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Chapter 24: Q3TI (page 1339)

Match the responsibility center to the correct responsibility report.

Responsibility Centers

Responsibility Reports

14. Cost center

a. Includes flexible budget variances for revenues and costs.

15. Revenue center

b. Includes flexible budget variances for costs.

16. Profit center

c. Includes flexible budget variances and sales volume variances for revenues.

Short Answer

Expert verified

Responsibility Centers

Responsibility Reports

14. Cost center

b

15. Revenue center

a

16. Profit center

c

Step by step solution

01

Meaning of Responsibility Centers

The term responsibility center refers to a unit of anentity or organization responsible for all the events, tasks, and activities associated with such a particular unit. Each responsibility center carries its separatetasks and goals.

02

Meaning of cost center

The term cost center indicates the unit of an organization that is responsible for spending thecosts or expenses on the products and services. Another important feature of a cost center is that it does not generaterevenues.

03

Meaning of revenue center

The term revenue center refers to the unit of an organization responsible for generating revenues. Revenue generation is done by selling goods or services to thecustomers of the market.

04

Meaning of profit center

The profit center indicates the unit of an organization responsible for earning profits. Such a unit collects the data of revenues and costs and ascertains thevariances for profit maximization.

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Most popular questions from this chapter

Henderson Company manufactures electronics. The Calculator Division (an investment center) manufactures handheld calculators. The division can purchase the batteries used in the calculators from the Battery Division (another investment center) or from an outside vendor. The cost to purchase batteries from the outside vendor is \(5. The transfer price to purchase from the Battery Division is \)6. The Battery Division also sells to outside customers. The sales price is \(6, and the variable cost is \)3. The Battery Division has excess capacity.

Requirements

1. Should the Calculator Division purchase from the Battery Division or the outside vendor?

2. If Henderson Company allows division managers to negotiate transfer prices, what is the maximum transfer price the manager of the Calculator Division should consider?

3. What is the minimum transfer price the manager of the Battery Division should consider?

4. Does your answer to Requirement 3 change if the Battery Division is operating at capacity?

Preparing a financial budget鈥攂udgeted income statement and balance sheet

Bradley Company has the following post-closing trial balance on December 31, 2018:

The company鈥檚 accounting department has gathered the following budgeting information for the first quarter of 2019:

Budgeted total sales, all on account $ 305,000 Budgeted direct materials to be purchased and used 32,000 Budgeted direct labor cost 12,500 Budgeted manufacturing overhead costs:

Variable manufacturing overhead 2,100 Depreciation 1,300 Insurance and property taxes 1,350 Budgeted cost of goods sold 72,000 Budgeted selling and administrative expenses:

Salaries expense 7,000 Rent expense 2,000 Insurance expense 1,100 Depreciation expense 550 Supplies expense 15,250 Budgeted cash receipts from customers 263,500 Budgeted income tax expense 41,000 Budgeted purchase and payment for capital expenditures (additional equipment) 43,000

Additional information:

a. Direct materials purchases are paid 70% in the quarter purchased and 30% in the next quarter.

b. Direct labor, manufacturing overhead, selling and administrative costs, and income tax expense are paid in the quarter incurred.

c. Accounts payable at December 31, 2018 are paid in the first quarter of 2019. Requirements

1. Prepare Bradley Company鈥檚 budgeted income statement for the first quarter of 2019.

2. Prepare Bradley Company鈥檚 budgeted balance sheet as of March 31, 2019

Well-designed performance evaluation systems accomplish many goals. Consider the following actions, and state which goal is being achieved by the action:

a. Comparing targets to actual results

b. Providing subunit managers with performance targets

c. Comparing actual results with industry standards

d. Providing bonuses to subunit managers who achieve performance targets

e. Aligning subunit performance targets with company strategy

f. Comparing actual results of competitors

g. Taking corrective actions

h. Using the adage 鈥測ou get what you measure鈥� when designing the performance evaluation system

What is the biggest disadvantage of using ROI to evaluate investment centers?

List the advantages of decentralization.
See all solutions

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