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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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