Page 4 - MCS August Day 2 Suggested Solutions

CIMA AUGUST 2018 – MANAGEMENT CASE STUDY

Mystery shopping costs should also be incurred.

Montel’s own website (selling cameras other than Professional and Premium)

Website development and maintenance costs will be incurred for the website itself.

Costs of producing and checking detailed camera specification information to be included on the
website, including photos, will be incurred.

Delivery costs will be incurred for online sales (which may be recouped from the customer).

Costs of answering customer queries generated from the website will be incurred.

Independent physical retailers (selling other cameras including basic DSLRs)

It may not be cost effective to undertake mystery shopping exercises on these retailers, but
checks should be made that they remain in a position to ‘enhance the Montel brand’, perhaps by
an internal audit team.

Independent online retailers (selling other cameras including basic DSLRs)

Costs may be incurred to check that the information provided by online retailers is correct.

Distribution channel analysis costs and benefits

To perform a distribution channel analysis, activity based costing principles may be used. This
involves determining the activities undertaken that drive overheads to be spent and then charging
those overheads to the channels on the basis of the proportion of those activities that are
undertaken by them.

Some of the analysis would be relatively simple. For instance, any rental costs incurred would be
in relation to the Montel‐branded shops only.

Others would be more difficult. For instance, if training sessions are run for all sales staff who sell
the Premium DSLR product, some of the attendees may be from Montel‐branded shops while
some would be from third‐party shops. To perform the analysis for training costs, it would be
necessary to log how many of the attendees at each training session were from each type of shop,
as well as logging discretely the training costs themselves.

If activity based costing is not currently used by Montel then it may be quite time consuming and
costly to put these methods into place.

The benefits of such an analysis are that it would allow Montel to see the true profitability of each
of the distribution channels. This would then allow management to focus on improving
profitability.

Without including overheads in an analysis, all of the channels would probably show a good gross
profit because of the high margins gained from camera sales. However, because the types of
overhead incurred in each channel differ, taking them into account can have a varying effect on
profitability per channel.

88 KAPLAN PUBLISHING