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Profit Centres
•Business units are created to delegate more authority to operating managers.
•The degree of delegation may differs
•Complete authority for generating profits is never delegated to a single segment of the business
…contd
•To create a profit centre:
•Manager needs relevant inputs for decision making
•There must be effective ways of measuring his performance
•It would be interesting to note that the measures need not be financial alone- can you identify a few non financial measures?
Advantages of profit centres
•Quality of decisions
•Speed
•Management by exception through effective decentralisation
•Better information systems in place
•Initiative
•Innovation
Disadvantages
•Loss of control
•Loss of focus?
•Short run goals?
•Quality of decisions
•Generalist outlook for the specialist
Requirements of a profit centre
•Control on costs
•Control on revenues
Constraints in a profit centre
•On authority
•Constraints from business units
•Top management
Who can be profit centres?
•Can support facilities or cost centres be converted to or assessed as profit centres?
•Eg. Finance, Purchase, Legal…
Profit Centre Income Stmt
Revenue Less: COGS Variable costs
Contribution Margin
Fixed expenses incurred in the profit centre
Direct Profit
Controllable Corporate Charges
Controllable Profit
Other Corporate Allocations
Income Before Taxes
Less Taxes
Income after taxes
Measuring Profitability
•Contribution margin- Spread between revenue and variable expenses
•Is the profit center head effective if he maximises contribution?
•Fixed expenses- Should they be considered?
•Can profit centre heads control them?
•Direct profit- Incorporates expenses directly or traceable to profit centre
•Traceable costs are charged regardless of whether they are controllable or uncontrollable
•Controllable profit- The portion of headquarter costs is charged to the profit centre
•Income before taxes
•Net Income- In come after taxes
•Sometimes profit centers may operate in tax haven zones..
Which of the above is the most appropriate measure? Why
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∙ 11y ago
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Identify one example of a cost center a profit center and an investment center for fedex?
Give me an example of a cost center, a profit center, and an investment center for FedEx?
Advantages of profit center?
advantages of profit centre
Why Cost center profit center investment center has its own budget?
To monitor,and make accountable, the management team for that Cost/Profit/Investment center.
What is documentation fee for car?
It is simply an extra profit center for the dealership. It is simply an extra profit center for the dealership.
What are examples for responsibility centers?
cost center investment center profit center revenue center
Can health care succeed as a profit center?
Health care can succeed as a profit center. This depends on whether it is managed well and who it is managed by.
What is the importance of responsibility accounting in business management?
It can be defined as a system of accounting under which each departmental head is made responsible for the performance of his department. under this system is made a SEMI-AUTONOMOUS profit center i.e.a center responsibel for the generation of profit.a department generates profit by "SELLING"its o/p to the other departements or profit centers in the same organisation.the prices at which one one department(or) profit center to the other departement or profit center may be fixed in any of the following ways: 1.MARK ON ACTUAL COST 2. MARK UP ON STANDARD COST 3.MARKET PRICE 4.NEGOTIATED PRICE.
What is the difference between a cost center a profit center and an investment center?
Cost centers - http://en.wikipedia.org/wiki/Cost_center Profit center - http://en.wikipedia.org/wiki/Profit_center Investment center - http://en.wikipedia.org/wiki/Investment_center
What is a responsibility center that incurs costs and expenses and generates revenues?
It is a Profit Center
What is difference between cost center and profit center?
Cost Centre: It is that department in factory where all costs are pooled or costs are allocated. Profit Centre: Is is that department where only profit is pooled like sales department.
What is the difference between a cost center and profit center?
cost centre = the department which activities cash disbursement profit centre = the department which activities making cash
What are three example of the kinds of decisions where incremental analysis would be used in cost center profit center and investment center?
center
