Question

The Deluxe Division, a profit center of Riley Manufacturing Company, reported the following data for the first quarter of 2013:

                Sales      $9,000,000

                Variable costs    6,300,000

                Controllable direct fixed costs    1,200,000

                Noncontrollable direct fixed costs             530,000

                Indirect fixed costs          300,000

Instructions

(a)          Prepare a performance report for the manager of the Deluxe Division.

(b)          What is the best measure of the manager's performance? Why?

(c)           How would the responsibility report differ if the division was an investment center?

Answer 1

A. Performance report

Sales $9000,000

(-)Variable costs ($6,300,000)

(-)Controllablr fixed costs ($1,200,000)

(-)Indirect fixed costs ($300,000)

Net Income   $1200,000

B. The best measure of performance measurement of he manager in a profit center is the amount of profit or net income manager is able to obtain from the required level of resources and level of production activities, the maximum amount of contribution margin the manager is available to generate which is sufficient enough to bear thecontrollable fixed costs and above that also able to recover the un-controllable fixed costs and still able to obtain the desired level of profits priodically.

C. The responisbilty would differ for a managerin an investment center and in profit center, as the manager in a profit cenyet would only be concerned with the revenues and costs of an the organisation to obtain the level of desired profits,however the manager in an Investment center would be responsible for both revenues, costs as well as the amount of investment returns from the assets of the respected level of activities of an investment center.