profit-loss account 36

May 13th, 2015
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profit and loss statement describe Profit Centres

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Profit Centres Business units are created todelegate more authority to operatingmanagers. The degree of delegation may differs Complete authority for generatingprofits is never delegated to a singlesegment of the businesscontd To create a profit centre: Manager needs relevant inputs for decisionmaking There must be effective ways ofmeasuring his performance It would be interesting to note that themeasures need not be financial alone- canyou identify a few non financial measures?Advantages of profitcentres Quality of decisions Speed Management by exception througheffective decentralisation Better information systems in place Initiative InnovationDisadvantagesLoss of controlLoss of focus?Short run goals?Quality of decisionsGeneralist outlook for the specialistRequirements of a profitcentre Control on costs Control on revenuesConstraints in a profitcentre On authority Constraints from business units Top managementWho can be profitcentres? Can support facilities or cost centresbe converted to or assessed as profitcentres? Eg. Finance, Purchase, LegalProfit Centre IncomeStmtRevenueLess: COGSVariable costsContribution MarginFixed expenses incurred in the profit centreDirect ProfitControllable Corporate ChargesControllable ProfitOther Corporate AllocationsIncome Before TaxesLess TaxesIncome after taxesMeasuring Profitabil

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