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An important component of
Management Controls – Assigning
responsibility for executing strategy
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Cost centres
Output can be measured and specify the amount of
input
Managers are held responsible for cost incurred in
the centers.
Efficiency is measured by the amount of input
consumed.
Managers are not responsible for volume variances.
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Expense Centres
Centers that produce outputs that are not
measurable in financial terms.
No strong relation exits between resources
and results
Performance evaluation on the basis of the
inter and intra firm comparison of
expenses.
9
Revenue Centres
Generally a revenue centre acquires finished
goods and is responsible for selling and
distributing them.
If pricing is not within its control, then the
manager is held responsible for the volume
and mix variances.
If pricing is within its control, then it can be
made responsible for gross revenue.
They are not profit centres because the
expenses are incomplete.
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Profit Centres
In this case managers have almost
complete operational decision-making.
They are evaluated on the basis of profit
generated.
Principal functions manufacturing and
marketing are performed.
It sells majority of its output to the outside
world.
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