Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 23

Phelps Glass Inc. has reported the following financial data: net revenues of $10 million, variable costs of $5 million, controllable fixed costs of $2 million, noncontrollable fixed costs of $1 million, and untraceable costs of $500,000. The accounting manager has supplied you with this data and asked you to come up with the controllable margin, total contribution, CPC, and operating income.

Step 1 of 2

Determine the controllable margin, total contribution, CPC and operating income:

Controllable Margin:

The controllable margin is the contribution margin as reduced by the controllable fixed costs. The controllable fixed costs are included by the profit center manager, and they are useful to measure the manager’s performance.

Total Contribution:

Total contribution is the sales as reduced by the variable costs.

Contributed by Profit Center:

The contribution by profit center measures all the costs traceable and controllable by the individual profit center that includes the traceable fixed costs.

Operating income:

The operating income is the excess of contribution by the profit center over the untraceable costs.