Prewitt & Webster plc organizes its activities into divisions.Head office determines investment policy and makes all capital expenditure decisions.At a divisional level managers control costs, fix selling prices, determine sales strategy and managerial salaries.Marketing, including advertising, is managed at head office. Division A incurred the following costs and earned the following revenue during the 20X2 financial year:
What was the total of controllable profit for the 20X2 financial year for A division (in £000s)?

Question

Prewitt & Webster plc organizes its activities into divisions.Head office determines investment policy and makes all capital expenditure decisions.At a divisional level managers control costs, fix selling prices, determine sales strategy and managerial salaries.Marketing, including advertising, is managed at head office. Division A incurred the following costs and earned the following revenue during the 20X2 financial year:
 What was the total of controllable profit for the 20X2 financial year for A division (in £000s)?

Quizplus · Accepted Answer

Controllable profit for a division can be calculated as divisional revenue minus controllable costs. In this case, we need to determine the controllable costs. 
From the information given, we can see that direct material cost, direct labor cost, and variable production overhead costs are all controllable costs. 
Controllable costs = direct material cost + direct labor cost + variable production overhead cost = £162 + £53 + £51 = £266,000 
Controllable profit = divisional revenue - controllable costs = £615,000 - £266,000 = £349,000 
Therefore, the answer is B.

Prewitt & Webster Plc Organizes Its Activities into Divisions