AUTOZONE, UNALLOCATED COSTS AND REPORTS In this paper, the student has been asked to take a report from AutoZone, which allocates common costs to a division, product or service. Based on that report, the student has been asked to recast the information with unallocated costs and analyzing the effectiveness of the report. It's been said by various financial gurus that sometimes allocating costs to products or departments or divisions can help a company gain a clearer understanding of what is doing well (or not, as the case may be). There is some sense in this – by allocating costs directly to the units (or products) that are generating those costs, we can probably fully understand whether a division or product is a drain on the corporate bottom line or if it has nothing to do with it. This can then give managers a better idea of where costs might be coming from, and what needs to be done to reduce them. As there aren't specific allocated costs, unfortunately, in any of AutoZone's statements of operations, we'll have to offer a reasonable estimate of fixed costs and use AutoZone's approximate figures. The time period is FY 2008. With the contribution margin effectively calculated by subtracting total revenue from total variable cost, we can get the margin income statement as a percentage of sales. Segment Contribution Margin Income Statement With No Allocation of Fixed Costs Net sales LESS Cost of sales LESS Operating, selling, general and other Operating profit Margin contribution 6,522,706 3,254,645 2,143,927 1,124,134 17%
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