Given below is a portion of Swinging Tunes, Inc.’s management performance report:
Budget Actual Difference
Contribution margin $1,040,000 $1,020,000 $20,000
Controllable fixed costs $430,000 $420,000 $10,000
Which statement is true about the manager’s overall performance?
a. The manager’s performance is above expectations.
b. The manager’s performance is below expectations.
c. The manager was under budget on all controllable amounts.
d. The manager’s overall performance cannot be determined from information given.
The correct answer and explanation is :
The correct answer is:
d. The manager’s overall performance cannot be determined from information given.
Explanation:
To properly evaluate a manager’s performance, we need to consider more than just the given figures. Let’s analyze the provided data:
- Contribution margin: The actual contribution margin ($1,020,000) is $20,000 lower than the budgeted amount ($1,040,000). This suggests lower revenue, higher variable costs, or both. A lower contribution margin generally indicates a weaker performance.
- Controllable fixed costs: The actual fixed costs ($420,000) are $10,000 lower than the budgeted amount ($430,000). This suggests that the manager successfully controlled expenses, which is a positive factor.
At first glance, these numbers provide conflicting signals. The lower contribution margin could indicate poor sales or increased variable costs, while the reduced fixed costs suggest effective cost management. However, the overall performance of the manager depends on multiple additional factors, such as:
- Revenue and Sales Volume: If the drop in contribution margin is due to lower sales volume, it could reflect poor marketing, demand issues, or market conditions outside the manager’s control.
- Variable Cost Increases: If costs of raw materials or labor increased, the lower contribution margin might not be the manager’s fault.
- Other Performance Indicators: Metrics like customer satisfaction, employee efficiency, and market share changes are also important.
Since we only have two financial figures and no context on revenue trends, market conditions, or cost fluctuations, we cannot conclusively determine whether the manager’s performance was above or below expectations.