Exercise 22.10

Types of Responsibility Centers and Basis for Evaluation Listed are parts of various well-known businesses. 1. The bookstore of Central Michigan University. 2. The billing department of Jackson Life Insurance Co. 3. The San Francisco factory of Ghirardelli Chocolates. 4. The textiles and rugs department of IKEA. 5. The gift shop at the Museum of Science and Industry. 6. The legal department of Walmart. income statement. Hint: Remember that responsibility centers can be classified as cost centers, profit centers, or investment centers. Cost centers are the lowest level and only incur costs (they do not directly generate revenues). Profit centers generate both revenues and costs. Investment centers generate both revenues and costs, AND controls investments in the business. Explain: Why are business organizations divided into responsibility centers? Explain how revenue and costs are assigned to a responsibility center using a responsibility center income statement. Hint: Remember that responsibility centers can be classified as cost centers, profit centers, or investment centers. Cost centers are the lowest level and only incur costs (they do not directly generate revenues). Profit centers generate both revenues and costs. Investment centers generate both revenues and costs, AND controls investments in the business