New version page

RespCenters_Chp4

Upgrade to remove ads

This preview shows page 1-2-3-19-20-38-39-40 out of 40 pages.

Save
View Full Document
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 40 pages.
Access to all documents
Download any document
Ad free experience

Upgrade to remove ads
Unformatted text preview:

Responsibility CentersAn important component of Management Controls – Assigning responsibility for executing strategyTherefore, management controls must includeResponsibility CentersWhat is a responsibility center?Attributes of a responsibility centerExample: A courier service (DHL)Measuring the performance of the courier-terminal responsibility centerMeasuring inputs and outputsConverting the inputs into monetary unitsMeasuring outputsThe input-output attributesWhy does an organization relate input to outputs?EfficiencyEffectivenessEfficiency-Effectiveness Not a compromiseRole of ProfitTypes of Responsibility CentersRevenue CentersRevenue Centers (continued)Expense/Cost CentersExpense centers (continued) Comparing Budgeted and Actual CostsMorton Carpets – Master Budget (Fixed)Morton Carpets – Actual CostsMorton Carpets - Variance AnalysisWhat do we learn from the variance analysis of Morton Carpets?What can we conclude about Morton Carpets?What can managers do to make the numbers comparable and meaningful?Morton Carpets – Flexible Master BudgetSlide 33What did we infer from the flexible budget slides?Cost/Expense center variances – A few pointersProfit CentersProfit Centers (continued)Slide 38Investment CentersAdministrative Centers (support centers)A simple summary of the responsibility centersWhat did we learn from these control system illustrations?An alternative to “Controllability”Responsibility CentersChapter 4 and 5An important component of Management Controls – Assigning responsibility for executing strategyImplementing strategies is not adequate if individuals who must execute them fall short.3-2Therefore, management controls must includeHow responsibility is assigned and measuredHow tasks are measured (not necessarily tasks done by humans but also by machines; e.g. units produced)Task controls such as when to order inventory, why the actual differ from budgeted (the causes)And, not easy to measure or quantify items such as impact on behaviors, intangible assets, and so on.3-33-4Responsibility CentersWhat is a responsibility center?In simple words: an organizational unit for which a manager is made responsible.Examples: A specific store in a chain of grocery stores.A work-station in a production line manufacturing automobile batteries.The payroll data processing center within a firm.Attributes of a responsibility centerIt is like a small business, and its manager isAsked to run that small business and preserve the interests of the larger organization.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.Example: A courier service (DHL)Courier operations dispatch trucks to pick up or deliver shipments from local terminals.It could be sent to one or more central terminals and then sorted and redirected.Success of this service would depend on:–Service commitment to customers (on time, without damage) and–Controlling costsLet us suppose that each terminal is treated as a responsibility center.How should the company measure the performance of each terminal, its mangers, and its employees?Measuring the performance of the courier-terminal responsibility centerTo focus on efficiency: we could measure no. of parcels picked up, sorted or delivered, per route, per employee, per vehicle, per hour or per shift.To focus on customer service, we could measure each group’s contribution to customers: proportion of the time the terminal met its deadlines, when terminals are required to sort shipments, what the sorting error rate was.We could also measure customer service by: no. of complaints operations group receives, average time taken by the operation group to respond to complaints, and no. of complaints of poor, or impolite service.Measuring inputs and outputsIn the courier example, the inputs are causal and direct: e.g. no. of packets received to time taken to deliver them.But, such causal and direct relationships are not always possible. For example, how does advertising contribute to increase in revenues?Or, how would you measure the contribution of R & D to product innovation, revenue generation, or cost reduction?Converting the inputs into monetary unitsMost organizations would convert the physical inputs into monetary units when evaluating a responsibility center.No. of units x cost of production, labor hours x per hour rate, etc.Measuring outputsMeasuring outputs is more difficult. This is because:Input may be extended this year but outputs (benefits) may be received over several years (e.g. employee training).It would be difficult to make the causal relationship – e.g. marketing expenses, IT investments, accountants and generation of revenue and profits.The input-output attributesMost organizations use financial controls – cost, revenue, and profits, etc.However, such measures are not applicable to all units within an organization.For example, how would you measure the contribution of a production department? It can only be done on a cost measurement basis.How would you measure the contribution of a sales department – only by revenue generated.Why does an organization relate input to outputs?Because they inherently measure efficiency and effectiveness.Efficiency: ratio of output to inputs;Caution: Do not use ratio of output to input in an absolute sense; but, only in a comparative sense.If Dept. A is more efficient than Dept. B, do not rush to conclusions; examine why Dept. B is less efficient and what can be done about it.Also, comparisons are possible only if Dept. B and Dept. A use comparable outputs and comparable inputs. You cannot compare advertising to accounting.EfficiencyEfficiency is generally measured by comparing actual costs to standard costs.Issues:–Standard costs do not remain stationery.–Recorded costs are often different from actual resources (costs) consumption.Lesson: Establishing a responsibility center is easy; Measuring its efficiency in a reasonable manner is difficult.EffectivenessRelationship between a responsibility center’s output and its objectives (what it was intended to do or perform or deliver).If the output contributes to satisfying the objectives, the more effective it is.The new advertising and marketing efforts has increased awareness and


Download RespCenters_Chp4
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view RespCenters_Chp4 and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view RespCenters_Chp4 2 2 and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?