Based on the images, the documents are related to the May-August 2024 Operational Case Study Examination for the AICPA & CIMA professional qualification.
Here is a summary of the provided materials:
Pre-seen Material: This is the core document for the exam, featuring a company called Kanann. It includes a table of contents that outlines the key information, such as your role as a Finance Officer, company details, financial statements, and a tax regime.
Post-Exam Support Materials: This page lists additional resources for the same exam. It provides access to the Examiner's Report, different Exam Variants (likely the actual questions), Suggested Solutions for each variant, and Marking Guidance.
Based on the provided documents, here is information about Kanann, the company at the center of the case study.
Company History and Overview
Founding: Kanann was founded in 1906 by William Kanann. He started as an apprentice saddler and built the company on the outskirts of his hometown.
Evolution: Originally, the company focused on saddle making for the local pony club. In the 1920s and 1930s, it expanded to include civilian customers and became known for its high-quality, stylish saddles.
Current Status: The company is based in Keeland, a country in mainland Europe. It designs, makes, and sells saddles for horse riding. It does not make bridles.
Products
Saddles: Kanann's saddles are based on traditional designs and are marketed as general purpose saddles, not specialized ones. They consist of a tree (the inner skeleton), webbing, and leather pieces.
Competition: The company's products are described as having limited appeal compared to modern markets, and they tend to be used by amateur equestrians. Kanann faces low-level competition.
Leadership and Ownership
Ownership: The company is owned and managed by the Kanann family.
Current Leadership: The current Managing Director is John Kanann.
Shareholding: John and his sister, Ann, each hold 80% and 20% of the company's equity shares, respectively. Ann is not involved in the management of Kanann.
Future Leadership: John's daughter, Freya Kanann, is an international show jumper and a recent university graduate with a first-class honors degree in Accountancy and Finance. Although she takes substantial periods away for her equestrian career, she has started working at Kanann, and John is proud of her academic and sporting achievements.
Key Personnel
Freya Kanann: Daughter of the Managing Director, John Kanann. She is a highly accomplished equestrian and has a strong academic background in finance. John believes she has an "ageing management profile and needs new ideas."
Based on the documents, the global saddlery industry is characterized by the following:
Fragmentation: The industry has many national and global manufacturers, with a high concentration in areas like the USA, Australia, and South Africa. Most manufacturers operate in only one country.
Traditional vs. Modern: The industry has a long tradition, but developments are seeing a move towards more automated production techniques to replace the labor-intensive process of leather cutting. However, the production of a saddle still relies heavily on the skilled labor of saddlemakers for stitching and assembly.
Technological Advancements: There is an increasing use of high-tech materials. For example, carbon fibre is being used for saddle trees to make them lighter and stronger, and there is a growing introduction of synthetic materials in saddle production.
Specialization: Modern riders often have multiple saddles for different disciplines (e.g., show jumping, dressage), with saddles tailored to specific needs. This trend has driven global sales in recent years.
Sales Channels: Saddles are typically sold to wholesalers and retailers, but some saddlemakers sell directly to the end user. Equestrian equipment retailers may also have their own in-house saddlers.
Kanann's management structure and product offerings are detailed in the provided documents.
Management Structure
Kanann has a hierarchical management structure with a clear chain of command.
John Kanann is the Managing Director and has overall responsibility for the business, including final approval on new designs and products.
Rina Gomez is the Deputy Managing Director. She oversees the sales, finance, and HR functions and deputizes for John when he is absent.
Jack Newman is the Production Manager. He is responsible for all aspects of production and raw material procurement. The production team consists of four supervisors and four production teams, along with finishing and raw material/warehouse teams.
Ella Beard is the Sales Manager, responsible for the sales and marketing of the company's products. She manages a sales team of three members.
Lois Gammell is the Finance & HR Manager. She is responsible for all finance, human resources, and IT issues. The finance team consists of two Finance Officers (one of whom is you, the exam candidate) and one HR Assistant.
Product Range and Pricing
Kanann offers a range of saddles under three different styles, each named after horses owned by the family. The saddles vary in price based on the saddle tree type and leather grade.
Astral:
Two models are available.
Average prices are K$2,750 and K$3,250.
They use Saddle Tree Types 1 and 2, and Leather Grades E and D.
Meteor:
Two models are available.
Average prices are K$3,500 and K$4,000.
They use Saddle Tree Types 2 and 3, and Leather Grades C and B.
Comet:
Only one model is available.
The average price is K$4,500.
It uses Saddle Tree Type 3 and Leather Grade A (premium quality).
Kanann is a family-owned company that manufactures and sells horse riding saddles. The following is a summary of the provided information, including business operations, strategy, and financials.
Business Operations and Strategy
Kanann's production is a four-stage process: Cutting, Assembly, Finishing, and Packing. The total time for this process is approximately 28 direct labor hours per saddle, though this can vary by model. The company manufactures all of its saddles at a single production facility.
The company's primary focus is on general-purpose saddles based on traditional designs. While the brand has a reputation for quality and value for money, the pre-seen material notes that Kanann has "fallen behind the times" due to a lack of innovation compared to competitors who are using synthetic materials and automation.
The current managing director, John Kanann, believes the management profile is "ageing" and needs "new ideas." His daughter, Freya Kanann, is a promising equestrian and a recent finance graduate who has started working at the company. She also uses specialized saddles from other brands for competitions, noting that Kanann's general-purpose saddles are only suitable for her recreational riding. This highlights a potential gap in Kanann's product line. Freya has already declined a sponsorship offer from a competing brand, indicating her commitment to the family business.
Sales and Financials
Kanann sells its saddles to wholesalers and retailers rather than directly to the public. These partners are independent of Kanann, with some specializing in saddles while others offer a wider range of equestrian equipment.
In the year ended 31 December 2023, Kanann sold 1,705 saddles, generating a revenue of K$5,860,000 and a gross profit margin of 33.8%.
The company's sales are geographically distributed as follows:
Keeland (Domestic): 65%
Europe: 22%
Americas: 8%
Asia: 5%
Production Process and Sourcing
Kanann manufactures all of its saddles at a single production facility. The production process consists of four main stages:
Cutting: Large leather pieces ("butts") are cut to size using hand tools and machines. Saddles are made from various grades of leather, ranging from A (highest) to E (lowest).
Assembly: This is where the saddle takes shape. It involves forming a base onto a "tree," which is the internal skeleton of the saddle. Trees are purchased from third-party suppliers and come in three types (1, 2, and 3), which vary in lightness and cost. The tree is reinforced with metal strips, and webbing and stirrup bars are added.
Finishing: The saddles are stitched using a mix of hand sewing and industrial machines. They are then "stuffed with flocking," which can be made of wool, synthetic material, or a mix of both. This provides cushioning in the seat. The saddles are oiled, and final quality checks and branding are applied.
Packing: Completed saddles are moved to the packing department. They are packaged in bespoke boxes designed to prevent damage during transport to wholesalers and retailers.
Raw Materials and Suppliers
Kanann's main raw material inputs are:
Tree: Three grades of general-purpose trees are used (Type 1, 2, and 3). Type 3 trees are the lightest and most expensive.
Leather: Purchased in "butts" (1.5 square meters) and are graded A to E.
Flocking: Kanann uses 100% long-fibre white wool flock.
Consumables: This includes items like dyes, glue, needles, thread, rivets, and screws.
Kanann has long-standing relationships with its suppliers, some since its inception. The company has a policy of choosing suppliers with a commitment to sustainable production practices and insists that the packaging for its own saddles be made from 100% recycled material.
Inventory and Distribution
Raw materials are received and stored in a warehouse, which also handles the storage of finished goods.
The distribution of saddles is outsourced to a major distribution company that delivers throughout Keeland six days a week and also handles sales to other countries.
Employees
As of June 30, 2023, Kanann had 55 employees:
40 at the Production Facility
15 in the Head Office (including sales, finance, HR, and directors)
Finance and Accounting
Kanann's financial recording systems are not integrated and must be reconciled regularly. The company uses a standard absorption costing system with a fixed absorption rate based on direct labor hours. Budgets are prepared annually.
Historically, the financial systems were geared towards producing statutory financial statements rather than providing useful management information. The costing system has been refined to capture more specific data, such as direct labor hours and material costs for each saddle type.
Here is a comprehensive overview of the key information about Kanann, based on the provided documents.
Company Profile
Kanann is a family-owned company based in Keeland, a country in mainland Europe. Founded in 1906 by William Kanann, the company specializes in designing, manufacturing, and selling high-quality, traditional-style saddles for horse riding. It does not produce bridles. The company's saddles are marketed as general-purpose, mainly used by amateur equestrians.
The company is currently managed by John Kanann, the Managing Director. His daughter, Freya Kanann, a recent finance graduate and international equestrian, has recently joined the company, signaling a potential shift towards new ideas and innovation. Kanann is facing competition from saddlers who use modern production techniques and high-tech synthetic materials.
Management Structure and Employees
Kanann has a hierarchical management structure:
John Kanann - Managing Director
Rina Gomez - Deputy Managing Director
Jack Newman - Production Manager
Ella Beard - Sales Manager
Lois Gammell - Finance & HR Manager
As of June 30, 2023, the company had 55 employees, with 40 in the production facility and 15 in the head office.
Products and Sales
Kanann offers three styles of saddles: Astral, Meteor, and Comet, with prices ranging from K2,750toK4,500. The saddles are made from different types of leather and saddle trees.
The company sold 1,705 saddles in the year ended December 31, 2023. Sales are made to independent wholesalers and retailers, not directly to the public. The main market is domestic, with 65% of revenue from Keeland, followed by Europe (22%), the Americas (8%), and Asia (5%).
Financial Performance (Year ended 31 December 2023)
Kanann's financial performance shows slight decreases in revenue and profit compared to the previous year.
Statement of Profit or Loss (K$000)
Revenue: K5,860(downfromK5,690 in 2022)
Gross Profit: K1,982(downfromK1,991 in 2022)
Gross Profit Margin: 33.8%
Operating Profit: K517(downfromK558 in 2022)
Profit for the year: K405(downfromK436 in 2022)
Statement of Financial Position (K$000)
Total Assets: K2,926(upfromK2,848 in 2022)
Total Equity: K1,781(upfromK1,726 in 2022)
Total Liabilities: K1,145(upfromK1,122 in 2022)
Statement of Cash Flows (K$000)
Net cash inflow from operating activities: K$649
Net cash outflow from investing activities: K$(172)
Net cash outflow from financing activities: K$(350)
Net increase in cash and cash equivalents: K$127
Cash and cash equivalents at end of year: K$212
Production and Supply Chain
The production process is labor-intensive and consists of four main stages: cutting, assembly, finishing, and packing. The company sources its main raw materials—leather, saddle trees, flocking, and consumables—from a long-established network of suppliers. The distribution of finished saddles is outsourced to a major third-party company.
Financial Management
Kanann's financial systems are not integrated and must be reconciled. The company uses a standard absorption costing system based on direct labor hours. Historically, the financial focus was on statutory reporting, though recent efforts have been made to improve the system to provide more useful management information. Budgets are prepared on an annual, incremental basis.
Based on the provided documents, here is a paraphrase of the key information regarding Kanann, a company featured in the AICPA & CIMA professional qualification case study.
Company Overview
Kanann is a family-owned company based in Keeland, a country in mainland Europe. Founded in 1906, the business designs, manufactures, and sells general-purpose horse riding saddles. Although Kanann is known for its high-quality, traditional products, the pre-seen materials suggest the company has "fallen behind the times," as it has not embraced the automation and synthetic materials increasingly used in the modern saddlery industry.
The current managing director, John Kanann, believes the company needs new ideas. His daughter, Freya Kanann, a recent accountancy and finance graduate and an accomplished international show jumper, has joined the company. She has noted that while Kanann’s saddles are suitable for her recreational use, she uses specialized saddles from other brands for competitions, highlighting a potential market gap for the business.
Products, Sales, and Distribution
Kanann offers three saddle styles—Astral, Meteor, and Comet—which vary in price based on the type of saddle tree and leather quality used. The company’s sales are primarily to independent wholesalers and retailers, with its sales team visiting them at least twice a year.
In the year ended December 31, 2023, Kanann generated a revenue of K$5,860,000 from the sale of 1,705 saddles. The majority of sales come from the domestic market in Keeland (65%), with the rest distributed across Europe (22%), the Americas (8%), and Asia (5%).
Operations and Employees
Kanann manufactures all its saddles at a single production facility. The process is labor-intensive and consists of four main stages: cutting, assembly, finishing, and packing. The production of a single saddle takes approximately 28 direct labor hours.
As of June 30, 2023, the company employed 55 people, with 40 working at the production facility and 15 in the head office. The company has a hierarchical management structure with a managing director, a deputy managing director, and managers for production, sales, and finance/HR.
Financial Information
Kanann's financial performance for the year ended December 31, 2023, showed a slight decline in revenue and profit.
Revenue: K$5,860,000
Gross Profit Margin: 33.8%
Profit for the year: K$405,000
The company's financial systems are not integrated and require regular reconciliation. Budgets are prepared annually on an incremental basis. The company uses a standard absorption costing system based on direct labor hours.
Tax Regime in Keeland
Keeland’s corporate income tax rate is 20%. Certain expenses, such as accounting depreciation, entertainment, and donations to political parties, are not tax-deductible. The country’s tax regime allows for tax depreciation allowances on plant and equipment at a rate of 25% on a reducing balance basis. Tax losses can be carried forward indefinitely to offset future taxable profits. A 15% sales tax is charged on all standard rated goods and services, and businesses can net off the tax paid on inputs against the tax charged on outputs.
Kanann is considering developing a new line of saddles made from vegan leather to expand its product range. The company's Finance & HR Manager, Lois Gammell, has asked you, a Finance Officer, to prepare a briefing note for the Senior Management Team (SMT) on the project.
This briefing note should address the following key points:
Financial Evaluation: How to financially evaluate the options for testing the suitability of the vegan leather.
Decision Tree Limitations: The limitations of using a decision tree for this particular decision.
Liquidity and Financing: The appropriateness of using an overdraft or a bank loan to provide additional liquidity during the project's development phase.
Supplier Payments: The financial and non-financial factors to consider before delaying payments to suppliers.
Vegan Leather Project Details
The project is expected to be completed in approximately 12 months. The total cash outflow for the development phase is estimated to be no more than K$300,000. These outflows are spread out over a number of months as follows:
Month 3: K$30,000
Month 6: K$110,000
Month 9: K$50,000
Month 11: K$90,000
Month 12: K$20,000
Financing Options
To fund the development phase, Kanann has received an offer from KM Bank for two financing options:
Commercial Bank Loan: A loan of K$300,000 with a monthly repayment schedule over 1.5 years. The interest rate is 3% above the National Bank of Keeland Base Rate, which is currently 5%.
Overdraft Facility: An overdraft of K$90,000. The interest rate is 4% above the National Bank of Keeland Base Rate and will be reviewed in six months, with the agreement lasting for 12 months.
Suitability Testing Decision Tree
A decision tree has been prepared to help evaluate the costs of the suitability testing phase. Two options are available:
Using Existing Staff: This option has an estimated training cost of K$15,000. There is a 55% chance of high costs (K100,000)anda4560,000). The expected value (EV1) for this path is K$82,000.
Using a Recruitment Consultant: This option has a recruitment fee of K$20,000. There is a 65% chance of high costs (K105,000)anda3575,000). The expected value (EV2) for this path is K$94,500.
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