Creating the great business leaders

Control Management System

Topic #6

RESPONSIBILITY CENTRES: REVENUE AND EXPENSE CENTERS

Lecture : Team Teaching

 Fakultas Ekonomi dan Bisnis
School Economics and Business

Responsibility
Centers

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business RESPONSIBILITY CENTER: UNDERSTANDING
Telkom University

❑ A responsibility center is an organization unit that is headed by manager

who is responsible for its activities.

❑ A company is collection of responsibility centers.

❑ From the standpoint of senior management and the board of directors, the
entire company is a responsibility centers.

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business NATURE OF RESPONSIBILITY
Telkom University

❑ A responsibility center exist to accomplish one or more purposes

❑ The objective of various responsibilities are to help implement strategies in

order to achieve organization’s goals

❑ If each responsibility center meets its objectives, the goals of the

organization will have been achieved

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Relation between Inputs and Ouputs
Telkom University
❑ Management is responsible for ensuring the optimum relationship
between inputs and outputs

❑ The relationship between input and output can be causal and direct
or not directly
❑ Direct: Raw material >> Finished Goods
❑ Indirect: Marketing expense >> Sales Revenue ( Sales Revenue is
affected by many factors)

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business EFFICIENCY AND EFFECTIVENESS
Telkom University

THINGS RIGHT)
EFFICIENCY IS THE RATIO OF OUTPUTS TO INPUTS (DOING
In many responsibilities
centers, efficiency is
measured by comparing
The more outputs
contribute to the objectives,
the more effective the unit

BETWEEN A RESPONSIBILITY CENTER’S OUTPUT AND ITS

EFFECTIVENESS IS DETERMINED BY THE RELATIONSHIP
actual costs with some
standard, weaknesses using
this method are:

OBJECTIVES ( DOING THE RIGHT THINGS)

• Recorded cost are not precise
measures of the resources actually
consumed
• The standard is merely
approximation of what ideally
should have happened

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Types of Responsibility Centers
Telkom University

• Manufacturing function (engineered expense)

Expense Centers • Research and Development (Discretionary Expense)

Revenue Centers • Marketing Function

Profit Centers • Business Unit (No Authority to Capital Investment)

Investment • Business Unit (Having Authority to Capital

Investment)
Centers
7 Creating the great business leaders
Fakultas Ekonomi dan Bisnis
School Economics and Business

Revenue Centers

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Revenue Center: Understanding
Telkom University
❑ Revenue center is responsibility center whose managers have
responsibility to generate revenue

❑ In a revenue center, output is measured in monetary terms, but no

formal attempt is made to relate input to output

❑ Typically revenue centers are marketing/sales unit

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Expense Center: Understanding
Telkom University
❑ Expense center is responsibility center whose managers have
responsibility to element of expenses

❑ In a expense center, input is measured in monetary terms, but not

for outputs

❑ Typically expense centers are manufacturing functions,

warehousing, distribution, administrative and support units (
accounting, legal, Public relations, human resources) and R&D

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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Expense Center Classification
Telkom University

Engineered Expense Centers

• Their input can be measured in monetary terms
• Their output can be measured in physical terms
• The optimum dollar amount of input required to produce one unit of
output can be determined

Discretionary Expense Centers

• The difference between budget and actual expense ( Input) is not a
measure of efficiency
• Input (expense) does not incorporate the value of the output
• Most common types of discretionary expense center: Administrative &
Support Centers, R&D centers, Marketing Center
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 Fakultas Ekonomi dan Bisnis
School of Economic and Business Discretionary Expense Centers: Control
Telkom University

Incremental Budgeting
• The discretionary expense center’s current level of expense is taken as starting point
• The amount is adjusted for inflation, anticipated changes in the workload of continuing
job and special job
• Drawbacks: (1) current level of expenditure is accepted and not reexamined during
budget preparation process (2) managers typically want to increase the level of
services, thus tend to request additional resources

Zero Base Review

• Making a through analysis of each discretionary expense center on a rolling schedule
• The analysis simply attempts to keep costs reasonably in line with this base until next
review takes place
• Drawbacks: (1) through analysis is a complex job (2) time consuming

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