1. Learning Objectives TOPIC: Topic 5: Operations Management
LESSON TITLE: Cost & Profit Centres (H/L ONLY)
COMPETENCY FOCUS:
Technological Impact (C4): students will develop their understanding of how technology has made an impact in the production process of products for a business.
Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data.
[IB Learner Profile Development: Balance]
Learning Objectives
By the end of the lesson, you should be able to…
LO1) To explain the nature of cost & profit centres
LO2) To analyse the value of cost & profit centres to a firm.
SMSC: You will assess the organisational culture of businesses in terms of fundamental structure, purpose and strategy development.
CRITICAL THINKING KEY:
Knowledge Application Analysis Evaluation

2. Cost & Profit Centres
One way a business can control costs and improve accountability is to implement cost and profit centres.

3. What is a cost centre?
A COST CENTRE is an individual part of the business i.e. section or department where costs are incurred, charged and can be recorded easily.
Examples of cost centres:
In a manufacturing business, cost centres could be products, depts, factories or different stages of production i.e. assembly
In a hotel, reception, bar, conference, room letting

4. What is a profit centre?
A PROFIT CENTRE is similar to a cost centre. The difference is that in addition to recording the costs incurred, revenues are also recorded.
Examples of profit centres:
Each branch of a chain of shops
Each department of a department store
In a multi-product firm, each product on the overall product portfolio of the business.

5. Why use cost & profit centres?
Managers/staff have targets to work towards
Targets can be compared with actual performance
Helps identify areas that are doing well and those not so well
Individual performances of divisions and their managers can be assessed and compared
Accountability of staff

6. Advantages of using cost & profit centres
Improves accountability
Helps decision-making
Improves motivation
Tracing problems
Tracing under-performance

7. Disadvantages of using cost & profit centres
Conflict
Cost allocation
External factors that the business cant control
Wasting resources
Staff pressure

8. TASK 1
Complete case study ’31.3’ on pg. 329 [20mins]