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Chapter 9
Structuring divisions as responsibility
centres
There are three ways to structure a division:
1 Cost centre – division 2 Profit centre – division 3 Investment centre –
incurs costs but has no has both costs and division has both costs
revenue streams. revenues. and revenues but in
addition has authority to
make investment
decisions.
Performance measures:
cost ratios and profit margins and all as for profit centre plus:
variances variances
return on investment
non-financial measures, non-financial measures, (ROI)
e.g. based on e.g. based on customer residual income (RI)
productivity. satisfaction.
economic value added
(EVA).
(Will focus on these in this
chapter).
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