Seminar – 7
Chapter 7 Financial Responsibility Centers
Financial Result Control System
Financial Result Control System results are defined in monetary terms, most commonly in terms of accounting measures such as revenues, costs, profits, and returns.
Advantages of Financial Result Control System
 Financial objectives are paramount in for-profit firms.
 Financial measures provide a “summary” measure of performance by aggregating the effects of a broad range of operating initiatives across a possibly broad range of markets, products, or activities into a single or a few measures.
 Most financial measures are relatively precise and objective.
 The cost of implementing financial result controls is often small relative to that of other forms of management control.

Types of financial responsibility centers
Investment centers
Investment centers are responsibility centers whose managers are held accountable for the accounting returns on the investment made to generate those returns.
Profit centers
Profit centers are responsibility centers whose managers are held accountable for profit which is a measure of the difference between the revenues generated and the costs of generating those revenues. The goal for not-for-profit organization is to break even, or perhaps even incur limited losses. However, for-profit entities is normally not considered desirable to generate higher profits than those budgeted.
Two limited forms:
 When sales-focused entities are made into profit centers by charging the entity managers the standard cost of the products sold----make them accountable for gross profit
 Where cost-focused entities are assigned revenues based on a simple function of costs.
Revenue centers
Revenue centers are responsibility centers whose managers are held accountable for generating revenues which is a financial measure of output. It provides a