}Budget centres

}Each budget centre is often a responsibility centre. Each centre will have its own budget and a manager willbe responsible for managing the centre and controlling the budget. 

}This manager is often referred to as the budget holder. Regular budgetary control reports will be sent to each budgetholder so that they may monitor their centre’s activities and take control action if necessary.

}The budgetary reporting system should ideally be based on the exception principle which means that management attention is focused on those areas where performance is significantly different from budget.

}There are four classifications for responsibility centres,depending on what the manager of the centre has responsibility for:

}Cost centre – manager is responsible foroperating costs.

}Revenue centre – manager is responsiblefor revenue.

}Profit centre – manager is responsiblefor operating costs and revenue and the resulting profit.

}Investment centre – manager isresponsible for profit and the return on any investment made.

}A key aspect of budgetary control is ensuring that managers account for the costs (and/or revenues) for which they have responsibility. 

}However this will only work effectively if managers are appraised only on the costs which they can control.

}Controllable costs are costs which can be influenced by the budget holder and are generally considered to be those whichare:

ØVariable or

ØDirectly attributable fixed costs.

}Uncontrollable costs are costs that cannot be influenced (i.e. their value can neither be increased nor decreased) by management action. 

}These would include allocations of costs from head office, rental charges if the manager cannot make decisions about location, marketing costs if marketing campaigns are created and controlled centrally, etc.