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T4 - Part B Case Study Examination September 2010- Mock 1

Instructions to candidates

You are allowed three hours to answer this question paper,
You are allowed 20 minutes reading time before the examination begins during which you
should read the question paper and, if you wish, make annotations on the question paper,
However, you will not be allowed, under any circumstances, to open the examination
answer book and start writing or to begin using your computer to produce your answer or to
use your calculator during the reading time,
Answer the question on page 3, The Case Study Assessment Criteria are also included on
page 3,
This question paper should be used in conjunction with the pre-seen information and maths
tables and formulae provided earlier on the course, >


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© Kaplan Financial Limited, 2010

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.

All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.




VYP - Unseen material provided on examination day

Additional (unseen) information relating to the case is given on pages 5 to 8. Read all of the additional material before you answer the question.


You are a Management Accountant employed by VYP.

The Board of VYP have asked you to provide advice and recommendations on the issues which the VYP Board must address.

Question 1

Prepare a report that prioritises, analyses and evaluates the issues facing VYP, and makes appropriate recommendations. (Total marks for question 1 = 90 marks)

Question 2

As an appendix to your report, write an e-mail to Janet Black (FD) outlining the key findings from your review of the proposed cancellation clause in the contract for the new drama, including any comments or reservations you have on the review which you feel Janet should be aware of.

(Total marks for question 2 = 10 marks)

Your script will be marked against the Case Study Assessment Criteria shown on the next page





Maximum marks available

Focus 5
Prioritisation 5
Judgement 20
Ethics 5
Logic 30
Integration 5
Ethics 5
Total 100 4



Vyp - unseen material provided on examination day

Read this information before you answer the question

Request for advice

At the VYP Board meeting held recently, it was agreed that a Management Accountant would be requested to advise the Board on the issues facing VYP.

VYP - financial update

The board received a document from Janet (currently on holiday in Washington DC) concerning the financial situation ofVYP. The report noted that the reductions seen in revenue per hour in 2009/10 are continuing and there is mounting pressure on revenues from broadcasters attempting to pass on falling advertising revenues by cutting costs of programme production. Overall, Janet does not consider that pressures on revenue will decrease until well into 2011. Any means of cutting costs or increasing revenues from new sources therefore should have a priority.

New drama series "Political Spin"

VYP's proposal for a new drama series is now at the contract approval stage. This series is a political drama based on the autobiography of a senior political figure in the United Kingdom and has an initial title of "Political Spin". Following the change of government in the UK and recent insights into how government works this is seen to be suitable area for a new drama.

There is a need to finalise the commission urgently so production can commence and the series broadcast can start within the next two months before potential viewers' interest in politics declines. Because of the urgency for the series, broadcast will take place only two weeks after each episode is filmed placing pressure on VYP to meet production deadlines.

The series has been budgeted based on 22 programmes at 52 minutes of broadcast time per programme. A fee of £375k per hour has been agreed with the broadcaster. However, political drama is a risky area to enter (there have been a number of failures in this area). To counteract the risk, the broadcaster has made a last minute request to have the right to cancel production after 6 programmes if viewing figures do not meet expectations. If cancellation occurs then VYP will only receive a fee for 7 programmes; however, VYP will have incurred the costs for making 8 programmes at this stage.

Initial costing information, prepared to obtain business approval is provided in appendix 5 (appendix 1- 4 being provided in the pre-seen material).

Due to the absence of Janet, Sara Mills has asked you to calculate the incremental cash flow effect if the series is cancelled after 6 programmes. Ignore any outcome from the actors strike below in making these calculations.

The Time's the Limit

VYP has been fairly successful in the general entertainment genre. One programme in particular, "The Time's the Limit" has consistently exceeded expected viewing figures for the broadcasting company purchasing this programme. 'The Time's the Limit" is a quiz programme; the "twist" in the programme being that each team of contestants has to answer a set of 6 questions as quickly as possible; the more time taken then the less their potential prize money is.

Tom Harrison now believes he can sell the programme format internationally, and conservatively estimates that revenue of £2.8m could be achieved in 2010/11. However, in




order to reach such a level of sales Tom will have to travel extensively. He has also stated that his commission will have to be increased to 15% to allow him to make additional"inducements to purchase" to the programme buyers of some overseas broadcasters. When asked, Tom explained that some buyers would require cash payments or even extravagant gifts such as luxury watches or holidays before they would sign an agreement. As a result of these additional costs, the margin on these sales is expected to be 49%.

Documentary "The Children are Lords"

A VYP documentary has attracted significant criticism from the Child Protection Agency (CPA) and child action groups such as The Children's Society. In "The Children are Lords", 12 girls and boys between the ages of 10 and 12 were placed in a remote forest in two camps and asked to live without adult intervention for one week. Each camp was given some of the resources needed to survive (e.g. one camp was given all the food and the other all of the tents).

The aim of the documentary was to see whether the children would remain 'civilised' using barter and negotiation to obtain food and other resources they needed to live, or revert to other methods of obtaining those items.

The children found the situation difficult and the filming had to be stopped when effectively a war broke out between the camps to obtain the limited food supplies provided to the camps.

The CPA and child action groups claim that the children were put under unnecessary stress even though the children and their parents agreed to the making of the documentary. VYP has received some adverse comment in the press regarding the documentary.


Actors are not employees of VYP; they are hired to appear in individual programmes as required. However, all of the actors currently used by VYP are members of the Actors' Union (called Equity). Equity manages the contracts between its members and the production companies.

Over the last six months, TV production companies including VYP have been under pressure from broadcasting companies to cut costs. The board of VYP considered various options at this time and agreed various cost cutting measures including decreasing actors' wages by about 10%. Other production companies have also taken similar action.

Equity has balloted its members on strike action in response to the decrease in rates and following this, a strike has been authorised to commence in one week's time. Equity accepts that during a recession that it is difficult to maintain wages but also notes that many unknown actors already have to supplement their income with second jobs, which are also not particularly well paid. The Union is therefore requesting a return to the previous level of wages.

If the strike goes ahead it will affect all programme production at VYP. Production companies affected by the strike could decide to use non-union actors although these people are generally of a lower standard than Equity members; all "big name" actors are members of Equity. Alternatively, where a production company agrees to Equity's requests, then actors will return to work immediately for that production company.

Before the reduction, typical actors' cost per programme by genre are:


Drama Series

Scripted comedy General entertainment

£3,000 £47,000 £18,000 £9,000




Under contractual terms with broadcasters, VYP must pay a penalty if programmes are delivered late. The rate is £2,000 per week per programme and applies to any programme genre. Typically VYP completes 4 programmes each week. If the strike commences in one week's time, programmes currently in production will become late two weeks after the strike commences. At the end of the third week of the strike commencing, 4 programmes will be late, after four weeks, 8 programmes, after five weeks, 12 programmes and so on.

John Young has requested a calculation showing the total cost per annum of re-instating the wages of actors' to their previous level along with an estimate of how long the strike must go on for before penalty costs exceed the extra actors' costs.

TWQ Distribution company

Currently, VYP sells programmes direct to broadcasting companies for 'first run' of individual programmes. Programme repeats are allowed for the original broadcaster and by resale of those programmes to other broadcasters, normally in other countries.

VYP sells programmes internationally using its own sales team headed by Tom Harrison. However, most other production companies have agreements with TV distribution companies to sell their programmes in other countries. The distribution company either acts as an intermediary, selling production company's programmes to broadcasters on commission or buys programmes outright and sells these to broadcasters.

TWO, one such distribution company, has made a proposal to the board ofVYP. TWQ recognises that VYP does not use a distribution company and is interested in becoming a distributor for VYP.

TWQ will offer a one off initial payment of £500,000 for access to VYP's programme archive, and will pay commission back to VYP of 40% on all sales made. TWQ are confident that they could increase sales of VYP programmes by 30% over and above what Tom is forecasting. The current forecast for this department (prepared by Tom in late 2009) is to achieve sales of £1.8 million in 2011 rising to £ in 2012. These forecasts do not include any sales relating to "The Time's the Limit".

Steve Voddil has asked you to make an initial analysis of the proposal for the years 2011 and 2012, making a recommendation whether or not programme distribution should be outsourced. You should ignore the time value of money.




Appendix 5 Cost

Initial costs

£'000 Description

261 Initial pre-production costs. All work is carried out by the program making staff in VYP.

It is expected that the new drama will take up 1,100 staff/days out of the 11,000 budgeted in 2010/2011.

Studio hire 770 Based on 5 days of studio time per episode with an additional 10
days to make the main set.
Hire costs are £1,OOO/day.
Set construction requires material costs of £100,000 initially then
£25,000 per programme
Crew 1,100 VYP outsource this requirement to a specialist company. The
equipment expected cost per episode is £50,000.
Actors 1,520 The total cost of all actors (including extras) will be £60,000 per
The "big name" and key "supporting" actors will also be paid
£200,000 in total as a sign on fee.
Script 670 Fixed cost of £30,000 per programme plus an additional £10,000 for
writing, and the title theme.
Director / 575 The director and the producer will be required for 10 days per
Producer programme as well as an initial 10 days each before filming
commences. Directors and producers are fully utilised within VYP
and are charged at £1,250 each per day to programmes.
VT Editing 660 VYP's expanded editing suites will be used. The suites can be hired
to other film production companies at a charge of £6,000 / day.
This charge covers use of equipment and staff within the VT suite.
Editing of a drama series typically takes 5 days.
Animation / 879 VYP intends to use CGI backgrounds for some sets which have
graphics limited use, or would be expensive to build (for example the
interior of the House of Commons - where parliament in the UK
meets). Actors will be merged with the CGI background having
been filmed against a "green screen".
Initial costs to create standard sets like the House of commons and
programme start/end graphics are £65,000 with ongoing costs per
programme of £37,000.
Total cost 6,435
Margin @ 715
Fee 7,150
End of Unseen Material 8


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