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CMA Intermediate · Management Accounting · Responsibility Accounting

Yamuna Pharma Ltd. has a plant manager whose reported profit is Rs 9,00,000 after charging depreciation of Rs 1,50,000 on plant allocated by head office, and Rs 70,000 of interest on a loan raised centrally. The manager has no say in either item. Which profit figure should be used to assess the manager's performance on a controllability basis?

The profit to use is Rs 11,20,000. Both the allocated depreciation of Rs 1,50,000 and the centrally raised loan interest of Rs 70,000 are outside the manager's control, so both are added back to the reported Rs 9,00,000 profit.

  1. ARs 9,00,000
  2. BRs 10,50,000
  3. CRs 9,70,000
  4. DRs 11,20,000Correct

Explanation

Add back both uncontrollable charges: 9,00,000 + 1,50,000 + 70,000 = Rs 11,20,000. Adding back only depreciation gives 10,50,000 and only interest gives 9,70,000, each leaving an uncontrollable cost in the figure.

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