What is a cost centre?
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What is a cost centre?
A cost centre is a business unit or department that is responsible for incurring costs but does not generate revenue.
True or False?
Multi-unit businesses and those with numerous product lines do not benefit from using cost or profit centres.
False.
Multi-unit businesses, those with numerous product lines and complex businesses may benefit extensively from using cost or profit centres.
What is a profit centre?
A profit centre is a business unit or department that generates revenue and incurs costs.
True or False?
Cost centres are expected to make a profit.
False.
Cost centres are not expected to make a profit; they only track and manage expenses.
Give two examples of cost centres.
Examples of cost centres include:
Human resources
IT support
Administration
Production
True or False?
The use of cost or profit centres can cause rivalry between different departments.
True.
The use of cost or profit centres can cause rivalry between different departments.
Give two examples of profit centres.
Examples of profit centres include:
Sales departments
Specific product lines
Retail outlets
True or False?
Businesses with multiple product lines may not be able to accurately allocate costs between them.
True.
Businesses with multiple product lines may not be able to accurately allocate costs between them.
True or False?
Smaller businesses often operate both cost and profit centres.
False.
Large businesses often operate both cost and profit centres.
What is a budget?
A budget is a financial plan showing a business's costs and revenue for a given time period.
What is zero-based budgeting?
Zero-based budgeting is a method where all spending must be justified.
What is a master budget?
A master budget is a consolidation of all the budgets delegated to cost centres or profit centres into one budget.
True or False?
Benchmarking involves setting budgets based on previous years' performance.
False.
Benchmarking involves basing budgets on the activities of close rivals.
What is a budget variance?
A budget variance is a difference between a figure budgeted and the actual figure achieved by the end of the budgetary period.
Define the term favourable variance.
A favourable variance is where the actual figure achieved is better than the budgeted figure.
True or False?
Adverse variances are always problematic.
False.
Adverse variances are not always problematic and may reflect a reasonable business response to changing conditions.
What is variance analysis?
Variance analysis is the process of determining the reasons for differences between actual figures and budgeted figures.
Define the term adverse variance.
An adverse variance is where the actual figure achieved is worse than the budgeted figure.
True or False?
Staffing budgets plan the level of output, stock and overhead costs, as well as aspects such as waste
False.
Production budgets plan the level of output, stock and overhead costs as well as aspects such as waste