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Hello Sir, can you please explain how they get $96,000 in this question
Division A reported sales of $400,000 and a contribution of $160,000 for the most recent period. Revenue and variable costs are controllable by the division’s manager. Fixed costs for the period were $80,000, of which 20% were controllable by the division’s manager.
What amount of profit was controllable by the division’s manager for the most recent period? (Answer in $)
Controllable profit = $160,000 ? ($80,000 ? $16,000) = $96000
My calculation on this is $160,000-($80,000*20%)=$144,000The controllable contribution is $160,000.
Although they control fixed costs of $16,000 they do not control the other fixed costs of $64,000 and therefore the $64,000 will be incurred whatever the manager does.
So the profit that they are able to control is 160,000 – 64,000 = 96,000.
Sir, so to work out controllable profit we need to deduct uncontrollable expenses from controllable contribution
then what about controllable fixed cost, does it need to take account?
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