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Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
18-62 Contribution Income Statement for Profit Centers (40 min)
1.
Data Summary:
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Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
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(continued -1)
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Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
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Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
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The formulas for the above spreadsheet are as follows:
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Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
18-62 (continued -3)
The results of the contribution income statement analysis shows that both
stores are profitable and approximately equally profitable as measured by
Cycle & Run center accounts for most of the profit for the store. Given the
cost estimates, this is not surprising. Note that the variable cost
percentages for the two stores is as follows. Adding the variable cost of
goods sold as a percentage of sales to the variable operating cost as a
The analysis shows that management needs to look for ways to control
variable costs, both in cost of purchases for resale and in operating costs.
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Chapter 18 - Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard
18-63 Choice of Strategic Business Unit (20 min)
1. The new office of sustainability is a support department and as such
should be evaluated as a cost center, and since the outputs of the
department will be difficult to measure, at least initially, it should be
established as a discretionary cost center. The department would likely
search for alternatives in the size and type of engines in the trucks that are
used, as well as a new system to schedule routes so as to minimize miles
traveled. Ultimately, as the department begins to realize consistent
success in reducing fuel costs, the evaluation may be changed to some
2. This new department would best be evaluated as a profit center since
its mission is to develop new products and to refine existing products in
order to attract new customers and increase sales. The costs of new
3. This department is best evaluated as a discretionary cost center. The
goal of the department is to identify risk and to make plans accordingly. It
would be difficult to tie this activity to revenues. However, to the extent
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