Accounting for Managers: ABC Department Store Clothing Line Analysis

This project analyzes the financial performance of the ABC department store's clothing line. The store is considering dropping this line due to reported losses. The analysis examines sales, variable costs, and fixed costs, including both direct and allocated costs. The solution assesses whether the clothing line should be discontinued, based on the provided income statement data. The project recommends that the clothing line should not be dropped and ways of increasing revenue and covering the fixed costs. The project also suggests implementing cost-cutting measures and adopting pricing strategies to attract customers and increase profitability. The analysis includes references to relevant academic sources to support the recommendations.

Accounting for Managers

INTRODUCTION
• When a business provides a wide variety of products and
services, there would be some products that may invariably
earn higher profit while others may fetch less (Mendez et al.,
2015).
• There is still value in providing products of lower profit or
promoting the customers to buy other products.

Analysis
• The product revenue only covers the direct costs and this
results the business to lose money (Donaldson, 2015).
• However, to account for this the business should calculate
whether the product revenue covers the direct costs together
with the proper proportion of the overhead costs.
• A cost allocation plan should be implemented to determine the
fair share of the fixed costs for the product (Andrews & Shimp,
2017).
• To keep things simple, ABC department should allocate all the
overhead costs on the basis of percentage of revenues.

Recommendations
– A recommendation can be made by stating that ABC department should not
drop the clothing line of product.
– There is a potential of increasing the sales revenue by increasing the volume of
sales to completely the cover the fixed costs. The business should find ways of
cutting the costs and produce its products more efficiently.
– The department can adopt the entire pricing policy as the means of pricing its
clothing line of products to attract the customers for producing more profits.
– The business should provide a gateway to its customers for buying products
with higher margin.

References:
– Andrews, J. C., & Shimp, T. A. (2017). Advertising, promotion, and other aspects
of integrated marketing communications. Nelson Education.
– Donaldson, B. (2015). Sales Promotion. Wiley Encyclopedia of Management, 1-
1.
– Mendez, M., Bendixen, M., Abratt, R., Yurova, Y., & O’Leary, B. (2015). Sales
promotion and brand loyalty: some new insights. International Journal of
Education and Social Science, 2(1), 103-117.

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