Question

The division of a multinational corporation shows sales of $2.3 million, variable cost of sales of $1.3 million, and divisional overheads of $800,000 55% of which is deemed controllable by the division and the other 45% is a head office allocation. The profit on which the divisional manager should be evaluated is

Question 2 options:

	$1,000,000
	$560,000
	$440,000
	$800,000

Answer 1

Here given The division of a multinational corporation shows sales of $2.3 million

variable cost of sales of $1.3 million

divisional overheads of $800,000 55% of which is deemed controllable by the division and the other 45% is a head office allocation

So divisional overheads that apply to the division = 0.55 * 800,000

= 440,000

the other 45% of the divisional overheads will be in the balance sheet of the company and is not specific to the division

The profit on which the divisional manager should be evaluated = Sales - Vairable cost - Divisional overheads for that division

= 23,000,000 - 13,000,000 - 440,000

= 560,000

So Answer is Option B