Powerpoint for school

1. November 2009

2.  What is a responsibility center
 The four types of responsibility centers
 What each are accountable for
 Why each has their own budget
 What is Incremental analysis
 The decisions where incremental
analysis would be used in each center.

3.  The Responsibility is the unit in the
organization that has control over
costs, revenues, or investment funds.
 It is an organization unit for which a
manager is made responsible.
 The center’s manager and supervisor
establish specific and measurable goals
for the responsibility center.
 The goals should promote the long-term
interest of the organization.

4.  There are four basic types of responsibility
centers, These centers indicate the degree of
responsibility the manager has for the
performance of the center.
1. Cost centers
2. Revenue centers
3. Profit centers
4. Investment centers

5. Incremental analysis is described as the management’s
decision-making process and approach.
Some common types of decisions that involve incremental
analysis’ are whether to:
1. Accept an order at a special price.
2. Make or buy component parts or finished products.
3. Sell products or process them further.
4. Changes in production and/or technology

6.  A cost center is a type of center that
incurs costs (and expenses) but does not
directly generate revenues.
 Cost centers are accountable for
meeting budgeted goals for controllable
costs.
 This individual budget is used when the
incremental decision to accept an
order at a special price is used.

7.  A Revenue Center is responsible for
selling an agreed amount of products
or services.
 It's manager is usually responsible to
maximize revenue given the selling
price (or quantity) and given the
budget for personnel and expenses.
 This individual budget is used when the
incremental decision to sell products or
process them further is used.

8.  A profit center is a type of center that
incurs costs (and expenses) and also
generates revenues.
 Profit centers are accountable for the
profitability of their centers.
 This individual budget is used when the
incremental decision to make or buy
component parts or finished products is
used.

9.  An investment center is a type of
center that incurs costs (and expenses)
and generates revenues
 Investment centers are accountable for
both the profitability of the center and
the rate of return earned on the funds
invested.
 This individual budget is used when the
incremental decision to examine
changes in production and/or
technology is used.

10. Any questions?