COST CENTRES

Question 1

What is cost centers ?

Answer 1

• Direct manufacturing and manufacturing to supports departments

Question 2

What issues raised to implement the cost centers

Answer 2

• cost shifting might occur because replace of the variable cost to fixed cost
• the performance measurement focus only on the short term cost (not long term)
• Have budgetary slack (difference between the budgeted and expected performance)
• too much budgetary slack can reduced employee effort and can complicate planning process

Question 3

What is the two types of cost centers?

Answer 3

• discretionary cost approach
• Engineered cost approach

Question 4

Describe discretionary cost approach

Answer 4

• mainly fixed and uncontrollable
• used input oriented planning process
• Focus on planning

Question 5

Describe engineered cost approach

Answer 5

• mainly variable, controllable
• used an output oriented evaluation focus
• focus on evaluation

Question 6

How to implement cost centers

Answer 6

focused on the cost reduction- engineered cost approach
It later can be changed to discretionary cost approach to motivate managers