Question

Given below is an excerpt from a management performance report:

	Budget	Actual	Difference
Contribution margin	$1,000,000	$1,025,000	$25,000
Controllable fixed costs	$   500,000	$   475,000	$25,000

The manager’s overall performance

Answer 1

The manager’s overall performance –

Is 10% above expectations, as shown below

Performance measurement –

Actual net income = actual contribution – actual fixed overhead = $1,025,000 - $475,000 = $550,000

Budgeted net income = budgeted contribution – budgeted fixed overhead

= $1,000,000 - $500,000 = $500,000

Performance measurement = increase in net income/budgeted net income

= (550,000 – 500,000)/500,000 = 10%

Hence, the manager’s overall performance is 10% above expectations.