Performance management (8) Flashcards
What are the main functions that management are involved with?
Planning
Decision making
Control
Define a responsibility centre
A responsibility centre is an individual part of a business whose manager has personal responsibility for its performance. There are four main responsibility centres: cost, profit, revenue and investment
Define a cost centre
A cost centre is a production or service location, function, activity or item of equipment whose costs are identified and recorded for the purpose of providing management information
Define a profit centre
A profit centre is a part of the business for which both the costs incurred and the revenues earned are identified
Define an investment centre
An investment centre is a profit centre with additional responsibilities for investment and possibly alsof for financing, and whose performance is measured against its return on capital employed
Define a revenue centre
A revenue centre is a part of the organisation that earns sales revenue. it is similar to a cost centre, but only accountable for revenues, and not costs
There are three performance measuring formulae for investment centres, state them
Rate of inventory turnover = cost of sales/average inventory
Receivables collection period in days = average receivables/ annual sales x 365
Payables payment period = average payables/ annual purchases x 365
State the formula for the return on investment (ROI)
ROI = controllable divisional profit/controllable divisional investment x 100
State the formula for residual income (RI)
RI = controllable divisional profit - imputed interest cost on controllable divisional investment
What is a flexible budget
A flexible budget is a budget which recognises different cost behaviour patterns and is designed to change as the volume of activity changes
