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  • Chapter 9 SCM

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    Cyra Ellaine
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    The document contains three sections that calculate different profitability metrics for a business segment. The first section shows sales, expenses, profit, imputed interest, and residual income. The second section shows profit, taxes, after-tax profit, imputed interest/WACC, and economic value added. The third section breaks down the calculation of operating income by subtracting variable and fixed costs from sales and contribution margins. Key terms are defined, such as controllable vs. non-controllable costs, and different performance measurement calculations like ROI, ROS, and residual income.

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    A solution in chapter 9 of Strategic Cost Management by Payongayong.

    Original Title

    Chapter-9-SCM

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    The document contains three sections that calculate different profitability metrics for a business segment. The first section shows sales, expenses, profit, imputed interest, and residual income. The second section shows profit, taxes, after-tax profit, imputed interest/WACC, and economic value added. The third section breaks down the calculation of operating income by subtracting variable and fixed costs from sales and contribution margins. Key terms are defined, such as controllable vs. non-controllable costs, and different performance measurement calculations like ROI, ROS, and residual income.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    170 views2 pages

    Chapter 9 SCM

    Uploaded by

    Cyra Ellaine
    The document contains three sections that calculate different profitability metrics for a business segment. The first section shows sales, expenses, profit, imputed interest, and residual income. The second section shows profit, taxes, after-tax profit, imputed interest/WACC, and economic value added. The third section breaks down the calculation of operating income by subtracting variable and fixed costs from sales and contribution margins. Key terms are defined, such as controllable vs. non-controllable costs, and different performance measurement calculations like ROI, ROS, and residual income.

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    © All Rights Reserved
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    of 2

    Sales XXX

    Less: Total Expenses (XX)


    Profit (Segment Income) XXX
    Less: Imputed Interest (XX)
    Residual Income XXX

    Profit XXX
    Less: Tax (XX)
    After Tax Profit XXX
    Less: Imputed Interest / WACC* (XX)
    Economic Value-Added XXX

    *WACC= Weighted Average Cost of Capital (minimum set)

    *higher between WACC, Imputed Interest, and ROI.

    Sales XXX
    Less: Variable Manufacturing Costs (XX)
    Manufacturing Contribution Margin XXX
    Less: Variable Non-Manufacturing Costs (XX)
    Contribution Margin XXX
    Less: Controllable Direct Fixed Costs (XX)
    Controllable Contribution Margin XXX
    Less: Non-Controllable Direct Fixed Costs (XX)
    Segment Margin XXX
    Less: Indirect Fixed Costs (XX)
    Operating Income XXX

    Question: Are all controllable costs, direct costs?

    Answer: Yes.

    Question: Are all direct costs, controllable costs?

    Answer: No.

    Measurement of Performance of Officers = Controllable Contribution Margin

    Measurement of the Segment = Segment Margin

    Controllable Direct Fixed Costs = traceable AND controllable

    Non-Controllable Fixed Costs = traceable BUT NOT controllable

    Traceable = Direct Costs

    Common Costs are indirect fixed costs.


    ROS (Return on Sales) = Segment Income / Net Sales

    Asset Turnover = Net Sales / Average Assets

    ROI (Return on Investment) = ROS x Asset Turnover

    ROI (Return on Investment) = Segment Income / Average Assets

    Residual Income = Segment Income – Minimum Income Required*

    *Minimum Income Required = Average Assets x % of Cost of Capital

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