Identify various responsibility centerscost centers and profit centers in a
pharmaceutical company and comment
how they af...
Ranbaxy
Laboratories Limited
Introduction
Business Overview






As of today, Ranbaxy, India's largest pharma
company and the 12th-largest generics maker in
the...
Continued…


RLI is expanding the visibility and
presence of the Ranbaxy name by
bringing value-added brand products
to t...
Responsibility Centre
In simple words: an organizational
unit for which a manager is made
responsible.
Goals for the cente...
Types of Responsibility Centers

Profit
centre
Revenue
centre
Cost
centre

Investmen
-t centre
Question is :
What is Cost centre & Profit centre
and how they affect the management
decision making process.
Cost center
 It

may defined as any location, person or item
of equipment for which cost may be ascertained
& used for th...
Contract Manufacturing


To expand product lines with minimum
investment, Ranbaxy provides turnkey
manufacturing services...
Development and Production





Ranbaxy can provide Active Pharmaceutical Ingredients
(API) for companies that want to ...
Profit centre
An identifiable part of an organisation
where costs and revenue can be calculated
 Managers of profit cente...
Parts of Profit centre
Sales &
marketing
Marketing
strategy
Licensing
Marketing Strategies
 In

Ranbaxy, Marketing Strategies is the

department focused primarily on developing
and executing ...
Licensing


RPI
prides
itself
on
taking
a
creative, mutually beneficial approach to
licensing arrangements. The company i...
Cost center


Cost centres are the
smallest segment of activity
or area of responsibility for
which
costs
are
accumulated...
Cost centres and profit centres
The Disadvantages of Becoming A Global Operator


Decision making becomes centralised


...
Ranbaxy– Master Budget
(Fixed)Prod.1 Prod. 2 Prod. 3 Prod. 4
Units made

245,000

385,000

636,000

Total

1,250,000

Unit...
Ranbaxy– Actual Costs
Units made

2,945,000

345,000

675,000

950,000

Units per
batch

600

2,300

1,800

6,000

No. of
...
Variance analysis
Budget

Actual

Variance

Product 1

13,23,000

16,01,850

2,78,850

Product 2

12,32,000

10,97,100

-1...
What do we learn from the
Variance analysis of Ranbaxy
The variance analysis presents a mix
of positive and negative varia...
What did we learn from these
control system illustrations?
All responsibility centers evolve from the
concept of “controll...
How its helpful in decision making

They allow a more focused study of a
firms finances.
 Benchmarking can take place.
 ...
Continue . . .




By placing responsibility with the person involved in
the activity the finances may be run more effic...
A simple summary of the
responsibility centers
Revenue centre

Output measured in
monetary terms

Expense/cost centre

Inp...
References
 www.wikipedia.org

 www.ranbaxy.com
Ranbaxy cost accounting (profit centre & cost centre of ranbaxy)
Ranbaxy cost accounting (profit centre & cost centre of ranbaxy)
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Ranbaxy cost accounting (profit centre & cost centre of ranbaxy)

  1. 1. Identify various responsibility centerscost centers and profit centers in a pharmaceutical company and comment how they affect the management decision making. Presented by: Shashank Kapoor Sachin Chopra Gurdeep Jasbir Singh Shubham
  2. 2. Ranbaxy Laboratories Limited
  3. 3. Introduction
  4. 4. Business Overview    As of today, Ranbaxy, India's largest pharma company and the 12th-largest generics maker in the world Ranbaxy Pharmaceuticals Inc. (RPI), a wholly owned subsidiary of Ranbaxy Laboratories Limited. (RLL), was established in the U.S. in 1994. RLI has been expanding and growing on the strength of Ranbaxy’s R&D efforts, and continuing exploration of novel drug delivery systems (NDDS), licensing activities, mergers and acquisitions. Ranbaxy has positioned itself as a robust and capable player in the U.S. market through the combined commitment of RPI and RLI to developing new and
  5. 5. Continued…  RLI is expanding the visibility and presence of the Ranbaxy name by bringing value-added brand products to the market.
  6. 6. Responsibility Centre In simple words: an organizational unit for which a manager is made responsible. Goals for the center should be specific and measurable, and Should promote the long term interests of the organization and should be compatible with other responsibility center activities.
  7. 7. Types of Responsibility Centers Profit centre Revenue centre Cost centre Investmen -t centre
  8. 8. Question is : What is Cost centre & Profit centre and how they affect the management decision making process.
  9. 9. Cost center  It may defined as any location, person or item of equipment for which cost may be ascertained & used for the purpose of cost control.  An identifiable part of an organisation where costs can be calculated. Parts of cost centre Production cost centre Operation cost centre Research & development cost centre
  10. 10. Contract Manufacturing  To expand product lines with minimum investment, Ranbaxy provides turnkey manufacturing services, including API and dosage form development, to allow companies to focus on marketing and selling the product.
  11. 11. Development and Production    Ranbaxy can provide Active Pharmaceutical Ingredients (API) for companies that want to manufacture their own product or brand without incurring the time and costs associated with developing the API, eliminating this step from the overall manufacturing process. Key advantages of using Ranbaxy's vertically integrated system are or Continuity of supply Helps In managerial decision making by Consistent quality of product Competitive costs Flexibility and resources to respond to changing market dynamics
  12. 12. Profit centre An identifiable part of an organisation where costs and revenue can be calculated  Managers of profit centers control both the revenues and costs of the product or service they deliver.  Cost for these units vary depending on ability to control labor, waste, and hours.  An identifiable part of an organisation where costs and revenue can be calculated. 
  13. 13. Parts of Profit centre Sales & marketing Marketing strategy Licensing
  14. 14. Marketing Strategies  In Ranbaxy, Marketing Strategies is the department focused primarily on developing and executing strategies for the promotion and distribution of branded, generic and OTC products for RPI.  One of the key tasks for the department is to identify opportunities in different markets and distribution channels and pursue those to developing and establish new relationships in the marketplace.
  15. 15. Licensing  RPI prides itself on taking a creative, mutually beneficial approach to licensing arrangements. The company is open to exploring both outward and inward licensing opportunities to fulfill unmet needs in the marketplace.
  16. 16. Cost center  Cost centres are the smallest segment of activity or area of responsibility for which costs are accumulated or ascertained.  Cost centres are created for accounting convenience  A cost centres does not have target cost , but efforts are made to minimize cost Profit centre  Profit centres are that segment of activity which is both responsible for Revenue and expenses and disclose profit of a particular segment of activity.  Profit centres are created to delegate responsibility to individuals.  Each profit centre has a profit target. There may be number of cost centres in a profit centre. All profit centres are cost centres but all cost centres are not profit centres.
  17. 17. Cost centres and profit centres The Disadvantages of Becoming A Global Operator  Decision making becomes centralised  As the company grows the decision makers become isolated and lose touch with the customers  Increased size makes communications and decision making much more complex  The company loses touch with the market place and becomes desensitised to changes occurring within the external environment  The company becomes complacent and loses its innovative drive
  18. 18. Ranbaxy– Master Budget (Fixed)Prod.1 Prod. 2 Prod. 3 Prod. 4 Units made 245,000 385,000 636,000 Total 1,250,000 Units per batch 500 2,500 1,500 5,000 No. of batches 490 154 424 250 Cost per unit $ 5.40 $3.20 $4.25 $1.45 Cost per batch $325.00 $680.00 $400.00 $135.00 $1,232,000 $2,703,000 $1,812,500 $7,070,500 Unit-related costs (245,000x$5.40) $1,323,000 Batch-related costs (490x$325) 159,250 104,720 169,600 33,750 467,320 Prod.-sustaining costs 125,000 168,000 256,000 355,000 904,000 Facility costs 1,450,000 Total cost center costs $9,891,820
  19. 19. Ranbaxy– Actual Costs Units made 2,945,000 345,000 675,000 950,000 Units per batch 600 2,300 1,800 6,000 No. of batches 492 150 375 159 Cost per unit $ 5.43 $3.18 $4.33 $1.40 Cost per batch $335.00 $670.00 $387 $144.00 $1,097,100 $2,922,750 $1,330,000 $6,951,700 Unit-related costs $1061,850 Batchrelated costs 164,820 100,500 145,125 22,896 433,341 Prod.sustaining costs 133,000 163,000 259,000 362,000 917,000 Facility costs 1,650,000 Total cost center costs $9,952,041
  20. 20. Variance analysis Budget Actual Variance Product 1 13,23,000 16,01,850 2,78,850 Product 2 12,32,000 10,97,100 -1,34,900 Product 3 27,03,000 29,22,750 2,19,750 Product 4 1,81,2500 13,30,000 -4,82,500 70,70,500 69,51,700 1,18,800 Total
  21. 21. What do we learn from the Variance analysis of Ranbaxy The variance analysis presents a mix of positive and negative variances.  Example: Product 1 and 3, unit-related costs were higher than planned, and  For products 2 and 4 they were lower than planned. 
  22. 22. What did we learn from these control system illustrations? All responsibility centers evolve from the concept of “controllability.”  Controllability principle states a manager should be assigned responsibility for the revenue, costs, or investment that he/she could control.  Revenues, costs, or investments that do not fall under a manager’s control must be excluded when evaluating the manager or his/her center.  Problem with this concept: In most organizations, many revenues and costs are jointly earned or incurred and differentiating the controllable from the uncontrollable is 
  23. 23. How its helpful in decision making They allow a more focused study of a firms finances.  Benchmarking can take place.  It help cost accountants specify the quantity and price standards for the materials, labor, energy, and machine time required to produce each gadget.  Planning future profit performance. 
  24. 24. Continue . . .   By placing responsibility with the person involved in the activity the finances may be run more efficiently than would be the case if a more remote, senior manager controlled it. Many operating unit managers have responsibility and authority for both production and sales. They make decisions about what products and services to produce, how to produce them, their quality level, price, sales and distribution systems by evaluating profits.
  25. 25. A simple summary of the responsibility centers Revenue centre Output measured in monetary terms Expense/cost centre Input measured in monetary terms Profit centre Output measured in monetary terms Investment centre Output measured in monetary terms
  26. 26. References  www.wikipedia.org  www.ranbaxy.com

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