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1. Responsibility centres

1.1. Responsibility centre is a function or department of an organization that is headed by a manager who has direct responsibility for its performance

1.1.1. cost centre A cost centre is any section of an organization to which costs can be separately attributed Information about cost centres Total actual costs Total budgeted costs Total cost variance Ratios

1.1.2. profit centres A cost centre is any section of an organization to which both revenues and costs are assigned, so that the profitability of the section can be measured A profit centre might be entire division of an organization, separate profit centre for each product, product range, branch or service

1.1.3. Investment centres Investment centre is a centre which has additional responsibilities for capital investment Investment centres refer to centres which additional responsibility for capital investment and possibly for financing, and whole performance is measured by its return on capital employed Investment centres may include several profit centres

2. investment centre measurment

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

2.1.1. Return on investment

2.1.2. Profit before interest and tax

2.1.3. Average capital

2.2. Residual income: A centre's profit after deducting a notional interest cost

2.2.1. The cost = Rate of return required x Capital employed

2.2.2. Brings in as much profit as expected

3. performance measures

3.1. Performance measurement aims to establish how well something or somebody is doing in relation to a planed activity

3.1.1. Performance measures for profit centres

3.1.2. Performance measures for cost centres

3.1.3. Performance measures for investment centres

4. Cost centre measurment

4.1. Productivity : output quantity related to input quantity

4.2. Cost per unit = Total cost/ number of units produced

4.3. Cost per standard hour

4.4. Actual versus Budgeted performance

4.5. Ratios

4.5.1. Efficiency ratio

4.5.2. Capacity utilisation ratio

4.5.3. Production volume ratio

4.5.4. Total = volume variances + price variances

5. profit centre measurment

5.1. Profit margin = (Net profit / Sales) x 100%

5.2. Gross profit margin = (Gross profit / Sales) x 100%

5.3. Cost / Sales ratios: Measuring how many % each type of cost takes from sales

6. Information comparision

6.1. Corresponding periods

6.2. Previous periods

6.3. Budgets

6.4. Forecasts

7. Variances

7.1. Variance reports help budget holders to perform their function of control

7.2. Especially useful if they separate controllable from uncontrollable variances

7.3. Variances are:

7.3.1. Favourable if the business has more money as a result

7.3.2. Adverse if the business had less money as a result

8. Variances calculations

8.1. Sales revenue variance:

8.1.1. Total = volume variances + price variances

8.2. Cost variance:

8.2.1. Total direct cost variance = Volume variance ( ZERO in flexed budget) + Purchase price variance + Efficiency of usage variance

9. The control cycle

9.1. 1: Decide goals and objectives

9.2. 2: Develop plan

9.3. 3: Decide resources needed and performance standards

9.4. 4: Start operations

9.5. 5: Compare actual performance with plan

9.6. 6: Compare goals and objectives achieved with those defined