Page 5 - OCS Workbook - Day 1 Suggested Solutions (May 2018)

SUGGESTED SOLUTIONS

Exercise 1(b) - Standard Costing and Variances

Variance Reason

Sales price Mansako has positioned its products as ‘affordable luxury’ so needs to be
variances wary of excessive price discounting as this can undermine the brand.
Given this, it is vital that the Board can see the overall level of price
discounting by product and store.

Sales mix variance Different product lines have different margins (page 22) and consumer
behaviour is likely to involve substitution.
As a result a sales mix variance will help directors identify any trends in
purchasing habits – e.g. from smaller to larger bags within specific ranges.

Materials usage A usage variance would indicate the effectiveness of the design and cutting
variance stages in minimising excessive waste.

However, this needs to be viewed with caution – for example, a favourable
usage variance could arise if not enough leather has been used or if
defective products were not rejected by quality control, resulting in an
inferior product

Marketing cost Marketing expenditure is critical to enhancing and building the Mansako
expenditure brand. However, we are told (page 15) that most companies cannot afford
variance to invest in all channels. Controlling marketing costs is thus vital to
Mansako.

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