Evaluation of Responsibility Centers
Shown Below Are the Current-Year Data

question 18

Essay

Evaluation of responsibility centers
Shown below are the current-year data for two investment centers of Chelsea Trading, Inc. The total assets utilized by each of these investment centers during the year amount to $1,500,000:

(a) Compute the following measures for each investment center:
$$\begin{array} { | c | c | c | c | } \hline & & \text { Contribution } & \\\hline & \text { Contribution } & \text { Margin } & \text { Responsibility } \\\hline \text { Center } & \text { Margin } & \text { Ratio } & \text { Margin } \\\hline ( 1 ) & \$ & \% & \$ \\\hline ( 2 ) & \$ & \% & \$ \\\hline\end{array}$$
(b) Assume that a $3,000 monthly expenditure for advertising could increase the monthly sales of either investment center by $20,000. Which center should the company advertise to receive the maximum benefit from its advertising expenditure? Center ________. Explain your Reasoning:

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Definitions:

Marginal Revenue

Marginal Revenue is the additional income received from selling one more unit of a good or service.

Market Price

The present cost at which a service or asset is available for purchase or sale in a specific market.

Profit

The financial gain realized when the amount of revenue gained exceeds the expenses, costs, and taxes involved in sustaining the activity.

Price

The total money needed for acquiring a good, service, or asset.