1. Identify various responsibility centers-
cost centers and profit centers in a
pharmaceutical company and comment
how they affect the management
decision making.
Submitted by
Ritika
Shrutika
Nidhi
Nidhi choudhri
Neha
rhythm

2. Ranbaxy
Laboratories Limited

3. Introduction

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 innovative products .

5. Continued…
 RLI is expanding the visibility and
presence of the Ranbaxy name by
bringing value-added brand products
to the market.

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 terms
interests of the organization and
should be compatible with other
responsibility center activities.

7. Types of Responsibility Centers
Investmen
Profit -t centre
centre
Revenue
centre
Cost
centre

8. Question is :-
what is Cost centre & Profit centre
and how they affect the management
decision making process.

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
Research &
Production Operation
development
cost centre cost centre
cost centre

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. 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

13. 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.

14. Parts of Profit centre
Sales &
marketing
Marketing
strategy
Licensing

15. 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.

16. 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.

17. Cost center Profit centre
 Cost centres are the  Profit centres are that
smallest segment of activity segment of activity which is
or area of responsibility for both responsible for
which costs are Revenue and expenses
accumulated or and disclose profit of a
ascertained. particular segment of
 Cost centres are created activity.
for accounting convenience  Profit centres are created
 A cost centres does not to delegate responsibility to
have target cost , but individuals.
efforts are made to  Each profit centre has a
minimize cost 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.

18. 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 de-
sensitised to changes occurring within the external environment
 The company becomes complacent and loses its innovative drive

19. Ranbaxy– Master Budget
(Fixed)Prod.1 Prod. 2 Prod. 3 Prod. 4 Total
Units made 245,000 385,000 636,000 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
Unit-related costs $1,323,000 $1,232,000 $2,703,000 $1,812,500 $7,070,500
(245,000x$5.40)
Batch-related 159,250 104,720 169,600 33,750 467,320
costs
(490x$325)
Prod.-sustaining 125,000 168,000 256,000 355,000 904,000
costs
Facility costs 1,450,000
Total cost center $9,891,820
costs

20. Ranbaxy– Actual Costs
Units made 2,945,000 345,000 675,000 950,000
Units per 600 2,300 1,800 6,000
batch
No. of 492 150 375 159
batches
Cost per unit $ 5.43 $3.18 $4.33 $1.40
Cost per $335.00 $670.00 $387 $144.00
batch
Unit-related $1061,850 $1,097,100 $2,922,750 $1,330,000 $6,951,700
costs
Batch- 164,820 100,500 145,125 22,896 433,341
related costs
Prod.- 133,000 163,000 259,000 362,000 917,,000
sustaining
costs
Facility costs 1,650,000
Total cost $9,952,041
center costs

21. 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

22. 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.

23. 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

24. 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.

25. 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.

26. A simple summary of the
responsibility centers
Output measured in
Revenue centre monetary terms
Input measured in
Expense/cost centre
monetary terms
Output measured in
Profit centre monetary terms
Output measured in
Investment centre monetary terms