ACC602 Strategic Management Accounting Illustrative Example

Financial Performance (Profitability) Reports and Transfer Pricing Analysis

Illustrative Example 1
Mappoo’s Department Stores Ltd operates a chain of retail stores in Fiji. The sales revenue and costs for
the two divisions for the most recent year is as follows:

Vitilevu Division Vanualevu

(in $’000s) Division
(in $’000s)
Suva Nadi Ba all stores
Sales revenue $15000 $7200 $23000 $63000
Variable expenses:
Costs of merchandise sold 9000 6000 18000 36000
Sales personnel: salaries 1200 900 1250 4800
Sales commission 200 120 270 600
Utilities 240 180 450 900
Other 180 105 360 750
Fixed expenses:
Depreciation: buildings $360 $270 $750 $1410
Depreciation: furnishings 240 150 420 870
IT service 120 90 225 480
Warehouse 210 180 600 1350
Insurance 120 75 270 600
Property taxes 105 60 240 510
Supervisory salaries 450 300 1200 2700
Security 90 90 240 6310
The following fixed expenses are controllable at the store level: depreciation (furnishings), IT services,
warehouse, insurance and security. In addition to these expenses, each division annually incurs a further
$150000 in IT costs, which are not allocated to individual stores.

The following fixed expenses are controllable at the company level: depreciation (building), property
taxes and supervisory salaries. In addition to these expenses, each division incurs costs for supervisory
salaries of $300000, which are not allocated to individual stores. The Mappoo’s Department Stores
incurs common fixed expenses of $360000, which are not allocated to the two divisions.

Required:
1. Prepare a performance report. Show the profitability for the company, the profitability for the
three stores that are part of the Vitilevu Division, and the profitability of the Vanulalevu Division
as a whole.
2. Explain how this report could be used by the managing director of Mappoos to manage the
company.

Reference: Langfield-Smith, K. and Thorne, H., 2013. Management Accounting: Information for Creating and Managing value. 6th edition.
Australia: McGraw-Hill Education Pty Ltd. Pp 581-584.
  Help the managing director gain insights into which divisions and individual stores are
performing well
 The performance of managers of each division and store
 The performance of divisional/ store managers differ from that performance of their business
unit. Example, in Ba.
 Some costs are not controllable by managers, eg. Supervisory salaries.

Reference: Langfield-Smith, K. and Thorne, H., 2013. Management Accounting: Information for Creating and Managing value. 6th edition.
Australia: McGraw-Hill Education Pty Ltd. Pp 581-584.
Reference: Langfield-Smith, K. and Thorne, H., 2013. Management Accounting: Information for Creating and Managing value. 6th edition.
Australia: McGraw-Hill Education Pty Ltd. Pp 581-584.
Reference: Langfield-Smith, K. and Thorne, H., 2013. Management Accounting: Information for Creating and Managing value. 6th edition.
Australia: McGraw-Hill Education Pty Ltd. Pp 581-584.
Reference: Langfield-Smith, K. and Thorne, H., 2013. Management Accounting: Information for Creating and Managing value. 6th edition.
Australia: McGraw-Hill Education Pty Ltd. Pp 581-584.