Business Glossary

factor that has a direct cause-effect relationship to a cost, such as direct labor hours, machine hours, beds occupied, computer time used, flight hours, miles driven, or contracts.

quantification of a company's or segment's efficiency or effectiveness in conducting business operations for the accounting period. Some possible measures of performance are revenue center, cost center, profit center, and investment center. In the revenue center approach, a comparison is made between actual revenue and expected revenue. With the cost center method, actual cost is compared to budgeted cost. The profit center is accountable for costs and revenues in deriving net income. It is even better to use an investment center method of performance evaluation because responsibility is placed not only for revenue and costs but also for the investment employed. Two investment center measurements are Return On Investment (ROI) and Residual Income (RI).