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Implementing strategies is not adequate if individuals who must execute them fall short.
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Responsibility Centers
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Cost Centers
Part of a business to which a cost is allocated for the purposes of strategic planning. Cost centers can be large divisions of a business, departments, small teams, or even individuals. A segment whose manager has control over costs, but not over revenues or investment funds.
Revenue Center
A Revenue Center is responsible for selling an agreed amount of products or services. It's manager is usually responsible to maximize revenue given the selling price (or quantity) and given the budget for personnel and expenses.
Profit Center
Profit Centers directly add to its profit. Managers are held accountable for both revenues, and costs or expenses. (Total revenues- total costs). Therefore, profits usually the different profit centers are separated for accounting purposes so that the management can follow how much profit each center makes and compare their relative efficiency and profit. control over both costs and revenues, but no control over investment funds.
Investment Centers It accounts for all uses of capital. The essential element of an investment center is that it is treated as a unit which is measured against its use of capital, as opposed to a cost or profit center, which are measured against raw costs or profits.
manager has control over costs, revenues, and investments in operating assets.
preparing responsibility report of each centre. Reports should contain information in comparative form as to show plans budget & the actual performance & should give details of variances which are related to that centre. The variances which are not controllable at a particular responsibility centre should also be mentioned in the separate report.
Responsibility Reports
Measure performance of
each responsibility center.
Performance Reports
Shows the budgeted and actual amounts, and the variances between these amounts, of key financial results appropriate for the type of responsibility center.
D. Mat D. Lab D. Exp . Allocated & uncontrollable costs Depreciation Rent Insurance
TOTAL COST