31 December 2010 was 614 million, some 76 million short of the profit included in the 5 year plan due to forecast sales revenue in 2010 being 150 million lower than planned. The Sales and Marketing Director was confident that sales revenue for 2011 and subsequent years contained in the 5 year plan were achievable. The candidate was asked to (a) prepare a report that prioritised, analysed, and evaluated the issues facing CeeCee and to make appropriate recommendations and (b) prepare a summary as an appendix of findings and financial implications relating to one of the issues contained in

the unseen material. The T4 assessment matrix has 9 criteria, each of which carries between 5 and 30 marks. It should be noted that the Logic criterion has 30 marks associated with it, 20 marks for recommendations given in the answer to part (a) and 10 marks for the answer to part (b). It is important that the candidate earns high marks in the Judgement and Logic criteria as each of these carry 20 marks within part (a). It is also important that the candidate undertakes sufficient analysis to provide a sound base for discussion of the issues from which appropriate and logical recommendations can be made. The analysis should include appropriate financial and numerical calculations particularly those which are discernable from the unseen examination material. Given that CeeCee had forecast its operating profit to be 11% short of target for 2010, the main issues contained in the unseen material covered the areas of:

March 2010 Post Exam Guidance Report 2 There were other areas which candidates could have discussed (and which were given credit in the marking) but it was critical that the issues relating to the sales bonus scheme and the closure of 300 shops were fully addressed in the answer. Format of answers The format of candidates answers to part (a) was generally good. Candidates generally began with an introduction leading to very brief terms of reference, prioritisation of issues, followed by discussion of those issues. Ethical issues were then discussed and then recommendations were made on the issues which had been prioritised. Finally, most candidates provided a brief conclusion. The appendices were usually contained in an Excel

file, although some were shown in the Word document. Either way is acceptable. One point worthy of note is that some candidates waste time producing a Position Audit which discusses the contents of the appendices. A position audit is not required in the examination. It is better that candidates reserve their comments for the main discussion section of their report. It was noticeable that some candidates did not address part (b) at all, possibly because of time pressures. This was a dangerous omission, given that part (b) is worth 10% of the marks. Discussion of general candidate performance under each assessment criteria T4 Assessment Criteria Maximum marks available Analysis of Issues (25 marks) Technical Application Diversity 5 5 15

Strategic Choices (35 marks) Focus Prioritisation Judgement Ethics 20 5 5 5

Recommendations (40 marks) Logic 30 5 5

Integration Ethics

QUESTION PART A Analysis of Issues

Technical Rationale: The purpose of this criterion is to assess the use of relevant theoretical techniques and frameworks and the performance of calculations to aid the analysis of the case material. Suggested Approach: It is recommended that candidates present their technical knowledge either in the form of appendices to the main report (in an Excel spread sheet or at the end of the report itself) or referred to within the report where relevant. T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 3 Marking Guide: Marks are awarded for technical models and theories which are relevant to the case. It is usually appropriate to limit the technical knowledge displayed to 5 separate items. Commentary: Most candidates were able to display sound technical knowledge principally comprising a SWOT analysis, the Johnson, Scholes and Whittington SAF framework, a Mendelow matrix and a range of strategic planning approaches including stakeholder models and motivation theories, including Maslow and Herzberg. This was appropriate in this case study. As usual, most candidates performed well under this criterion. Common errors: Very few errors were made under this criterion. However, given the subject matter it was surprising that some candidates failed to recognise within the SWOT analysis the opportunity of CeeCee implementing a sales bonus scheme, the potential for increased operating profit by closing 300 small shops and opening 150 medium-sized shops and the threat posed by the pending legal action. It is important that candidates think about which models can be realistically applied to the actual case material rather than simply producing ones that are well known to them and hope they prove to be appropriate.

Application Rationale: The point of the Application criterion is to assess how well candidates use the techniques, frameworks and calculations to support the analysis of the issues in the unseen material and the subsequent recommended actions. Suggested approach: Candidates are advised to ensure that they apply relevant models, techniques and frameworks correctly, given the case material. Thus it is important that rather than just regurgitating the model or framework, it is presented in such a way so that it conveys information which is relevant to the case. This also applies in respect of calculations, which should also be relevant to the information given in the particular case. The use of NPV analyses to evaluate an investment proposal is a well used technique which candidates should be familiar with and should be able to prepare accurately. Marking guide: Marks are available for the relevant application of techniques, models, frameworks and supporting calculations but only if the candidate applies them to the specific case. Marks were awarded for the application of models to the case material and for relevant calculations including those not mentioned above. Candidates who carried out sufficient numerical analysis were well rewarded. There was a lot of scope in this case to obtain high marks under Application if candidates had grasped the opportunity. Commentary: Most candidates provided a SWOT analysis although there were some candidates who did not. A SWOT analysis should be used as a guide to the critical issues facing the case organisation and as such is an important model to be applied. Some candidates did not complete the SWOT analysis, leaving some of the quadrants blank. In almost every case

unseen, there will be something which can be inserted in each quadrant. There should be no blank quadrants. Further, it was apparent that some candidates pre-prepared their SWOT analysis based on the pre-seen material and did not update it in the light of the unseen material. Such SWOT presentations earned very few marks as often the key issues were not T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 4 included. You should ensure that all the prioritised issues are included in the appropriate quadrant of your SWOT. There were numerous errors in the calculations for the bonus scheme and the NPVs relating to the closure of 300 small shops and opening 150 medium-sized shops. These calculations were not difficult. Some calculations made by candidates added nothing. Why add up all the bonus costs at every sales revenue level to arrive at a grand total, or the total of the sales margin calculations at every level of sales revenue? This demonstrates that candidates did not think about what they were doing but mechanically used their spreadsheets to add up a column of numbers. Common errors: The most common errors related to the bonus calculations and the NPVs for the rationalisation of the shops. There was evidence of failure to calculate the bonus costs correctly, the value of the gross margin generated, the change in the gross margin and the overall effect on full year operating profit for each of the sales revenue levels. Some candidates only carried out calculations for one or a limited number of the sales levels. Others did not correctly calculate the change in gross margin or the effect on full year operating profit as they used the sales revenue rather than calculating the gross margin. A further error in the gross margin calculations was a failure to recognise that a change in total gross margin must be the new total gross margin less the base total gross margin and the cost of the bonus. Frequently candidates only deducted the cost of the bonus from the new total gross margin. This did not provide the change in total gross margin as requested. Others failed to take into

account the additional margin generated from extra sales in determining their effect on operating profit, in other words, only deducted the cost of the bonus from the base total gross margin. With regards to the NPV calculation the following is a list of common and serious errors made:

s. The unseen material clearly stated that the capital cost of closing the small shops and replacing them with 150 medium-sized shops would occur over 2 years. Despite this many candidates placed the capital cost all in year 0, or in some cases, all in year 1.

depreciation is a non-cash item).

ing these by using the operating profit margin and then stating that the resulting NPV was negative when the capital cost is deducted. This resulted in candidates treating cash flows as if they were revenues. n without discounting. early to post-tax cash flows.

basis that as it was already included in the 5 year plan, treating it as if it were a sunk cost and therefore didnt need to be included in the NPV calculation.

cash flows being calculated in perpetuity after year 5.

closing the 300 small shops and opening 150 medium-sized shops. The resultant difference in NPVs should not be affected, but their absolute values would each be inflated by the cost of the refurbishment which would give a false impression to the reader. T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 5 These errors are all indefensible at the final level of the qualification and seriously weaken the candidates credibility and ability to prepare sound analysis and sensible recommendation when based on seriously flawed financial data. Diversity Rationale: This criterion seeks to assess knowledge and understanding of relevant real life situations in the same or similar context as that in which the case is set. It also assesses the recognition of commercial or organisational issues relevant to the situation contained in the case whether or not they occur within the same industry. Suggested approach: Candidates should seek to introduce relevant examples at the point where they discuss the issue in the answer. Typically, this may occur in the introduction, the prioritisation section, discussion of the issues, ethics or within the recommendations. There is no hard and fast way of doing this. The main point is that candidates should seek to bring in the relevant example at the point which enables them to elaborate or emphasise the issue which is being considered within the answer. Marking guide: Essentially, there is one mark available for each relevant example given, providing it is clearly

stated why it is relevant. It is possible to quote the same organisation more than once if the example supports a different point. Commentary: This was well addressed by most candidates as there were many good, appropriate and relevant real life examples. These included references to many organisations which are engaged in the retail fashion industry and those which operate with bonus schemes. Common errors: There were few errors as such. The one main suggestion to candidates would be not to overdo it. Giving strings of examples which illustrate the same point is a waste of time as markers will only give credit for a single example which relates to the issue being considered and discussed. Strategic choices Focus Rationale: This criterion requires candidates to select the issues that are regarded as the most important and which will be discussed further within the answer. Suggested approach: This is not a section of the report as such. Marks are awarded based on the issues which are contained and discussed within the report. Marking guide: T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 6 There are five marks available for this criterion even if there are not 5 separate issues identified. It is for the candidate to determine which are the most relevant issues in the case to be discussed. Commentary: Most candidates were able to identify separate issues and received good reward.

Common errors: There were no common errors associated with this criterion which, as usual, was well handled by candidates in the main. It should be noted though, that a candidate who prioritises an issue and then fails to discuss it will not receive credit for that issue under the Focus criterion. Prioritisation Rationale: Under this criterion, the candidate is required to rank the issues and to state clearly and concisely the justification for that ranking. The ranking should reflect the impact of the issues on the particular case, which may include its urgency. Suggested approach: The priorities should be presented early in the answer under their own heading. The priorities should be set out with the issues ranked as either 1 st ,2 nd ,3 rd etc. Each should be justified with a concise explanation of its position. Marking guide: High marks are awarded if the candidate presents the most important issues with a good rationale as to why they are ranked as main priorities. It should be noted that marking gives credit to candidates who make a case for prioritising issues differently from those contained in the suggested answer. However, given the urgency of increasing operating profit it was clear that the bonus scheme and the closure of the small shops opportunity should have been

given prominence. Commentary: On the whole, candidates are now well versed in producing their rankings and generally manage to present their prioritised issues. The SWOT analysis, if carefully carried out, should help to clarify which are the most important issues to be addressed. Common errors: Many candidates failed to recognise the importance and urgency of making a decision on the bonus scheme and the closure of the small shops. Also, many candidates did not appreciate that some issues such as the air freight and the pending legal case had a business issue associated with them as well as an ethical issue. Judgement Rationale: This criterion assesses the candidates exercise of commercial and professional judgement in discussing the key issues which were prioritised. Suggested approach: T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 7 It is important that the candidate discusses the impact the prioritised issues have on the organisation and what alternative actions, with reasons, could be taken to address them. This should include relevant supporting analysis drawn from the Application criterion. So for example, if a calculation is made within an appendix, then it should be used in support of the point being made in this section of the report. Marking guide: Marks are awarded for discussing the different aspects of an issue and also for providing appropriate alternative approaches to resolving it. Clearly, the alternative approaches will receive higher marks if they are accompanied with a cogent rationale as to why they are being put forward. It is quite acceptable for candidates to present straw men in putting

forward an approach and then to explain why these would not be appropriate or realistic. So, for example, a candidate might state that CeeCee could make a profits warning at this stage, but that this would be premature as there were a number of ways in which profit could be improved before such a warning needed to be given. This would be acceptable and rewarded. Simply deciding profits are forecast to be more than 10% below target = profits warning is mechanical and does not take account of the potential to turn the operating profit round, given that this was a forecast prepared in early March, with the remaining 10 months of the financial year to take action to improve profit. Commentary: Good analysis is critical to sensible commentary in Judgement. In most instances, the numerical analysis should support the case the candidate makes under the Judgement criterion. Without sufficient analysis, the candidate is likely to make shallow remarks which cannot be substantiated. For example, failure to calculate the NPV for the closure of 300 small shops and opening 150 medium-sized shops is likely to lead to superficial commentary. Such a calculation would clearly be expected from a recently qualified Chartered Management Accountant. Candidates at the final stage of their professional qualification must be able to carry out straight-forward capital investment appraisal calculations. There remain a number of candidates who, after making such calculations, often to a high standard, then seem not to know what to do with the information they have produced in support of their argument and fail to discuss their supporting calculations. Common errors: The main errors are listed as follows:

ing analysis and calculations.

ssues.

example the fact that the bonus scheme, as it stood, provided a bonus to staff even if sales revenue reduced by 2%. s it was devised could be divisive as not all staff were included within its remit. aff, as well as some customers, and the fact that CeeCee would only have half the number of locations as a result.

NPV for the medium-sized shops, but then ignoring this in the discussion. ise the need for good communication, especially to staff once decisions had been made. -existent appendices, e.g. see Appendix C when Appendix C either does not exist or may only be a heading. -learned material. T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 8 Ethics Rationale: The candidate is required to use judgement to highlight and analyse the ethical issues and state why these issues have ethical implications. Suggested approach: This section is normally coupled with the recommendations on how to resolve the ethical issues. It is perfectly acceptable to provide the answer in one section or it could be split over two as presented in the Assessment Criteria. The reason it is split in the Assessment Criteria

is because the business issues usually have an ethical dimension associated with them. It is therefore appropriate for the ethical issues to be discussed alongside the business dimension. It is for the candidate to choose the method with which he or she feels most comfortable. Marking guide: Marks are awarded for recognising the ethical issue and then it is crucial to explain why it is considered to be an ethical issue. Commentary: On the whole, candidates were able to identify the ethical issues. In this case they mainly comprised the air freight, the breach of IPRs and potential redundancies if the 300 small shops were closed. Common errors: Generally, the ethical issues were reasonably well handled. Candidates were mostly able to identify them and provide a reasonable explanation of why the issue might be considered to be ethical although this was not always the case. There were some issues raised that were not ethical, for example the bonus scheme. Simply because not all staff have been included in the bonus scheme does not make it unethical. This is a business decision and some staff might quite justifiably be excluded. The business discussion should have dealt with the likely repercussions for CeeCee of not including all staff in the bonus scheme. Such discussion was rewarded under the Judgement criterion rather than in Ethics. Recommendations Logic Rationale: This criterion tests whether the candidate is able to make well-justified recommendations for each of the prioritised issues. Suggested approach:

It is important that the candidate ensures that there is strong reasoning for the recommended course of action. The recommendations should follow on from the weight of arguments and choices of possible actions in a logical manner. There is no one absolutely correct way of presenting the recommendations. Most candidates present them towards the end of the report, which is completely acceptable. Essentially, it is expected that the candidate will present their recommendations, provide a justification of why this course of action is being recommended and then state what should be the follow-on actions. T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 9 Marking guide: Marks are awarded not just for the recommendations themselves but also, crucially, for the rationale and strength of argument supporting them and what the organisation should do next. Clearly the bulk of the marks available will relate to the main issues contained in the case. Commentary: The recommendations made by candidates were often weak. While most candidates provided recommendations, they were often not supported by an appropriate rationale, or any rationale at all. Failure to carry out sufficient analysis of the issues usually results in discussion which is weak and superficial leading to poor unjustified recommendations. It was also evident that there were some time management problems by some candidates with the recommendations being short. Common errors: Many recommendations sections were short and failed to adequately address the options raised on key issues earlier in the report. As in previous diets, it was apparent that some candidates failed to recognise that a significant input was required in order to gain a good mark, or simply ran out of time and did not provide detailed and fully justified recommendations. Frequently, the recommendations only repeated what had been suggested in the earlier

discussion. Candidates should explain why they have chosen a particular recommendation, especially if they have discussed alternatives. The main areas where improvements could be made as well as those mentioned above were:

customers about decisions which will affect them.

shops when it had been made clear that the Finance Director was confident that funding would be available, rather than discussing the investment decision. tion of the different aspects of some issues when each required a recommendation, for example the legal case in terms of what should CeeCee do immediately and in the longer term. court but made no specific recommendation on withdrawing the inventory from sale. In essence, the recommendations are a very important part of the answer and candidates should allow sufficient time to address them fully. Integration Rationale: The marks are all available for the overall functionality and quality of the report in Part A of the answer. Suggested approach: This is not a section of the report, but a holistic view of its entirety. As a guide therefore it is important that candidates present a report which is clear, sectionalised, addresses the main issues with good analysis and discussion and makes suitable recommendations based on the weight of evidence presented. T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 10

Marking guide: Reports are deemed to be highly professional, sound, satisfactory, inadequate or poor. The whole 5 marks are available for a highly professional report and 0 or 1 mark for a poor report. Commentary: The quality of the analysis, discussion and recommendations in the reports was variable. Good answers tend to divide the report into the following distinct parts:

detailed analysis of the issues.

the recommendations).

It is important to effectively integrate the different parts of the report. So, for example, the recommendations should include the evidence base supporting them by reference to the earlier analysis which may be drawn from the main body of the report or the appendices. A low mark will be awarded in Integration if the key issues are not properly addressed, or indeed are not discussed at all. Furthermore, a low mark will apply in Integration if analysis is not sufficiently carried out, for example if the numerical analysis, requested by the Finance Director, was ignored or the discussion of the issues was vague and generally superficial in its nature and did not specifically relate to the unseen case material. Common errors: Some reports simply did not address the main issues and did not provide sufficient depth of

analysis or reasoning behind the recommendations to warrant a high mark. Ethics Rationale: This criterion judges candidates on their recommendations and reasoning for each of the ethical issues identified. Suggested approach: This section follows on from the identification and explanation of the ethical issues. It may either be contained in one complete section or split over two as presented in the Assessment Criteria. Marking guide: Marks are awarded for the quality and depth of advice on the ethical issues raised. Commentary: Candidates tended to give sensible advice on the issues raised in the report although this was often too brief or vague and there were some instances where candidates did not provide any advice at all. T4 Part B Case Study Exam March 2010 Post Exam Guidance Report 11 Common errors: There are no common errors to report on the advice given for ethical issues other than to say that most candidates could increase their marks if they explained the reasoning for their advice in sufficient depth, rather than simply providing a statement of the advice they are offering. The issue of inappropriate ethical issues was considered earlier in this PEG. It is also worth noting that there may be more than one element of advice that should be given, for example there was not just the issue of the potential breach of the IPR and the action that CeeCee should take immediately in the face of court action, but also its obligations to ensure this kind of breach does not occur in the future. QUESTION PART B

Rationale: The purpose of Part B is to test candidates ability to communicate, in a competent professional way, their analysis, findings and financial implications relating to a particular issue contained in the unseen material. Suggested approach: Candidates should consider carefully the purpose of the communication, for whom it is intended and the salient point that he or she wishes to communicate. This means that the candidate needs to think carefully about what are the major points which need to be included in the communication. Thought also needs to go into the effectiveness of the communication, which means that it should have clarity, be to the point and not be ambiguous. Marking guide: Marks are awarded on the strength of the communication provided. There are marks available for commentary on the strategic importance of an issue and the inclusion of relevant financial or numerical information where appropriate, the benefits and disadvantages of a particular course of action and a recommendation. In this particular case, the issue related to the closure of 300 small shops and the opening of 150 medium-sized shops. This was clearly a major strategic issue and gave the opportunity for the candidate to use appropriate numerical information within the communication. Commentary: This was the first time such a requirement has been included and the general level of communication was not strong and therefore disappointing. Typical answers made reference to the following: the NPVs for both options, profit margins, the cost of the investment, increased floor area in the new shops, redundancies, location of the new shops and possible customer reaction. Most candidates did not include a clear recommendation and many failed to progress beyond the superficial provision of numerical analysis. Many candidates thought

that repeating information contained in the case was adequate, especially relating to the financial analysis. The question had specifically asked for the financial implications and therefore it was expected that salient figures from the NPV calculations should have been included. Effective communication is an essential skill of a Chartered Management Accountant and therefore candidates should ensure that they address this part of the examination fully. Common errors:

nts were in excess of the required maximum of 10.

poor earlier analysis

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