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Controllable Profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Controllable Profit

  • This topic has 3 replies, 3 voices, and was last updated 3 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • December 20, 2021 at 4:12 pm #644621
    Syed Ahsan Ali
    Participant
    • Topics: 136
    • Replies: 85
    • ☆☆☆

    I am troubled with this question which was given in the examiner report sept 2018.

    Example 1
    Summary financial information for one of Damon Co’s divisions for the last year is shown below:

    —————————————————–$’000
    Revenue—————————————-18,000
    Variable costs———————————-(9,600)
    Divisional fixed operating costs———–(2,760)
    Apportioned head office costs————-(2,160)
    Interest charges——————————–(200)
    Tax————————————————-(700)
    Net profit—————————————–2,580

    The average value of the division’s total assets less current liabilities for the last year was $22.8m.

    Damon Co assesses the return on investment of its divisions on the basis of controllable profit.

    Based on this information, what is the division’s return on investment for the last year?
    A 11.3%
    B 15.3%
    C 20.8%
    D 24.7%

    I know that we should only take costs controlled by the divisional manager and no costs controlled by the head office should be included.

    BUT could you please explain whether the calculation of controllable profit is profit before interest and tax or net profit? Interest and tax are not relevant in paper PM?

    December 20, 2021 at 8:12 pm #644627
    mammaryasir
    Participant
    • Topics: 1
    • Replies: 4
    • ☆

    HI

    I GUESS CONTROLLABE PROFIT IS THE SAME LIKE OPERATING PROFIT.

    AND OPRTATING PROFIT IS ALWAYS BEFORE INTEREST & TAX.

    FURTHER IN CONTROLLABLE PROFIT, EXPENSES LIKE DEPRECIAION IS EXCLUDED AS SUCH EXPENSES ARE UNDER UNDER THE CONTROLL OF DEPARTMENTAL/DIVISIONAL MANAGER

    December 20, 2021 at 8:14 pm #644628
    mammaryasir
    Participant
    • Topics: 1
    • Replies: 4
    • ☆

    *NOT UNDER THE CONTROL OF MANAGER

    December 21, 2021 at 7:50 am #644641
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54675
    • ☆☆☆☆☆

    mammaryasir: Please do not answer in this forum because it is the Ask the Tutor Forum, and you are not the tutor (but please do help people in the other Paper PM Forum.

    Syed Ahsan Ali: We take the profit before interest and tax, because neither are controllable by the division manager.

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