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1. Responsibility centres

1.1. Cost centre

1.2. Investment centre

1.3. Profit centre

2. Cost centres

2.1. Reponsibility centres in which we only need their cost information

2.2. Cost information needed: Total actual costs, total budgeted cost, tota cost variances, ratios

2.3. Measurements

2.3.1. Productivity

2.3.2. Cost per unit

2.3.3. Cost per standard

2.3.4. Accutal versus Budgeted

2.3.5. Ratios

3. Profit centres

3.1. Responsibility centres in which we need to get both cost an revenue information

3.2. From them, a profit for the centre may be calculated

3.3. Ther profit centre manager has some influence over both revenues and costs

3.4. Measurements

3.4.1. Profit margin = (Net profit/ Sales)x100%

3.4.2. Gross profit margin = ( Gross profit/ Sales)x100%

3.4.3. Cost/ Sales ratios

4. Investment centres

4.1. Return on capital employed

4.2. We need to calculate profit for these centres, then calculate their return rate over capitals

4.3. An investment centre may consist of a group of profit centres

4.4. Required by senior management

4.5. Measurements

4.5.1. Return on capital employed (ROCE) = (Profit/capital employed) x 100%

4.5.2. Residual income The cost = Rate of return required x Capital employed

5. Compatison

5.1. Corresponding

5.2. Previous periods

5.2.1. Most commonly seen: year-on-year

5.2.2. For management: month-by-month or quarter- by- quarter

5.2.3. For product : season-by-season

5.3. Budgets

5.3.1. Budget: A financial plan detailing a company’s objectives and action plans to achieve these objectives in the future

5.3.2. between budget and actual results to see whether budget holders can achieve the target set to them

5.4. Forecasts

5.4.1. Most common: Csh flow forecast

5.4.2. Management compare forecast vs actual

5.4.3. Differences are due to : Assumptions, conditions,..

5.4.4. Can forecast even non-financial information

6. Controllable and uncontrollable vairances

6.1. Controllable: can be recfied by managers

6.2. Uncontrollable: are due to external factor beyond the managers

6.3. Variances can also be interdependent

7. Variances calculations

7.1. Sales revenue variance: Total = volume variances + price variances

7.2. Cost variance : Total dirext cost variance = Volume variance (ZERO in flexed budgets) + Purchase price variance + Efficiency of usage variance