Why do complete income statements provide a more comprehensive basis for evaluating the profit performance of a manager than mere comparisons of the bottom lines of the budgeted and actual income statements?

The Mergers Acquisitions Division M A of Global Financial Se

The Mergers & Acquisitions Division (M&A) of Global Financial Services is evaluated by corporate management based on a comparison of budgeted and actual pre-tax income. For 2010, M&A’s budgeted income statement was as follows:
Sales …………….. $ 36,000,000
Variable costs ………….. (25,200,000)
Contribution margin ………. $ 10,800,000
Fixed costs ……………………… (7,200,000)
Pre-tax income ……………………. $ 3,600,000
At the end of 2010, M&A’s actual results were as follows:
Sales …………………….. $ 39,000,000
Variable costs ………………….. (29,230,000)
Contribution margin …………………. $ 9,770,000
Fixed costs ……………………………… (7,230,000)
Pre-tax income …………………………… $ 2,540,000
a. Based on the preceding information, evaluate M&A’s performance. What was the principal reason for the poor profit performance?
b. Why do complete income statements provide a more comprehensive basis for evaluating the profit performance of a manager than mere comparisons of the bottom lines of the budgeted and actual income statements?

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