You are a finance officer of SMM and one morning you receive the following email Module Name: Cost and Management Accounting 3 Page 4 of 5 From: Moses Milliband To:

Finance Officer Subject:

Review of sales channel and budgeting for the fleet operating costs As you know we are continuing to undertake a review of our operations. I have been asked by the SMM to analyse sales variances for quarter three (July to September) of the year in more detail than usual to try and understand the decline in sales. Rental of prestige cars has been particularly disappointing, especially in light of a special offer that was run during the period to promote the connected car technology available in them. Between 1 July 2021 and 30 September 2021, we offered a promotional discount of 20% across all off- airport rentals booked via the app, although this promotion was not included in our budget. Also, our largest on-airport site was closed for three weeks due to airline strikes at the airport.

So far I have calculated the sales variances for prestige cars (Reference Material 1) and I would like you to prepare a commentary for the SMM to accompany these figures. As well as considering the variances I am keen to discuss changing the approach we use for budgeting the fleet operating costs. It is a long time since we last reviewed these costs in any detail. I am going to include the benefits of using a zero-based budgeting (ZBB) approach in the next briefing paper for the SMM and I would like your help with this. I had a quick chat with James Bond, Retail Operations Director, and will send you some notes from conversation (Reference Material 2).

To summarise, please draft the content for a briefing paper for the SMM which explains:

A) What each of the three variances in Reference Material 1 mean and the possible reasons for their occurrence, with a conclusion about overall performance of prestige cars. (20 Marks)

reference material 1:

Variances for prestige cars by location - July to September 2021

varience	on airport $	off airport $	total $
sales price	0	135 000 A	135 000 A
sales mix	317 813 A	105 938 F	211 875 A
sales quantity	344 063 A	150 000 A	494 063 A
total			840 938 A

Note:

1) The sales mix and quantity variances are calculated using the weighted average method.

2) The weighted average budgeted gross profit per prestige car per day across the two sales channels is E$48.

The budgeted gross profit per prestige car per day for each of the sales channels is E$55 for on-airport rentals and E$33 for off-airport rentals.