Question

Safe Home Corporation has four divisions, which operate independently. For the current reporting period, the Locks division generated net revenues of $990,000. The division had a contribution margin of 65% of revenues and had controllable fixed costs of $435,000. Indirect fixed expenses allocated to the division were $212,000. What is the Lock division’s controllable margin?

Answer 1

Lock division's controllable margin is $208,500

Step-by-step explanation:

Controllable margin is calculated deducting from the contribution margin the controllable fixed costs.

This would be:

Revenues: $990,000

Contribution margin ratio 65%

Contribution margin: $990,000*0.65=$643,500

Controllable fixed costs: $435,000

Controllable margin: $643,500-435,000=$208,500

Controllable contribution is used to measure a divisional manager's performance as it is calculated as follows: sales revenue of a division less those costs that are controllable by the divisional manager, these are: variable costs and controllable fixed costs.

Revenues less variable costs = contribution margin

contribution margin less controllable fixed costs = controllable margin.