Page 62 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 4: Responsibility Centers

4. The various branches of a bank, a manufacturing unit and various division of a multi Notes
division organization can be considered as:
(a) Expense centres (b) Revenue centres

(c) Profit centres (d) Investment centres

4.4 Marketing Centres

Two very different types of activities are grouped under the heading of marketing - one relating
to filling of orders, the other group of activities relate to efforts to obtain orders and obviously
take place before an order is received.
The first activity (also called logistic activities) are those involved in moving goods from the
company to its customers and collecting the amounts due from customers in return. These
activities include transportation to distribution centres, warehousing, shipping and delivery,
billing and related credit function and collection of accounts receivable.

!
Caution The responsibility centres that perform these functions, some of them are
engineered expense centres that can be controlled through imposing standard costs and
adjusting budgets to reflect these costs at different levels of volume.
Marketing activities are those undertaken to obtain orders for company products which include
test marketing, the establishment, training and supervision of the sales force, advertising and
sales promotion. These are basically discretionary expenses and depending on company’s policy
the expenses are budgeted. Further, though it is easy to measure a marketing organization’s
output, evaluating the effectiveness of the marketing effort is much more difficult. This is
because changes in factors beyond the marketing departments control.

Example: Chronic Condition or the actions of competitors/may invalidate the assumption
on which the sales budgets are based.

The third activity is the generation of revenue which is, usually, evaluated by comparing actual
revenue and physical quantities sold with budgeted revenue and budgeted units respectively.

4.5 Research and Development Centres

The control of research and development centers is difficult because of:

1. Difficulty in relating results to inputs. The results of R&D is difficult to measure
quantitatively but semi-tangible outputs in the form of patents, new products or new
processes but the relationship of output to input is difficult to appraise on an annual basis
because the completed ‘product’ of an R&D group may involve several years of effort.
2. Lack of goal congruence: e.g. the research manager typically wants to build the best research
organization money can buy even though may be more expensive than the company can
afford. Further, research people do not have sufficient knowledge of (or interest in) the
business to determine the optimum direction of the research efforts.
The activities conducted by R&D centre lie along a continuum with basic research at one extreme
and product testing at the other. Basic research has two characteristics: (1) it is unplanned with
management at best specifying the basic area to be explored and (2) there is often significant
time lapse between the initiation of research and the introduction of a successful new product.

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