Accounting for Managers: ABC Department Clothing Line Analysis Report

This report analyzes the financial performance of the ABC department's clothing line, which is considering being dropped due to reported losses. The analysis includes an examination of sales revenue, variable expenses, and fixed costs, highlighting that the clothing line's revenue covers direct costs but not allocated overhead. The report emphasizes the importance of cost allocation and suggests that the clothing line should not be dropped. Recommendations include increasing sales volume, cost-cutting measures, and adopting a pricing policy to attract customers and improve profitability. The report also includes an income statement that details sales, variable expenses, gross margin, and net profit for the hardware, clothing, and sporting goods product lines, along with their respective profit margins. The report concludes with a discussion on the potential for increasing sales and profitability through efficient operations and strategic pricing.

Running head: ACCOUNTING FOR MANAGERS
Accounting for Managers
Name of the Student
Name of the University
Authors Note
Course ID

1ACCOUNTING FOR MANAGERS
Table of Contents
Introduction:...............................................................................................................................2
Analysis:.....................................................................................................................................2
Recommendations:.....................................................................................................................2
References:.................................................................................................................................3

2ACCOUNTING 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:
On assessing the ABC department its clothing line of business has resulted in loss.
Despite recording the sale of $15,000 the business reported loss. This is because the business
recorded higher fixed costs. 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.

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Particulars Hardware Clothing Sporting Goods
Sales 10000 15000 25000
Less: Variable Expenses 6000 8000 12000
Gross Margin 4000 7000 13000
Gross Margin Profit 40% 47% 52%
Particulars Hardware Clothing Sporting Goods
Sales 10000 15000 25000
Net Profit 1000 -1000 6500
Net Profit Margin 10% -7% 26%

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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.