Question 2

2.1 How does cost variance analysis contribute to financial management in retail business and why is it critical? (10)

Question 3

Case Study: Gourmet Cafe Chain

XYZ Gourmet Cafes is a renowned franchise with a presence in various locations nationwide. They boast a diverse menu, encompassing delectable breakfast offerings to exquisite gourmet dinners. The franchise is synonymous with top-notch cuisine, exceptional customer service, and a welcoming dining atmosphere.

Recently, the leadership at XYZ Gourmet Cafes has been confronted with a pivotal choice: whether to produce or procure specific food items for their branches. This decision holds significant weight, directly influencing the costs and profitability of the franchise. The leadership team must meticulously weigh factors like product quality, expenses, and profitability metrics before arriving at a resolution.

The franchise operates a central kitchen facility where they craft an array of culinary delights. They have the option to either continue internal production or opt for external sourcing. The determination of whether to make or buy these products will have far-reaching

effects on their financial flows and future business operations.

The leadership acknowledges that the make or buy decision necessitates a consideration of the incremental costs and revenues tied to each alternative. They grasp that pertinent costs are those directly impacted by the decision, such as additional disbursements or cost reductions. Conversely, immaterial costs will remain unaffected by the decision.

To ensure an enlightened choice, XYZ Gourmet Cafes' leadership examines factors such as ingredient procurement costs, labor expenditures, quality assurance, production capacity, and supplier dependability. They also take into account the influence on their cash position, alongside any shifts in revenue that might arise from the resolution.

Following their comprehensive assessment, they opt to subcontract specific food items to dependable suppliers. This strategic move allows them to hone in on their core strengths, enhance operational efficiency, and curtail expenses. Through a judicious evaluation of pertinent costs and an eye on cash flow and profitability, XYZ Gourmet Cafes arrives at a make or buy determination that markedly enhances their business operations.

3.1

What distinguishes relevant costs from irrelevant costs within the framework of decision-making?

Question 4

4.1 XYZ Accessories is a retail business specializing in hats. Here is some

information about their operations:

Selling Price per Hat: R120

Variable Cost per Hat: R60

Fixed Costs: R5,000

4.1.1 How many Hats does XYZ Accessories need to sell to cover their fixed costs? (5)

4.1.2 What is the minimum sales revenue XYZ Accessories must generate to cover their fixed costs? (5)

4.1.3 If XYZ Accessories wants to achieve a target profit of R3,000, how many Hats do they need to sell? (5)

4.1.4 How does understanding the break-even point assist XYZ Accessories in making pricing decisions? (5)

Question 5

5.1 Scenario:

You have been appointed as a management accountant for a retail company. The company is facing a decline in profitability and aims to analyze its cost structure for making data-driven decisions. In this role, you have been assigned specific tasks to address the situation.

Task: Discuss how Activity-Based Costing (ABC) can help the retail company improve its financial performance.

Hint: Start by defining & explaining what is ABC, then discuss why it would be relevant and beneficial in this context.

(10)