You have been recently promoted to the divisional manager of Hadi Ltd (“the Company”), a company with 25 branches around the country. As a profit center, your division performance, is assessed by the head office on a monthly basis. The head office expects the controllable profit of your division to be at least 35% of sales. The following figures are related to your division for the month of June 2021: Direct materials £50,000 Direct labour £40,000 Variable overheads £30,000 Sales £200,000 Depreciation £14,000 Fixed overheads excluding depreciation £25,000 Head office cost allocation £16,000 Your division has no control at all over 80% of the depreciation, which relates to the non-current assets while 65% of the fixed overheads excluding depreciation are controllable at divisional level. The head office cost allocation relates to research and development expenditure. Required: Using the monthly divisional performance statement, critically assess whether your division has achieved the required performance criteria set by the head office for the month of June 2021. You should include a computation of the divisional profit which distinguishes between controllable and non-controllable costs.
You have been recently promoted to the divisional manager of Hadi Ltd (“the Company”), a company with 25 branches around the country. As a profit center, your division performance, is assessed by the head office on a monthly basis. The head office expects the controllable profit of your division to be at least 35% of sales. The following figures are related to your division for the month of June 2021:
Direct materials £50,000
Direct labour £40,000
Variable overheads £30,000
Sales £200,000
Fixed overheads excluding depreciation £25,000
Head office cost allocation £16,000
Your division has no control at all over 80% of the depreciation, which relates to the non-current assets while 65% of the fixed overheads excluding depreciation are controllable at divisional level. The head office cost allocation relates to research and development expenditure.
Required:
- Using the monthly divisional performance statement, critically assess whether your division has achieved the required performance criteria set by the head office for the month of June 2021. You should include a computation of the divisional profit which distinguishes between controllable and non-controllable costs.
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