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Decision Rights –
Input Mix – Labor, Material, Supplies
Performance Measures –
Minimize total cost for a fixed output
Maximize output for a given “cost budget”
Typically used when –
RC manager can measure output & quality of output
knows cost functions, optimal input mix
can set optimal quantity and appropriate rewards
10/17/08 hmahesh45@yahoo.com; VIM Pune 7
2. Expenses Center –
2.1)Engineered Exp. Center e.g. Production
Department
Engineered expenses are those expenses which
are arrived at with reasonable reliability.e.g.
Material cost , labor cost.
Output
Inputs RC’s (Money-profit
(Money spent for
TASK Earned out of sales)
earning profits)
Net Profit
2) Return on Capital Employed = ------------------------- *
100
Capital Employed
Capital implies the long term
funds
supplied by creditors &
Alternatively it can be
owners
Net Working Capital + Fixed
Assets
Net Profit
3) Return on Shareholders’ Equity = ---------------- * 100
Equity Capital
(shareholders worth maximization may not be suitable measure for RC’s performance evaluation
Because it is consolidated effect of entire company)
WACC (%) 19 18 19 22
EVA
10/17/08 351.58 255.46
hmahesh45@yahoo.com; VIM Pune 92.72 98
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