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COST CENTRES AND COST CALCULATIONS - Coggle Diagram
COST CENTRES AND COST CALCULATIONS
Sales revenue variance
Total= volume variances+ price variances
Cost variance: Total direct cost variance =volume variance (ZERO in flexed budget) + Purchase price variance + efficiency of usage variance
Responsibility centre
Headed by a manager
Has direct responsibility for its performance
Three types
Cost centre: Collects information on costs.
Profit centre: Collects information on costs, revenues and profits.
Investment centre: Collects information on costs, revenues and profits
in relation to the value of Non current assets and Working capital.
Cost centres
Responsibility centres in which we only need their cost information
Cost information needed: Total actual costs, total budgeted costs, total cost variances, ratios.
Profit centre measurements
Profit margin = (Net profit / Sales) x 100%
(Also called profit to sale ratio)
Gross profit margin=(Gross profit/Sales) x 100%
Cost / Sales ratios: Measuring how many % each type of cost takes from sales
Profit centres
From them, a profit for the centre may be calculated
The profit centre manager has some influence over both revenues and costs
Responsibility centres in which we need to get both cost and revenue information
Information comparison
Corresponding periods
Forecasts
Budgets
Previous periods
The control cycle
Decide goals and objectives
Developplan
3.Decide resources needed and peromance
Start operations
Compare actual performance with plan
Compare goals nd objectives achieved with those defined
Variances
Variance reports help budget holders to perform their function of control
Especially useful if they separate controllable from uncontrollable variances
Variances are:
Favourable if the business has more money as a result
Adverse if the business has less money as a result
Exception reporting
Highlights variances might need investigating
Reporting material variances to budget holders
Reporting to them is sometimes called responsibility accounting