Page 118 - BA2 Integrated Workbook STUDENT 2018

Chapter 6

6.2 Budget centres

The CIMA Terminology a budget centre as a ‘section of an entity for
which control may be exercised through prepared budgets’.

Each budget centre is often a responsibility centre. Each centre will have its own
budget and a manager will be responsible for managing the centre and controlling
the budget. This manager is often referred to as the budget holder. Regular
budgetary control reports will be sent to each budget holder so that they may monitor
their centre’s activities and take control action if necessary.

The budgetary reporting system should ideally be based on the exception principle
which means that management attention is focused on those areas where
performance is significantly different from budget.

There are four classifications for responsibility centres, depending on what the
manager of the centre has responsibility for:

 Cost centre – manager is responsible for operating costs.

 Revenue centre – manager is responsible for revenue.

 Profit centre – manager is responsible for operating costs and revenue and the
resulting profit.

 Investment centre – manager is responsible for profit and the return on any
investment made.

112