A manager's performance valuation should be based on the factors controllable by the manager. Net income minus the division's fixed costs would (a) include a reduction for the fixed costs twice, since fixed costs are a reduction to net income; and (b) only some of the fixed costs, not all, may be controllable by the division manager.
A manager's performance valuation should be based on the factors controllable by the manager. A contribution income statement that presents net revenue minus controllable division costs can be used to isolate the controllable costs of a business unit from its non-controllable costs such as depreciation or allocated central costs. According to the contribution income statement approach to evaluation, a division manager usually controls the division's revenues, variable costs and a portion of its fixed costs.
A manager's performance valuation should be based on the factors controllable by the manager. Contribution margin does not include fixed costs and some of the fixed costs may be controllable by the division manager.
A manager's performance valuation should be based on the factors controllable by the manager. Gross profit is equal to sales revenue minus COGS. Cost of goods sold includes part of the fixed manufacturing overheads. However, fixed manufacturing overheads usually include items that are not controlled by a division manager, such as depreciation. Thus, gross profit should not be used as a division manager performance evaluation tool.
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