Mary/June 2017 JLW Q4

Traceable = revenue and costs occurring in the division and shows how the division has performed as an economic entity. We are told that the bonus will be based on divisional net profit and traceable is used for this so that the division is not burdened with head office costs.

However, ammanager of a division can regard this as unfair because the division incurs costs (particularly depreciation on the new machinery bought by head office for the division) that the manager had no responsibikity for or control over. For appraisal of managers of divisions, controllable profits are better.

Part (a) of the requirements heavily hints that two measured of performance are needed: one to appraise the division, and one to appraise the manager.

The question says that divisional net profit is used to appraise the division. See first line of para 3 where it talks about performance of the divisions.

The manager says that traceable profit would be a better measure of divisional performance. She also makes the point that measurement of divisional performance is different to measurememt of,managerial performamce and you are askedmto talk about that point.

You might choose to use something other than controllable profit to measure managerial performamce, but Imhave no ixea what that would be. It is fairly standard to use controllable profit to measure managerial performance.