COST CENTRES AND VARIANCE COMPARISON

1. RESAPONSIBILITY CENTRES

1.1. Cost centres

1.1.1. A department, a machine, ...

1.1.2. Productivity, cost per unit, cost per standard hour, actual versus budgeted performance.

1.2. Profit centres

1.2.1. A sales/ service, Individudual shops/ outlets in a retail chain, ...

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

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

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

1.3. Investment centres

1.3.1. Returnon capital employed( ROCE)= (Profit/ Capital employed)x100%

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

2. INFORMATION COMPARISON

2.1. Previous periods comparison

2.1.1. Most commonly seen : year-on-year

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

2.1.3. For some products: season-by-season

2.2. Forecasts comparison

2.2.1. Most common type: Cash flow forecast

2.2.2. For manager: forecast vs actual

2.3. Budgets comparison

2.4. Corresponding periods comparison

3. CONTROLLABLE AND UNCONTROLLABLE VARIANCES

3.1. Controllable variance can be rectified

3.2. Uncontrollable/ Non-controllable variance

3.3. Interdependent

4. VARIANCES

4.1. Variance reports

4.2. Controllable/ Uncontrollable variance

4.3. Favourable/ Adverse

4.4. Sales revenue variance: Total= volume variance+price variance

4.5. Cost variance: Total direct cost variance = Volume variance +Purchase price variance + Efficiency of usage variance