Only be prepared at the highest level of managerial responsibility. Learn about the definition of operating leverage, and practice using the formula for calculating it with real-world examples. Definition of Controllable Margin technically is the excess of contribution margin over controllable fixed costs. Assume, for example, that a retail clothing shop wants to earn $10,000 in net income from $100,000 in sales for the month.

Break-even analysis. The activity index used in preparing the flexible budget a. Is prescribed by generally accepted accounting principles. Is only applicable to fixed manufacturing costs. Is the same for all departments. Should significantly influence the costs that are being budgeted.

Since the clothing department revenue increased by $30,000, the clothing accessories revenue stream must have experienced a decline in revenue. In fact, the accessories revenue dropped by 36.4%. While this is a large percentage, consider the fact that the actual value of revenue decline was relatively minor—only $800 lower than expected. This indicates the employees may not have encouraged customers to also get belts or socks with their clothing purchase.

The following information is from Good Read Books. Good Read is a regional book store with three regional stores. The May income statement for all stores is shown.

Then, management will be tasked to see if it can remedy the situation. The definition of material is subjective and different depending on the company and relative size of the variance. However, if a material variance persists over an extended what quantities does angular momentum depend upon period of time, management likely needs to evaluate its budgeting process. Answers will vary. The benefits of an ROI structure include consideration for the segment’s investment and evaluation of management’s ability to generate profitability.

Comment on how your analysis has changed for each store. A. Using the revenue and contribution profit information, calculate the contribution profit percentage for each of the divisions. Describe the concept of responsibility accounting. In which designated supervisors or managers will have both the responsibility for the performance of the center and the authority to make decisions that affect the center. You’ve learned how segments are established within a business to increase decision-making and operational effectiveness and efficiency.

Controllable contribution is the most appropriate measure of a divisional manager’s performance. A budget variance measures the difference between budgeted and actual figures for a particular accounting category, and may indicate a shortfall. As an example, let’s say that a company’s sales werebudgetedto be $250,000 for the first quarter of the year.