COST ACCOUNTING
RESPONSIBILITY ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The return on investment
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Whether it met the budgeted goals for controllable costs
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The amount of controllable margin generated by the profit center
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The amount of contribution margin generated by the profit center
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Detailed explanation-1: -Answer and Explanation: The correct option is (c) should be evaluated on all costs and revenues that are controllable by the manager. A profit center has its own revenues and costs. Businesses allocate other indirect costs and fixed costs to the profit center.
Detailed explanation-2: -Three common measures used to evaluate the performance of investment centers are return on investment (ROI), residual income (RI), and extra value added (EVA).
Detailed explanation-3: -The manager of a profit center usually has the authority to make decisions regarding how to earn revenue and which expenses to incur. Profit centers may be included in the segment reporting of a publicly-held entity. Privately-held businesses do not have to report this information as part of their financial statements.
Detailed explanation-4: -A profit center refers to the part or the division of an entity that is capable of generating revenues independently by using the resources of the entity. Since a profit center generates revenues independently, its profits are calculated separately to evaluate its performance individually, rather than collectively.
Detailed explanation-5: -The most common method of evaluating a profit center manager is the segmented income statement.