Page 8 - CIMA MCS Workbook August 2018 - Day 1 Suggested Solutions
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CIMA NOVEMBER 2018 – OPERATIONAL CASE STUDY
3 DECISION MAKING
Note: You are unlikely to be asked to do calculations in the exam. However, the following question
will help with familiarisation of the budgetary information.
EXERCISE 3(A) – CVP ANALYSIS
Question Your response
Discuss which costs are fixed Variable costs are likely to be
and which variable. • An element of energy costs – e.g. heating water for
showers
• An element of water costs if charged for usage
• An element of cleaning costs, although this may be totally
fixed within the cleaning contract
• An element of the cost of providing free fitness classes
• An element of the maintenance cost of equipment.
All other costs will be fixed.
Assuming all costs are fixed, Using 2018 budgets:
determine the breakeven
membership in 2018 for an • An average gym has budgeted costs of C$660,000 (p18)
average gym and the safety • Average revenue per customer = C$176.73 (p17)
margin. • Break even = 660,000/176.73 = 3,735 members
• Given the average membership is 4,500, this implies a
safety margin of 765 members or 17%.
Note: you could argue that it would be better to exclude head
office costs from this calculation:
• An average gym has direct costs of 660 – 71 = C$589k
• Average revenue per customer = C$176.73 as before
• Break even = 589,000/176.73 = 3,333 members
• Given the average membership is 4,500, this implies a
safety margin of 1,167 members or 26%.
50 KAPLAN PUBLISHING
