What is the typical focus of responsibility reports for cost centers, revenue centers, and profit centres?

Short Answer

Expert verified

Budget flexibility is the cost center’s primary concern. The revenue centre highlights both the sales volume fluctuation and the flexible budget variance. Profit centres are in charge of bringing in money and controlling expenditures.

Step by step solution

01

Meaning of Cost center

Cost centres are divisions that give capacities inside a firm that are alluded to as benefit units or commerce centres but do not produce any income. They are regulatory, bolster, and service-related services. Since they are fundamental to ensuring that operations work as quickly as conceivable, it is troublesome to nullify specific firm capacities to save cash.

02

The specific focus of responsibility reports for cost, revenue, and profit centres.

Cost centres reports on cost as often as possible, reports on cost center responsibility e budget variance, or the rift between actual execution and flexible budgeting.

Revenue centres reports on revenue center obligations reflect fluctuations in transaction volume and adaptable budget variation as often as possible.

Profit center supervisors' performance reports include income and investment and flexible budget changes because they are in charge of creating cash and limiting costs.

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Most popular questions from this chapter

How does capacity affect transfer pricing decisions?

Question:Each of the following managers works for a national chain of hotels and has been given certain decision-making authority. Classify each of the managers according to the type of responsibility center he or she probably manages.

a. Manager of the Central Reservation Office

b. Managers of various corporate-owned hotel locations

c. Managers of the Northeast and Southeast Corporate Divisions

d. Manager of the Housekeeping Department at one hotel

e. Manager of the complimentary breakfast buffet at one hotel

Consider the following data, and determine which of the corporate divisions is more profitable. Explain your reasoning.

Domestic International

Operating income \( 10,000,000 \) 11,000,000

Average total assets 24,000,000 32,000,000

Refer to the information in Short Exercise S24-7.

Requirements

1. Compute each division’s asset turnover ratio (round to two decimal places). Interpret your results.

2. Use your answers to Requirement 1, along with the profit margin ratio, to recalculate ROI using the expanded formula. Do your answers agree with the basic ROI in Short Exercise S24-7?

One subunit of Harris Sports Company had the following financial results last month:

Harris—Subunit X Actual Results Flexible Budget Flexible Budget Variance (F or U) % Variance (F or U)

Direct Materials \( 28,000 \) 25,900

Direct Labor 13,000 13,800

Indirect Labor 26,400 23,100

Utilities 12,300 11,300

Depreciation 25,000 25,000

Repairs and Maintenance 4,600 5,600

Total \( 109,300 \) 104,700

Requirements

1. Complete the performance evaluation report for this subunit. Enter the variance percent as a percentage of the budgeted amount rounded to two decimal places.

2. Based on the data presented, what type of responsibility center is this subunit?

3. Which items should be investigated if part of management’s decision criteria is to investigate all variances exceeding $2,500 or 10%?

4. Should only unfavorable variances be investigated? Explain.

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