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Among the three methods that you mentioned for performance evaluation of a cost centre,
In my opinion the variance analysis would be at the top since it would notify of any divergences from the plan or the budget if one is in place.
Moreover the financial performance of the particular cost centre can be compared with other cost centers in the entity along with profit and revenue centers by an ROA ratio or other specific KPI’S that can be developed based on the activities involved.
Payback is a very crude measure and doesn’t even consider the whole economic life of the asset after the payback period.
Answer is C. Variance Analysis. Since the department is a cost center, the evaluation or assessment should focus on whether the department operated beyond or under set costing standards.
