Managerial Accounting · Module 1 · Scenario 1
Relevant vs. sunk cost, contribution margin, and capacity — one decision that quietly teaches a third of a managerial syllabus. Move the sliders, watch the margin, then defend your call.
You're the newly-appointed manager of AMG's Phoenix branch. You've inherited a rental fleet, and your bonus is tied to branch contribution margin. This morning, a decision lands in your inbox:
A repeat customer wants a 30-day rental on a telehandler at 20% below book rate. Utilization in your telehandler category is running at 58% — you have idle units. Your sales rep wants to say yes. Your gut says "we don't discount."
Take the deal, or hold the line? Use the panel to find out what the numbers actually say — then write the memo.
The rep's numbers are pre-loaded. Change anything you'd challenge.
Contribution margin = rental revenue − variable operating cost. Live.
Ownership cost is shown but excluded from the deal decision on purpose — see “the lesson” below.
AMG · Regional CFO
"Numbers are easy to make say yes. Before I sign off, answer these — in your memo, not in your head."
Your decision memo
In a live course this memo is where the grade lives — the math and the reasoning both count. (This prototype keeps your text on-page only; nothing is sent anywhere.)
This one scenario is a doorway to a surprising amount of the managerial syllabus:
The unit is already in your yard. Its depreciation, interest, and insurance are committed whether it rents or not — for this decision they're sunk. The only costs that change if you say yes are the variable ones (fuel, wear, transport). So the right comparison is deal rate vs. variable cost — not vs. "fully-loaded" cost. Judging a discount against fully-loaded cost is the single most common way managers leave contribution on the table.
With utilization at 58%, you have spare capacity. Idle capacity earns nothing. Any rental whose rate clears variable cost adds to contribution margin — the discount is not a loss, it's incremental margin you'd otherwise forfeit. The logic flips the moment you're near 100% utilization, because then a discounted rental displaces a full-rate one.
Displacement: if the unit would have rented at book rate anyway, the relevant cost of the deal now includes the opportunity cost — the full-rate margin you gave up. Rate erosion: a one-time discount is a contribution win; a discount that resets the customer's expectation is a permanent haircut to your realized rate. Good managerial accounting is knowing which world you're in.
Vary the scenario and the same fleet teaches equipment-replacement (repair-vs-replace on an aging unit), CVP and breakeven utilization on a fleet-expansion decision, branch-to-branch transfer pricing, and rate/volume/mix variance analysis. Same data model, a dozen decisions — and eventually one branch inside a multi-period AMG firm simulation.
Parameters here are illustrative and fictional. In the full build they’re calibrated from the anonymized AMG dataset, so the relationships students discover (utilization elasticity, repair-cost curves with age, category margin differences) mirror real dealer behavior — with no proprietary data exposed.