Controllable profit
Controllable profit is a division's revenue minus only those costs the divisional manager can directly influence within the period, excluding allocated head-office overhead and other non-controllable charges; it is the appropriate.
FrameworkSegment reporting
See it move
A division reports revenue of €500,000. Deducting €220,000 of directly attributable variable costs, then €150,000 of fixed costs the manager genuinely controls — their own staff, divisional marketing, locally negotiated premises — leaves a controllable profit of €130,000. Allocated head-office overhead and depreciation the manager did not choose sit below this line, in the fuller divisional profit figure, not inside it.
The formula
Variables
- revenue generated by the division during the period (€)
- variable costs directly attributable to the division's operations (€)
- fixed costs within the divisional manager's direct authority — those that would change with decisions the manager can make (€)
Allocated head-office overhead, centrally imposed depreciation and other charges the manager cannot influence are excluded. This is the appropriate line for evaluating managerial performance; it differs from total divisional profit, which includes all costs attributable to the segment.
Check yourself
A retail division reports revenue of €5,000,000 and total operating costs of €3,800,000, which include €400,000 of group IT infrastructure fees allocated centrally on a formula the divisional manager cannot influence. The division also incurs a notional interest charge of €200,000 imposed by group treasury. For evaluating the divisional manager's performance, which profit figure is most appropriate, and what is its value?