Page 70 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 4: Responsibility Centers

Assume there is no opening and closing inventories, actual variable costs for the month were Notes
` 168,000 and ` 192,000 for division A and B respectively. Actual controllable fixed costs amounted
to ` 44,000 for division A and ` 52,000 for division B. Actual attributable segment costs are
` 88,000 for A and ` 1, 28,000 for B. The common firm wide costs are assumed to be ` 96,000 to be
apportioned on the basis of segment sales revenue.
Prepare performance evaluation report if ABC Ltd. employs profit centre basis of divisional
performance.

Solution:
Performance Evaluation Report for the Month (000)
Product Line A Product Line B Total
Budget Actual Variance Budget Actual Variance Budget Actual Variance
` ` ` ` ` ` ` ` `
Sales 400 480 80F 400 480 80F 800 960 160F
Revenue
Less: 160 168 8 A 160 192 32A 320 360 40A
controllable
variable
costs
Controllable 240 312 72F 240 288 48F 480 600 120F
contribution
margins
Less: 40 44 4 A 40 52 12A 80 96 16A
controllable
fixed costs
Controllable 200 268 68F 200 236 36F 400 504 104F
segment
margin
Less: 80 88 8 A 120 128 8 A 200 216 16 A
attributable
segment
costs
Segment 120 180 60 F 80 108 28F 200 288 88F
profit
contribution
Less: 48 48 - 48 48 - 96 96 -
common
firm wide
costs
Net income 72 132 60F 32 60 28F 104 192 88F
F = Favourable A = Adverse

Notes Common firm wide costs allocated based on budgeted sales revenue.

Task Find out more about marketing centres and engineered expense centres.

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