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To find the controllable profits they have considered indirect cost to as it includes HO cost
From question if we need controllable profit we can take Sales – direct cost ( which both are in control of division). Why indirect cost is considered and Net profit taken instead of controllable profits?Going through examiners report they have taken Net profit without any direct or valid assumptions.
In my first attempt of the question i took Sales – Direct cost to find controllable profits.
When calculating controllable profits, it is essential to focus on what is under the control of the divisional manager. Controllable profit is what the manager can influence, which typically excludes costs determined by the head office.
So, if the question specifies the need for controllable profit, it should be calculated as Sales minus direct costs, which are controllable by the division. However, if the examiners have taken net profit, it may be because they are assessing the overall performance of the division rather than the specific performance of the manager.
Net profit includes all costs, including those controlled by the head office, which is why it may not align with the definition of controllable profit.
The examiners might have made this choice based on the context of the question or specific instructions provided, which may not have been clear in your interpretation.
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