TOPIC LESSON TITLE Topic 5 Operations Management Cost

TOPIC: LESSON TITLE: Topic 5: Operations Management Cost & Profit Centres (H/L ONLY) COMPETENCY FOCUS: Technological Impact (C 4): students will develop their understanding of how technology has made an impact in the production process of products for a business. Key Skills (L 5): 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… LO 1) To explain the nature of cost & profit centres LO 2) 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

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

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

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.

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

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

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

TASK 1 Complete case study ’ 31. 3’ on pg. 329 [20 mins]