RESPONSIBILITY

CENTERS

PRESENTED BY : KASHISH
ROLL NO: 21421162
MANAGEMENT CONTROL SYSTEM
LEARNING PATH…

SERIAL NO. PARTICULARS

1. Responsibility centres
2. Types of RC
3. REVENUE CENTER
4. EXPENSE CENTER
5. PROFIT CENTER
6. INVESTMENT CENTER
7. CASE STUDY
 WHAT IS RESPONSIBILITY CENTER?

 A responsibility center is an organization unit that is

headed by a manager who is responsible for its
activities.
 Organisation is collection of responsibility centres.
 Responsibility center is held accountable for activity under
consideration.
 Each RC consumes INPUTS and produces ‘OUTPUT’.

 The relationship may be direct or indirect. Eg. Production

department, advertising etc.
 HOW WE MEASURE INPUTS AND OUTPUTS ?

 Cost is a monetary
measure of the amount of
resources used by RC.

 It is much easier to
measure the cost of input
than to calculate the value
of output
 CONCEPT OF EFFICIENCY AND EFFECTIVENESS

Relationship between
output and objectives

𝑜𝑢𝑡𝑝𝑢𝑡
= 𝑖𝑛𝑝𝑢𝑡
TYPES OF RESPONSIBILITY CENTERS
 REVENUE CENTERS

In a revenue center , output ( i.e. revenue) is measured in

monetary terms , but no formal attempt is made to relate
input (i.e ,expense or cost) to output.
 EXAMPLE OF REVENUE CENTERS

1. In 1999, two co. named servicO and impac hotel group,

merged to create lodgian as one of the largest owners and
operators of hotels in us.

2. In the highly competitive call centre industry environment of

2004, some companies successfully differentiated themselves
by converting their service centres into revenue centres.
 EXPENSE CENTER

 Expense centers are the responsibility centers whose inputs are

measured in monetary terms but whose outputs are not.

 Responsibility centers whose employees control costs

 They don't control their revenues or investment level.

 Two types of costs :

 Engineered costs centers
 Discretionary costs centers
 ENGINEERED EXPENSE CENTER

Engineered expense centers have the

following characteristics :
1. Inputs measured in monetary
terms
2. Outputs in physical terms

EEC are usually found in manufacturing operations

They perform repetitive tasks for which standard costs are
developed.
 DISCRETIONARY EXPENSE CENTER

1.Difficult to estimate inputs

Outputs can’t be measured in monetary terms.
2. Difficult to establish optimal relationship.
3. Performance measure is budgeted input.
 EXPENSE CENTERS
 EXAMPLES :

Percy barnevik, CEO of Asia brown boveri was known for

slashing corporate staff. The staff in his US subsidiary, was
reduced from 600 people to 100 over a two year period
and in German subsidiary was reduced from 1600 people
to 100 people in 3 years.

The former CEO of IBM formed 12 task forces to study

growth opportunities , changed the process of evaluating
new technology and created executive committee. etc.
 General Control Characteristics

Heavy reliance on budgets

For on going activity its bit easier than a new project.

1. BUDGET PREPARTION

2. INCREMENTAL BUDGETING

3. ZERO-BASE REVIEW Aetna a large insurance company began

restructuring program in 1990. it
reorganised its 3 divisions into 15 profit
centres.
 PROFIT CENTERS
 EXAMPLES

At the retailer Wal-Mart, different

departments selling different products could
be divided into profit centers for analysis. For
example, clothing could be considered one
profit center while home goods could be a
second profit center.

The computer giant Microsoft has a wide

variety of profit centers ranging from
hardware to software to digital services. In
analyzing these large revenue sources, the
company may choose to separate the funds
produced from the sale of its Windows
operating system from that of other
software suites
 INVESTMERNT CENTERS
Starbucks Corporation is the American company with the largest
coffeehouse chain globally. They engaged in vertical and
horizontal integration strategies while gaining new markets and
customers. As a result, they now have many divisions and
subsidiaries acting as distinct entities. Examples of subsidiaries of
Starbucks Corporations are Corporacion Starbucks Farmer
Support Center Columbia, Starbucks Manufacturing Corporation,
and Starbucks Capital Asset Leasing Company, LLC. For the parent
company, these subsidiaries are investment divisions
 CASE STUDY

ABC ltd. is a large multinational company that specializes in the production and
distribution of consumer electronics. The company is divided into several different
divisions, including manufacturing, sales, marketing, and research and
development. Each division operates as a separate responsibility center, with its
own manager responsible for overseeing its operations and meeting its
performance goals.
 Research and Development Division :The research and development division of ABC
Corporation is responsible for developing new electronic products and improving existing
products.
The division operates as a profit center, as it generates revenue through the sale of new and
improved products. The division manager is responsible for ensuring that research and
development activities are effective in generating new and improved products, and that
revenue and profit goals are met.
This structure helps ensure that each division is focused on its specific role and is working
towards meeting its own performance goals, while also contributing to the overall success of
the company.

 Manufacturing Division :The manufacturing division of ABC Corporation is responsible for

producing the company's various electronic products, including smartphones, laptops, and
tablets.
 The division operates as a cost center, as it does not generate revenue directly but instead
incurs costs associated with producing the products. The division manager is responsible
for ensuring that the manufacturing process is efficient
 Sales Division :The sales division of ABC Corporation is
responsible for selling the company's electronic products to
consumers and businesses.
The division operates as a profit center, as it generates
revenue through the sale of products. The division manager is
responsible for maximizing revenue

 Marketing Division :The marketing division of ABC Corporation is

responsible for promoting the company's electronic products to
consumers and businesses.
The division operates as an investment center, as it incurs costs associated
with marketing activities but also generates revenue through increased
product sales. The division manager is responsible for ensuring that
marketing campaigns are effective in driving sales.
THANKS