Page 5 - CIMA MCS Workbook August 2018 - Day 1 Suggested Solutions

SUGGESTED SOLUTIONS

EXERCISE 1(B) - STANDARD COSTING AND VARIANCES
Suggest four variances that would be of most use to GymFiT. Justify your choices.

Variance Reason

Sales mix variances GymFiT charges lower fees to students (p17) so management would
want to see how the mix of customers varies from budget.

Lease cost expenditure A key element of growth is finding suitable new premises, many of
variances which are leased. Lease costs are the second largest cost category
after operating costs (p18) so it is vital that management can see if
leases on new gyms are more expensive than expected.

Cost expenditure The company strategy (p11) includes a need to reduce costs. These
variances for out- cost variances could indicate the extent to which outsourcing is
sourced operations such delivering such reductions.
as cleaning and security

Gym operating cost Operating costs are the largest category of cost (p14) and , as stated
expenditure and above, the company is looking to improve efficiency
efficiency variances

EXERCISE 1(C) - QUALITY COSTING

Comment on how each of the four “costs of quality” could potentially apply to GymFiT.

Type of cost How it could apply to GymFiT

Prevention Costs • Quality training for fitness staff to ensure
o all equipment is adequately tested and maintained to the
required standard,
o they have sufficient expertise to advise customers in different
aspects of fitness.
• Regular cleaning and maintenance of equipment, vending
machines, etc
• Quality training for all staff to ensure they have sufficient
expertise in terms of health and safety issues.

Appraisal Costs • Ad hoc gym inspections by head office to assess ambience,
cleanliness, whether equipment works, etc- we are not told if this
takes place
• Cost of checking work done by outside suppliers is up to standard
– e.g. checking areas have been adequately cleaned

Internal Failure Costs • Cost of additional cleaning or maintenance required if customers
complain about anything

External Failure Costs • Any customer dissatisfaction may result in customers deciding not
to come back
• Bad reviews on social media may result in lost future custom.

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