Below is a performance report that compares budgeted and actual profit in the sp

Question

Below is a performance report that compares budgeted and actual profit in the sporting goods department of Maxwell’s Department Store for the month of December
Maxwell’s Department Store
Sporting Goods
Performance Report
December 2008
Budget Actual Difference
Sales 600,000 675,000 75,000
Less:
Cost of merchandise 300,000 375,000 75,000
Salaries of sales staff 60,000 68,000 8,000 Controllable profit 240,000 232,000 (8,000)

Required: Evaluate the department in terms of its increases in sales and expenses. Do you believe it would be useful to investigate either both of the increases in expenses?
Consider storewide electricity cost. Would this cost be a controllable or a non controllable cost for the manager of sporting goods? Would it be useful to include a share of storewide electricity cost on the performance report for sporting goods?

Explanation / Answer

Evaluate the department in terms of its increases in sales and expenses. The department has given an increase in sales, but there is no increase in Gross Margin. The Cost of Merchandise has gone up. It should be 337,500 instead of 375,000. Do you believe it would be useful to investigate either both of the increases in expenses? There is increase of 11.11 % in cost of merchandise, which needs to be investigated. The expense has also increased by $500, which is 0.74%. The increase in expense is less than 1%, therefore not much investigation is required. Consider storewide electricity cost. Would this cost be a controllable or a non controllable cost for the manager of sporting goods? Would it be useful to include a share of storewide electricity cost on the performance report for sporting goods. Yes the electricity is a controllable cost, and a manager must control on the usage / wastage of the same. It will be useful to include a share of storewide electricity cost on the performance report for sporting goods.

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