profit-loss account 37

May 13th, 2015
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profit and loss statement describe Types of Profitability Measures

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Q:2) Every SBU is a profit center but every profit center is not a SBU? What are the conditions that should be fulfill for an organization unit to be converted into a profit center? What are the different ways to measure the performance of profit center? Discuss their relevant merits and demerits.Ans: Types of Profitability MeasuresA profit center's economic performance is always measured by net income (i.e., the income remaining after all costs, including a fair share of the corporate overhead, have been allocated to the profit center). The performance of the profit center manager, however, may be evaluated by five different measures of profitability: (1) contribution margin, (2) direct profit, (3) controllable profit, (4) income before income taxes, or (5) net income(1) Contribution Margin:Contribution margin reflects the spread between revenue and variable expenses. The princ

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