CIMA P2 Syllabus C. Managing Performance Of Organisational Units - Cost, Profit, Investment And Revenue Centres - Notes ^{3 / 10}

Each manager must have a well-defined area of responsibility and authority

These Responsibility Centres could be Cost Centres, Revenue Centres, Profit Centres or Investment Centres

1. Cost Centre

Costs for the centre are identified and recorded

e.g. Manufacturing department

The manager is therefore responsible for the costs she controls in that cost centre.

Note that the manager has no responsibility for earning revenue.

A Performance Report for a cost centre:

Important Points About The Performance Report:

• It distinguishes between controllable and uncontrollable costs

• Actual costs are compared with a flexed budget.

A revenue centre is therefore accountable for revenues only.

e.g. Retail Outlet, Sales Department

Revenue centre managers should normally have control over how revenues are raised

They will also want information on markets and new products and they will look closely at pricing and the sales performance of competitors in addition to monitoring revenue figures.

A profit centre is a part of the business for which both costs and revenues are identified

e.g. product division

The budget for the sales revenue and variable cost of sales will be flexed according to the activity level achieved

A Profit Centre Performance Report:

An investment centre is a profit centre + Investment responsibilities

e.g. A Subsidiary

Performance will probably be measured by ROCE, RI and ROI.

The Capital Employed should only be directly attributable non-current assets and working capital

Cost, Revenue, Profit and Investment centres are also known as Responsibility centres.