Incremental Profitability Presentation Wil
Incremental Profitability Presentation Wil
Incremental Profitability Presentation Wil
Example:
Holden has refused to sublet excess space for $5,000 per month because it figures its cost as $7,500 per month -a price paid for a long-term lease on the
facility.
If the space represents excess capacity with no current value to the company, its historical cost of $7,500 per month is irrelevant and should be
disregarded.
Holden is foregoing $5,000 in profits by turning down the offer to sublet the excess space.
Similarly, any firm that adds a standard allocated charge for fixed costs and overhead to the true incremental cost of production runs the risk of turning
down profitable business.
Incremental Profitability
Wholesales (units) = 95,458
Net Sales ($M) = 2,134
Current Vs Budget
$M Q1 Q2 Q3 Q4 CY Q1 CY
Wholesales (Units) 20,029 23,957 26,593 24,878 95,458 (1,823) (5,720)
Net Sales 487 526 585 536 2,134 20 3
Variable Profit 62 74 103 91 331 (6) 60
Operating Incremental
Variable Profit % 12.8% 14.1% 17.6% 17.0% 15.5% (0.3)pp 21.5 pp Revenue Revenue &
CI/SP (Local) 21 26 30 25 102 4 (3) Expense incurred relating to
vehicles sold at GM Holden
Other Local Costs 21 33 34 29 118 2 (11)
NSC Operating Profit 20 15 39 37 111 0 46
NSC Operating Margin % 4.0% 2.9% 6.7% 6.9% 5.2% 0.0 pp 16.5 pp
NET Profit/Loss Allocated Incremental Expense
Subtotal - Standard Allocations 43 70 80 69 261 17 (42) - Expense incurred relating to
relating to GM
Holden vehicles sold at GM Holden
Operating Profit Before Global Allocations (23) (55) (40) (32) (151) 18 3
2020 to reach
Profit Operating Profit Before Global Allocations % (4.8%) (10.4%) (6.9%) (6.0%) (7.1%) 0.9 pp 1.2 pp