18 Responsibility Centers Petroleum Products Inc

Question

18. Responsibility Centers. Petroleum Products, Inc., operates primarily in the United States and has several segments: 1. Accounting and finance: responsible for recording financial information and…

18. Responsibility Centers. Petroleum Products, Inc., operates primarily in the United States and has several segments: 1. Accounting and finance: responsible for recording financial information and preparing financial reports. 2. Human resources: responsible for hiring employees and maintaining personnel records 3. Retail stores: responsible for sales prices and all costs within each store. 4. Advertising: responsible for promotional materials 5. Production: responsible for manufacturing company products. 6. International operations: acts as an independent segment responsible for all facets of the business outside of the United States. Required: For each of the preceding segments, identify whether it is a cost center, profit center, or investment center. Explain your answer.
18. Responsibility Centers 4

Solutions

Expert Solution
Cost centers: A center for which a standard amount of cost is
predetermined and used for control. Its main focus is on cost
reduction and cost control.
Profit
Centers: A center whose performance is measured in terms of income
earned and cost incurred. Its main focus is on profit earning.
Investment Centers: A center responsible for earning profits and
also for asset utilization. Its main focus is on earning revenue on
Investments.
Responsibility Centers:
1.
Accounting and finance is a cost center as it has
a predetermined standard cost and company uses it for control.is
department does not generate any revenue and only analysis
performance of the company.
2.
Human Resource is responsible for hiring employees
and maintaining personal records. This department can be considered
as profit center or Investment center as it
contributes to the company in profit by hiring people which are an
asset to the company.
3.
Retail stores are Profit centers as there main
focus is on profit earnings. The performance of retail stores are
measured in terms of income earned and cost incurred.
4.
Advertising are cost centers as standard amount of
cost is determined and allocated to products.
5.
Production department is clearly a cost center as
it is responsible for producing goods , converting raw material
into final product.
6.
International Operations is an Investment center
as it is responsible for its own profits and utilization of
investment.


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