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Responsibility Center Information, Profit, Cost, Investment, Revenue Centers

7. Which of the following is not a valid reason for developing responsibility center information?
a. Responsibility center information is useful in deciding how to allocate resources among segments of the business.
b. Separately measuring the revenue and expenses of each responsibility center is a necessary step in developing financial statements for the business entity viewed as a whole.
c. Responsibility center information is useful in evaluating the performance of segment managers.
d. Responsibility center information helps management to quickly identify sections of the business that are performing poorly.

8. The primary difference between profit centers and cost centers is that:
a. Profit centers generate revenue.
b. Cost centers incur costs.
c. Profit centers are evaluated using return on investment criteria.
d. Profit centers provide services to other centers in the organization.

9. An investment center:
a. Is a profit center for which management is able to objectively measure the cost of the assets used in the center's operations.
b. Is a cost center for which management is able to identify the original amount invested.
c. May be either a cost center or a profit center.
d. Is a subunit of the organization that provides services to other centers within the organization.

10. Disneyland charges visitors for admission to the park but not for individual rides or attractions. "Splash Mountain" is one of the rides in Disneyland. The Walt Disney Company should evaluate "Splash Mountain" as:
a. A revenue center.
b. A cost center.
c. An investment center.
d. A profit center (other than an investment center).

11. San Francisco's famous St. Francis Hotel is owned by Westin Hotel and Resort Group. Westin should evaluate the St. Francis as:
a. A cost center.
b. A historical landmark.
c. An investment center.
d. A profit center (other than an investment center).

Solution Preview

7. Which of the following is not a valid reason for developing
responsibility center information?
b. Separately measuring the revenue and expenses of each
responsibility center is a necessary step in developing financial
statements for the business entity viewed as a whole. ...

Solution Summary

Each of the questions is answered following by a sentence in explanation of the answer.

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