Sheridan Industries, Inc. has five different divisions; each is responsible for producing and marketing a particular product line. The electronics division makes cellular telephones, pagers, and modems. The division also buys and sells other electronic products made by outside companies. Each division maintains sufficient working capital for its own operations. The corporate headquarters, however, makes decisions about long-term capital investments.
Required
a. For purposes of performance evaluation, should Sheridan classify its electronics division as a cost center, a profit center, or an investment center? Why?
b. Would the manager of the electronics division be likely to conduct the operations of the division differently if the division were classified as a different type of responsibility center than the one you designated in Requirement a? Explain.