In a profit center, the manager has responsibility and authority for making decisions that affect

Chapter 9 Multiple Choice:

1.It is a subdivision of managerial accounting which relates reporting or performance

directly with the person who has the responsibility for its control. It is useful in assessing

the performance of persons responsible for controlling costs, revenues, or invested

capital and analyzing deviations from planned and prior performance.

a.Accounting systems design and installation

b. Cost accounting

c.Standard cost accounting

d.Responsibility accounting

2.It relates accounting to the budgetary system, thus acting as a control device.

Management reports give details of budgeted and actual performances and show

responsibilities at all levels of management.

a.Programmingc. Responsibility accounting

b.Accounting system d. Budgeting

3.Which of the following statements is correct?

a.The direct cost of a particular department is always a controllable cost.

b.Responsibility accounting identifies cost, revenues and even capital investments with

individuals, e.g., managers, and thus provides for more control and evaluation of

performance.

c.All managers within an organization have equal authority and responsibility

d.Internal reports prepared under the responsibility accounting system should be

limited to only variable manufacturing costs.

4.B Company uses an accounting system that charges costs to the manager who has

been given the authority to make the decisions regarding the incurrence of such costs.

For example, if the Production manager was not able to monitor the efficiency of the

workers in his department, so that he was forced to ask them to work overtime to finish a

specific job on time, the additional cost of working overtime is charged to such Manager

or his department. This type of accounting system is known as

a.Transfer price accountingc. functional accounting

b.Responsibility accountingd. cost accounting

5.In a responsibility accounting system, costs are classified as controllable and non-

controllable costs, which imply that some revenues and costs can be changed through

effective management. Controllable costs can be described as including

a.Discretionary costs only

b.Prime costs only

c.Only those costs that the manager can influence in the current time period

d.All the costs that are directly traceable to the responsibility center

6.The basic purpose of responsibility accounting is

a.Motivationc. authority

b.Variance analysisd. budgeting

Profit Center Definition

In accounting, a profit center is a type of responsibility center. A responsibility center is an organizational subunit the manager of which is responsible for certain financial and non-financial performance measures. Furthermore, for accounting purposes, consider a responsibility center – in this case a profit center – a distinct entity within the context of the larger organization.
In a profit center, the manager is responsible for the revenues generated by the subunit. In addition, they are responsible for the costs and expenses incurred by the subunit in the course of normal business operations. As a result, the manager of a profit center is responsible for the profits of the subunit. Their primary goal is to maximize the subunit’s net income; however, the manager of a profit center is not responsible for long-term capital investment costs.

Profit Center Explanation

There are several reasons why a company would establish its business units or departments as profit centers.
A profit center is established within a corporation in order to determine the profitability of the subunit independently from other departments in the company and from the company as a whole. This could be because a large corporation has numerous divisions – the appliance division, the apparel division, the electronics division, etc. – and wants to measure the financial performance of each division to determine which are the most profitable.
A corporation can also establish an internal business unit as a profit center so as to compare profitability across organizational subunits. For example, a large lawn equipment company might establish its northeast division and its southwest division as profit centers so as to compare profitability of the two regions. In addition, a corporation could compare the profitability of two types of operational strategy and tactics employed at different profit centers.
Another reason for establishing a business department as a profit center is to promote goal or behavioral congruence among the managers of the company’s organizational subunits. By motivating and evaluating the manager’s performance in terms of profit, you can then incentivize the manager to achieve profits, which is in tune with the goals of the overall organization.

Profit Center Examples

All of the following are examples of profit centers:

• Individual restaurants in a large restaurant chain
• Manufacturing divisions in a large corporations
• Individual retail stores in a large retail chain
• Other organizational subunit deliberately established to maximize the profits the subunits

What does a manager of a profit center do?

What is a responsibility center in which the department manager has responsibility for and authority over only costs and revenues called?

What is the manager of a profit center not responsible for quizlet?

Which Responsibility Center is held responsible for the use of assets as well as profits?