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Cima Strategic Level Case Study 2013 Analysis

In the Operational Case Study, we will be dealing with the company King Crystal which is located in the country Gigland. The pre-seen could be used to understand the conditions of Gigland in terms of various aspects. A PESTEL analysis could be done to analyze the macroeconomic conditions of the country. The impact the currency of Gigland (G$) could have on the exam needs to be understood. The standard IAS 21 which is relevant to foreign currency transactions is something that will be helpful in this, especially if importing and exporting is concerned.

“King Crystal is a manufacturer of high quality, hand-blown crystal”. Being a manufacturer, certain areas of the syllabus could be linked to this scenario. These would be, standard product, standard cost card, selling price, performance evaluation tools, operations management, assets, accounting for assets, revaluing the asset base etc.

High-quality products could be linked with Porter’s generic strategy. As Crystal is considered to be a prestigious product we would ideally be looking at a differentiation strategy (high-quality products provided at a premium price). The focus, whether it’s the overall market or a market niche being targeted should also be considered. Research on this industry would be helpful in the exam.

It is crucial to examine King Crystal’s product portfolio (drinking glasses, jugs, bowls, and vases), the importance of Portfolio management (BCG matrix) and the factors that affect decisions regarding product categories (whether to continue or discontinue). The products come in a number of sizes and ranges. When the diversity of a product portfolio is high it would be ideal to use an Activity Based Costing (ABC) system provided there are a number of batch-level activities going on. After going through the entire pre-seen we should be able to understand whether ABC is relevant or not.

The business is labor intensive as all products are handcrafted. In a company that follows differentiation, highly skilled employees who receive a high remuneration is a common sight. Some products that are made today that have the same design as when the business started suggests that either people still prefer that or the management is resistant to change which could be a weakness.


History of King Crystal

Joseph King who established King Crystal in 1968 (50 years ago) was an apprentice in the largest crystal manufacturer in the neighboring country (Beeland). The company is still based in the same area (Templeton) since its establishment. When it comes to picking out an area of operation or for the construction of a factory, factors such as availability of skilled employees, infrastructure, the attitude of the local community, support of the regional authorities should be important. It seems that things have been favorable since then as they are still operational after all these years.

Regarding the purchase of additional land and construction in 1980, it is possible that the accounting standard IAS 16 could be tested regarding capital expenditure. Another thing that should be taken into account is whether the asset base is valued using the cost value basis or revaluation basis as it would have highly appreciated since the land has been owned for 50 years. Therefore the cost value would highly under state our asset values. If so then you could be questioned in the exam on recommending a better approach and how it should be carried out.

The turning point for the business was the contract to supply a large department store in Gigland. This seems like a B2B model and would include strategies such as longer credit periods, better prices and relationships. The additional furnaces and equipment that were installed due to the contract could involve IAS 16 as well.

In 2000 Joseph sold the company to a group of four of his managers in a Management Buy-out (MBO) that gave an equal ownership to each manager. In the first 10 years after the MBO, the business has invested in new furnaces and a new finishing line using debt finance and the cash generated by the business. Methods of financing are not heavily tested in the OCS. However, debt finance could be looked at as short-term or long-term sources that are relevant to working capital management where it looks at different management policies (aggressive, conservative and moderate). The absence of the original owner has not disrupted business processes and the relationships it maintains with the key stakeholders. It is clear that the management has handled this change quite effectively being a small scale business following an entrepreneurial structure.


Current situation

The small-scale business that started in Templeton is now popular worldwide and has a reputation for high-quality products. King Crystal products are popular as gift items to mark special occasions. These are durable products that people buy to showcase rather than use it daily. Therefore these are not purchased on a regular basis.

Currently, the business has revenue in the region of G$15 million a year and employs 110 people. G$15 million is an absolute value and it is not clear how significant it is. Therefore a comparison of past performance, benchmarking against revenues of other companies in the same industry is required to assess this.

Human Resources are a very important aspect in E1. Processes in the HR cycle such as recruitment, selection, training, appraisal, retention could be tested. The methods of how King Crystal is managing 110 employees are crucial. Safety of working conditions is of utmost importance in this industry. Glassblowing is an activity that exposes employees to certain risks as they work with molten crystal at very high temperatures. Therefore the company has an ethical obligation to ensure the safety of their workers. Another thing that should be looked at is labor turnover as glassblowers are not in high supply in the region. As a result, King Crystal needs to ensure that it retains the top talent in the company to ensure processes are smooth.

Paulo Aldo is the only remaining original MBO team member that still works in the business with the others having retired in the last five years. The extent of influence that the other members had on the company would have played a role in how the company managed change. Paulo is the majority shareholder owning 55% of the business with the remaining 45% being owned by the other retired managers. These three managers may still play a role in the business although it may not be a hands-on role. They would still be providing valuable feedback to the process.

It is mentioned that King Crystal prides itself as a fair employer. To be a fair employer there are many aspects to consider with a generous pay being just one of them. The fact that King Crystal doesn’t exploit unskilled employees and instead pays them above the minimum wage supports this. The apprenticeship program which emphasizes on the educational level of employees could be a win-win situation. When apprentices are supported to obtain the qualification by providing the opportunities, after the apprenticeship they might consider continuously working for King Crystal. The company would be more than happy to make them full-time employees as they are already familiar with work practices. This would save on training as hiring a new person and training them would be costly.

Crystal King prides itself as a champion of its local community by engaging in Corporate Social Responsibility (CSR) activities. The sponsorship of a number of community arts and crafts groups is very much in line with the industry and is related to social responsibility. Crystal itself is a fine art and would immensely benefit the company as people who value art would consider purchasing King Crystal’s products. Planting trees locally is the ecological responsibility and concerns environmental management accounting in P1.


Your role

In the OCS exam, the main focus is the subject P1 which is Management Accounting. Being a Finance Officer in the financial department, you would generally have to be involved in management accounting related tasks. Your role will help the company in planning, controlling and decision making. Challenges and work allocated to you may include interpreting variances, giving your feedback on the costing system, looking at special orders and pricing it using relevant costing, making decisions based on the risk attitude of the company etc. This being a private limited company the preparation of financial statements would also be required. Due to the fact three of the four managers are not actively involved in the business anymore they would be interested in knowing how the business has performed. Tasks in other areas of the business may include giving feedback on marketing strategies, maximising the efficiency of operations, switching to a new IT system etc.

Watch StudyCIMA’s pre-seen analysis video below.

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