Page 4 - CIMA MCS Workbook August 2018 - Day 1 Suggested Solutions

CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY
CHAPTER FOUR – P1
EXERCISE 1: COSTING
EXERCISE 1 (A) - COSTING METHODS
Question
Discuss how useful overhead
absorption is to GymFiT in terms of
(a) splitting costs between gyms
and
(b) splitting costs within gyms.
How useful do you think ABC would The main benefit of ABC is that it gives a more useful split
be to GymFiT?
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Response
It may be that head office costs are split between gyms
(p18) for performance evaluation purposes but it is
unclear whether they actually do this and, if so, how. In
any case, unless such costs are directly attributable to
the gym’s existence, then they should not be included
when assessing the gym. Similarly, unless the costs are in
some way controllable by the gym manager, then they
should not be included for their performance appraisal.
Either way, it is unlikely that splitting costs between gyms
is very useful.
There is also no indication that they do any overhead
absorption within gyms and, again, it is probably of little
use to them:
• Inventory valuation – they are a service provider
rather than a manufacturer, so don’t have to
determine the full cost (including overheads) of
goods for inventory purposes
• Pricing - they only have one basic revenue stream
(membership) so there is no need to split costs
between different sources within gyms in order to
help price them – e.g. fees for trainers are paid
directly to trainers.
• There is no indication that the gyms are broken down
into different cost centres as the no-frills concept
means that the usual cost centres of a restaurant,
bars, pool, etc, do not exist.
The only exception to the above could be a need to
apportion costs to classes in order to determine how
much to charge for them, but classes only account for 3%
of total revenue (p17).
of costs between products / cost centres. For the reasons
given above, not very.
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