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22-2
Cost Centers, Profit
Centers, and Investments
Centers
Evaluation Measures
Cost control
Cost
Quantity and quality
Center
of services
Profit
Profitability
Center
22-4
Responsibility Accounting
Systems
22-6
Assigning Revenue and
Costs to Responsibility
Centers
Revenue is easily and
automatically assigned to
specific departments using point
of sale entries from cash
registers.
Service
Department
22-7
Assigning Revenue and
Costs to Responsibility
Centers
Two guidelines should be followed in
allocating costs to the various parts
of a business . . .
According to cost behavior patterns:
Fixed or variable.
According to whether the costs
are directly traceable to the
centers involved.
22-8
Traceable Fixed Costs
Traceable fixed costs would disappear
over time if the center itself disappeared.
No computer No computer
division means . . . division manager.
22-9
Common Fixed Costs
Common fixed costs arise because of
overall operation of the company and
are not due to the existence of a
particular center.
No computer We still have a
division means . . . company president.
22-10
Arguments Against
Allocating Common Fixed
Costs
Common fixed costs would not change
even if a business center were
eliminated.
Common fixed costs are not under the
direct control of the center’s
managers.
Allocation of common fixed costs may
imply changes in profitability that are
unrelated to the center’s performance.
22-11
Transfer Prices
The amount charged when one division
sells goods or services to another division.
Batteries
22-12
Transfer Prices
Batteries
Batteries
22-15
Transfer Prices
When the external
market value of goods
transferred is unavailable . . .
Negotiated Cost-plus
transfer transfer
price price
22-17