Download - Responsibility Centre Mcs
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By :
Lalit Gautam
Mohit Sharma
Shishir Mishra
Mohd. Frahim
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It is an autonomous business centre for whicha manager is responsible for Cost
Revenue
Acquisition of assets
Disposal of assets
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Classified into following parts Expense centre
Cost centre
Revenue centre
Profit centre Investment centre
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The relationship between inputs and outputs ofthe responsibility centre determines the label. responsibility centre can in practice consist of a
department, a business unit, a legal entity,
geographical unit etc.
A description of the type of activities which arecommon per responsibility centre
A number of examples per responsibility centre
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The steering and control concept perresponsibility centre
The most common compensation method,both from a management and a taxperspective
The legal framework.
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Expense center
Contract R&D services
Investment Center
IP owner/Parent
company
Profit Center
Indian Entrepreneur
(Principal company)
Revenue center
Indian sales &
distribution
subsidiaries
Cost Center
Contract manufacturing
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Relationship : input/output Inputs expressed in currencies($) and output in units.
Output levels and costs are hard to determine.
Types of activities Strategically and operationally necessary.
Exclusively performed for group and is core in nature.
Examples Highly creative and non repetitive tasks. e.g. core
research
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Corporate strategy department. E.g. strategymaking.
Towards steering control Determine expense level(budget)
Monitor actual expense/cost per department.
Focus on quality of processes, people andtechnology applied.
Common transfer pricing policy actual cost are charged or allocated to recipient
(budgeted costs +/- variances)
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actual cost/benefit ratio is frequently reviewed profit margin is meaningless from a managerial
point of view profit margin will be required for tax purposes
Legal framework mostly development contract or service level
agreement
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Relationship: input/output inputs are expressed in currencies($) and outputs in
units.
output level and cost standards can be determined
Type of activities operational activities, managed by principal entity
mostly performed for group
mostly non-core
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Examples subcontracting of manufacturing activities
facility management activities
supporting activities of treasury department
IT system maintenance activities
Towards steering/control determine cost standards/targets per product etc.
monitor actual costs per product etc
focus on cost/quality relationship
allows benchmarking of equivalent activities
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Common transfer pricing policy standard cost times actual volumes are charged
to apply a profit mark-up creates pseudo profitcentre
profit margin could be applied from a managerialpoint of view
profit margin will be required for tax purposes,unless a third party would not be able to charge a
mark-up Legal framework
mostly service level agreement.
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Relationship input/output inputs and outputs are expressed in currencies($)
output level and cost level not directly related
Type of activities market/customer driven activities
mostly performed for external customers and ismostly core
Examples sales and distribution activities
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Towards steering/control determine and monitor revenue levels
maximize quantities or prices
Common transfer pricing policy allocation of (contribution) margin of sales revenue
Legal framework mostly service level agreements (e.g. distribution
company)
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Relationship input/output inputs and outputs are expressed in currencies($)
output level and cost standards can be determined
Type of activities market/customer driven activities
mostly performed for external customers and inmostly core
Examples distribution activities
speculative activities of treasury department
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Towards steering/control determine price levels and cost standards per product
monitor turnover, costs and profits per product
focus on profit contribution and quality analysevariances
Common transfer pricing policy external/market price times actual volumes are charged
operating profit margin should - as primary way ofmeasuring profitability - provide an adequate return on
capital employed for.
Legal framework mostly service level agreement with cost centres.
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Relationship input/output inputs and outputs are expressed in currencies
relates profits to assets/underlying capital (=input)
Type of activities capital market/customer driven activities
mostly performed for shareholders/MNO as a whole
Examples intellectual property owners (return on investment
on R&D)
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Towards steering/control determine minimum required return on investment monitor capital employed and profits per product analyse variances on return on investments focus on sustaining long term profitability of MNO
Common transfer pricing policy1 EVA or RONA/ROCE measures should allow
monitoring an adequate return on investment
remuneration based on residual income
Legal framework wide variety of legal agreements.
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Positives (+) management is relieved of much day-to-day
problem solving and is left free to concentrate onstrategy, on higher level decision making, and
coordinating activities.
Decentralization provides lower level managerswith vital experience in making decisions. Without
such experience, they would be ill-prepared tomake decisions.
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Negatives (-) Lower level managers may make decisions without
fully understanding the "big picture."
In a truly decentralized organization, there may bea lack of coordination among autonomousmanagers.
Lower-level managers may have objectives that aredifferent from the objectives of the entireorganization.
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www.googlebooks.com www.tpa.au
www.managerworld.com
Management Control System by Ghosh
http://www.googlebooks.com/http://www.tpa.au/http://www.managerworld.com/http://www.managerworld.com/http://www.tpa.au/http://www.googlebooks.com/ -
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