Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

Transcription

1 Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

2 Responsibility A responsibility centre is a function or department of an organization that is headed by a manager who has direct responsibility for its performance. (OR) It is an organization unit for which a manager is made responsible.

3 Responsibility Responsibility centre can be divided into the following categories: Cost Responsibility Investment Profit

4 Cost A cost centre is any section of an organization to which costs can be separately attributed. Cost centers can be large divisions of a business, departments, small teams, or even individuals.

5 Cost Some of the examples of cost centre: A department A machine or group of machine A project (eg: installation of new equipment) A new product (to enable the cost of development) A person (eg: marketing director cost might include salary, company car & other expenses incurred)

6 Profit A profit centre is any section of an organization to which both revenues and costs are assigned, so that the profitability of the section may be measured. Remember that there can be several cost centres within a profit centre.

7 Profit Some examples of profit centre: A sales division selling products to customers. A service division providing after sales service. Individual shop in a retail chain. Local branches in a regional or nationwide distribution business. A geographical region. Eg: a country

8 Investment An investment centre is a profit centre whose performance is measured by its return on capital employed.

9 Performance Measures Performance measurement aims to establish how well something or somebody is doing in relation to planned activity.

10 Performance Measures for Cost Productivity This is the quantity of the product or service produced (output) in relation to the resources put in (input). It actually measures how efficiently resources are being used.

11 Performance Measures for Cost Cost per unit It can be calculated using the following formula: Cost per unit = Total Cost (TC) No. of unit produced (Q)

12 Performance Measures for Cost Measures of performance using the standard hour Performance measures for materials and labour include differences between actual and expected (budegeted) performance. Performance can also be measured using the standard hour.

13 Performance Measures for Cost Measures of performance using the standard hour Under this we need to calculate three ratio, namely efficiency ratio, capacity utilisation ratio and production volume ratio.

14 Performance Measures for Cost Efficiency ratio = Standard ours produced Actual ours worked 100 Capacity utilisation ratio = Acutal ours worked Budgeted ours 100 Production volume ratio = Standard ours produced Budgeted ours 100

15 Performance Measures for Profit Ratios and percentages are useful performance measurement techniques. The profit margin (profit to sales ratio) is calculated using the following formula: Profit margin = Profit Sales 100

16 Performance Measures for Investment Return on capital employed (ROCE) Return on capital employed (ROCE) or return on investment (ROI) show how much profit has been made in relation to the amount of resources invested.. ROCE = Profit before interest & tax Capital Employed 100

17 Performance Measures for Investment Residual Income (RI) RI is an alternative way of measuring the performance of an investment centre. It is a measure of the centre s profit after deducting notional or imputed interest cost.

18 Performance Measures for Investment Asset turnover Asset turnover measures how efficiently the assets of the business are being used. Asset turnover = Sales Capital Employed 100

19 Q & A