Responsibility centers

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Responsibility centers

  1. 1. RESPONSIBILITY CENTERS
  2. 2. An important component of Management Controls – Assigning responsibility for executing strategy Implementing strategies is not adequate if individuals who must execute them fall short.
  3. 3. Responsibility Center In simple words: an organizational unit for which a manager is made responsible. Examples: A specific store in a chain of grocery stores. A work-station in a production line manufacturing automobile batteries. The payroll data processing center within a firm.
  4. 4. Attributes of a responsibility center It is like a small business, and its manager is Asked to run that small business and preserve the interests of the larger organization. Goals for the center should be specific and measurable, and Should promote the long terms interests of the organization and should be compatible with other responsibility center activities.
  5. 5. Input-Output Attributes Most organizations use financial controls – cost, revenue, and profits, etc. However, such measures are not applicable to all units within an organization. For example, how would you measure the contribution of a production department? It can only be done on a cost measurement basis. How would you measure the contribution of a sales department – only by revenue generated.
  6. 6. EFFECTIVENESS AND EFFICIENCY Effectiveness: It means how well the responsibility center does its job- that is, the extent to which it produces the intended or expected results. Efficiency: It is used in its engineering sense – that is, the amount of output per unit of input. A responsibility center must both be efficient and effective.
  7. 7. 7 Types of Responsibility centers  Cost centers  Expense Centers  Revenue Centers  Profit Centers
  8. 8. 8 Cost centres  Output can be measured and specify the amount of input  Managers are held responsible for cost incurred in the centers.  Efficiency is measured by the amount of input consumed.  Managers are not responsible for volume variances.
  9. 9. 9 Expense Centres  Centers that produce outputs that are not measurable in financial terms.  No strong relation exits between resources and results  Performance evaluation on the basis of the inter and intra firm comparison of expenses.
  10. 10. 10 Revenue Centres  Generally a revenue centre acquires finished goods and is responsible for selling and distributing them.  If pricing is not within its control, then the manager is held responsible for the volume and mix variances.  If pricing is within its control, then it can be made responsible for gross revenue.  They are not profit centres because the expenses are incomplete.
  11. 11. 11 Profit Centres  In this case managers have almost complete operational decision-making.  They are evaluated on the basis of profit generated.  Principal functions manufacturing and marketing are performed.  It sells majority of its output to the outside world.
  12. 12. THANKS……

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