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Topic 9 Performance Measurement
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Flashcards in this deck (16)

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  • What are three common measures of performance in divisions?

    • Profit
    • Return on Investment (ROI)
    • Residual Income (RI)
    performance_measures business_success

  • What is a cost centre?

    A responsibility centre with no income generated; manager assessed on cost control.

    responsibility_centres cost_centre

  • What is a revenue centre?

    A responsibility centre where the manager is responsible for achieving target sales.

    responsibility_centres revenue_centre

  • What defines a profit centre?

    A centre where the manager is responsible for profits through cost control and income maximization.

    responsibility_centres profit_centre

  • What is an investment centre?

    A centre where the manager contributes to ROI by controlling profits and investments.

    responsibility_centres investment_centre

  • What is the formula for Return on Investment (ROI)?

    ROI = profit / divisional investment

    roi performance_measures

  • What is the formula for Residual Income (RI)?

    RI = Profit – (required rate of return x divisional investment)

    • takes into account the organization's required rate of return, and deducts a charge for capital from divisional contribution
    ri performance_measures

  • What does the balanced scorecard approach?

    Whole-organisation performance measurement

    management performance

  • What are the common forms of divisional performance measurement?

    • Functional (e.g marketing, operations)
    • Divisional
    • Location/Region
    • Product/Service
    management performance

  • What does a divisional performance report show?

    Incomes and expenses relevant to each division, and then deducts a share of common costs

    finance reporting

  • What are common costs?

    Costs not specific to a division, incurred by the whole entity

    finance costs

  • What should be considered before closing a division?

    Division’s contribution and allocation of common costs

    management decision-making

  • What is a key factor in deciding to close a division?

    Impact on total income and common costs

    management decision-making

  • What happens to common costs if a division is closed?

    They usually remain unchanged

    finance costs

  • What is the divisional performance report used for?

    To analyze the financial performance of divisions.

    finance analysis report

  • What are the common costs included in the analysis?

    Casual wages, cleaning, rent, advertising.

    finance common_costs