In a Profit Center, the Department Manager Has Responsibility for and the Authority

question 207

Multiple Choice

In a profit center, the department manager has responsibility for and the authority to make decisions that affect

• A) not only costs and revenues, but also assets invested in the center
• B) the assets invested in the center, but not costs and revenues
• C) both costs and revenues for the department or division
• D) costs and assets invested in the center, but not revenues

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Definitions:

Depreciation

The systematic allocation of the cost of an asset over its useful life.

Investment Center

A business unit within a company that is responsible for its own revenues, expenses, and asset investments, with its performance measured by its ability to generate income relative to its assets.

Minimum Required Return

The lowest acceptable return on an investment, based on risk tolerance and financial goals.

Residual Income

The income that exceeds the minimum required return on investment or capital employed; often used as a performance measure.