ACCT20001 Cost Management
Department of Accounting
Tutorial 8 Preparation Requirements (Week 10)
REQUIREMENT 1
Briefly explain the absorption and variable costing method and provide one benefit of
each method
REQUIREMENT 2:
Variable Costing – Complete Bhimani et al. Ex. 7.14 (6th / 7th edition)
Note that in Part 2 and Part 3 the text refers to variable costing by its other
name, marginal costing.
REQUIREMENT 3
Customer Profitability and ABM – Use the data provided for Spring Distribution in
Bhimani et al. (6th / 7th edition) Ex. 12.21 to complete the following:
1. Compute revenues and operating profit for each of the five customers (P-T)
and tabulate your results with customers ordered by percentage of total
operating profit from the most profitable to the least profitable showing
cumulative operating profit and cumulative percentage of operating profit as in
Exhibit 12.11, Panel A in the textbook (6th / 7th edition).
2. Explain how Spring Distribution could apply the approach of activity-based
management to improve profitability based on your results from part 1.
REQUIREMENT 4 (in-class discussion)
Domino’s has a value range priced at $7 a pizza.
Some background on Domino’s and their $7 pizza
 Apart from owning some of the stores, and receiving royalties from franchisees,
a significant portion of Domino’s profits come from selling dough and toppings
to its franchisees (who are required to buy from the parent company)
 Franchisees pay Domino’s a royalty fee of 7% of sales. They also pay Domino’s
6% of sales for national advertising campaigns.
 In 2014, Domino’s introduced its $5 pizza range in Australia.
 In late 2019, Domino’s took $5 pizzas off the menu, only to reinstate it soon after
following a drop in sales growth (to the lowest in about 6 years)
 In early 2020, some of its franchisees are suing Domino’s over its $5 pizza –
claiming that it had caused a significant drop in store profitability.
 Recently prices have been raised to $7
a. What are some of the fixed and variable costs of selling a pizza for a Domino’s
franchisee?
b. For workers who are paid on a per hour basis, is this portion of the labour costs really
a variable cost?
c. Is the estimated contribution margin of a $7 pizza likely to be positive for a
franchisee? Would the $7 cover the full costs of the pizza? Note: Domino’s pizza
food (ingredient) cost is typically 30% of the pizza’s selling price
d. What are some of the possible reasons behind Domino’s decision to cut prices of
(some of) its pizzas to $5 back in 2014?
e. What are some of the risks of Domino’s $5 pizza strategy and recently raising prices
to $7?