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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Types of Responsibility Centers

Consider each of the following independent scenarios:

  1. a. Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair back and sighed. December had been a bad month. Two machines had broken down, and some factory production workers (all on salary) were idled for part of the month. Materials prices increased, and insurance premiums on the factory increased. No way out of it; costs were going up. He hoped that the marketing vice president would be able to push through some price increases, but that really wasn’t his department.
  2. b. Joanna Pauly was delighted to see that her ROI figures had increased for the third straight year. She was sure that her campaign to lower costs and use machinery more efficiently (enabling her factories to sell several older machines) was the reason why. Joanna planned to take full credit for the improvements at her semiannual performance review.
  3. c. Gil Rodriguez, sales manager for ComputerWorks, was not pleased with a memo from headquarters detailing the recent cost increases for the laser printer line. Headquarters suggested raising prices. “Great,” thought Gil, “an increase in price will kill sales and revenue will go down. Why can’t the plant shape up and cut costs like every other company in America is doing? Why turn this into my problem?”
  4. d. Susan Whitehorse looked at the quarterly profit and loss statement with disgust. Revenue was down, and cost was up—what a combination! Then she had an idea. If she cut back on maintenance of equipment and let a product engineer go, expenses would decrease—perhaps enough to reverse the trend in income.
  5. e. Shonna Lowry had just been hired to improve the fortunes of the Southern Division of ABC Inc. She met with top staff and hammered out a 3-year plan to improve the situation. A centerpiece of the plan is the retiring of obsolete equipment and the purchasing of state-of-the-art, computer-assisted machinery. The new machinery would take time for the workers to learn to use, but once that was done, waste would be virtually eliminated.

Required:

For each of the above independent scenarios, indicate the type of responsibility center involved (cost, revenue, profit, or investment).

To determine

Identify the responsibility center for each scenario.

Explanation

Responsibility Center:

A business segment whose managers are responsible or accountable for certain activities or tasks is known as responsibility centers. There are four types of responsibility centers which are as follows:

  • • Revenue center: The type of responsibility center whose manager is only accountable for revenues.
  • • Investment center: The type of responsibility center whose manager is accountable for sales, costs, and investment.
  • • Profit center: The type of responsibility center whose manager is accountable for both costs and sales.
  • • Cost center: The type of responsibility center whose manager is only accountable for costs.

The following table represents the scenarios with the responsibility centers:

 ScenariosResponsibility Center
a...

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