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a) Prepare a divisional performance statement for the Mayo division
|
€
€(‘000) |
€
€(‘000) |
Total sales revenue |
|
350 |
Controllable divisional variable costs |
(55 +71) |
(126) |
Controllable divisional fixed costs
Controllable depreciation
|
(100x 80%)
(50 x 30%)
|
(80)
(15)
(221) |
Controllable divisional profit |
|
129 |
Other traceable fixed costs |
(100 x 20%) |
(20) |
Other traceable fixed costs (depreciation) |
50x070% |
(35) |
Divisional profit |
|
55
74 |
Apportioned head office cost |
|
(40) |
Net profit |
|
34 |
b) Outline what financial measures can be used to evaluate divisional performance.
Financial measures used to evaluate divisional performance will differ depending on the responsibility structure of the organisation and the level of decentralisation of responsibility and authority. The following table show typical financial performance measure relating to the four typical responsibility centres found in divisionalised organisations
| Responsibility structure |
Manager's area of responsibility |
Typical financial performance measure |
| Cost centre |
Decisions over costs |
Standard costing variances as well as key costs percentage such as a labour costs as a percentage of total cost. |
| Revenue centre |
Decisions over sales and revenue |
Sales variances from budget as well as analysis of the sales mix. |
| Profit centre |
Decisions over costs and revenues |
Controllable profit focusing on key revenue and expense percentage such as
- Labour costs as a percentage of sales.
- Sales mix percentages
- Profit per product line
- Profit per employee
- Cost per employee
|
| Investment centre |
Decisions over costs, revenues and assets |
Return on investment and residual income. ROI would also be analysed into its component parts of operating profit margin and capital employed turnover (asset turnover). |
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