responsibility centre mcs

8/3/2019 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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responsibility centre mcs

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