Chapter 9

Question 1

Explain a decentralized Organization

Answer 1

Decision-making occurs at all levels of management

Question 2

What are the 3 types of responsibility centers associated with the Responsibility Accounting method? Give a description of each.

Answer 2

Cost Centers
-manager ONLY influences costs
(EX: IT, Accounting Department, HR Department, Legal Department Managers)

Profit Centers
-manager influences Revenues and Costs
(EX: mid-level managers, sales manager, product-line manager, division managers)

Investment Centers
-manager influences Costs, Revenues, and Allocation of Resources
(EX: CEO, Division Managers)

Question 3

How are Cost Centers, Profit Centers, and Investment Centers evaluated?

Answer 3

Cost Centers
-compare Actual Costs incurred to Flexible Budget

Profit Centers
-compare Actual Profits to Flexible Budget

Investment Centers
-Evaluate based on Net Operating Income, but also consider investments available