Accounting for Managers: Interpreting accounting information for decision-making

118 ACCOUNTING FOR MANAGERS

Table 8.5 Retail Stores PLC – contribution by business segment

Clothing Electrical Toys Total

Sales 400,000 300,000 150,000 850,000
Variable costs 25% 30% 40%
100,000 90,000 60,000 250,000

Contribution 300,000 210,000 90,000 600,000
Segment-specific fixed costs 120,000 100,000 60,000 280,000

Segment contribution to
business-wide costs and profits

180,000 110,000 30,000 320,000

Allocated business-wide costs (as a
% of sales revenue)

120,000 90,000 45,000 255,000

Profit/(loss) 60,000 20,000 (15,000) 65,000

Table 8.6 Retail Stores PLC – effect of closure of business segment

Clothing Electrical Toys Total

Sales 400,000 300,000 700,000

Variable costs 25% 30%

100,000 90,000 190,000

Contribution 300,000 210,000 510,000

Segment-specific

fixed costs

120,000 100,000 220,000

Segment

contribution to

business-wide costs

and profits

180,000 110,000 290,000

Allocated

business-wide costs

(as a % of sales

revenue)

146,000 109,000 255,000

Profit/(loss) 34,000 1,000 35,000

results (£510, 000 /£700, 000 = 72 .9%, up from 70.6%). Consequently, Retail Stores’
breakeven point in sales can be revised to:

fixed costs

unit contribution as a % of sales

=

220 , 000 + 255 , 000

0. 729

=

475 , 000

0. 729

or £652,000.
Current sales of £700,000 represent a margin of safety of 6.8%, a fall of 4% from
the three-division breakeven calculation. This is calculated by: