Question
Wirefree, Inc provides a variety of telecommunications services to residential and coma of yearscustomers from its massive campus-like headquarters in suburban Orlando. For a numbthe
Wirefree, Inc provides a variety of telecommunications services to residential and coma of yearscustomers from its massive campus-like headquarters in suburban Orlando. For a numbthe firm's maintenance group has been organized as a cost center, rendering services free ofcharge to the company s user departments(sales, billing, accounting, marketing, research, and so forth) Requests for maintenance have grown considerably, and demand is approaching the point wherquality and timeliness of services provided are becoming an issue. As a result, management isstudying whether the maintenance operation should be converted from a cost center to a profitcenter, with users to be billed for services performed. Required (a) Compare and contrast between a cost center and a profit center. How is each of these centers evaluated? (8 marks) (b)What will likely happen to the number of user service requests if the company makes theswitch to a profit-center form of organization? Critically evaluate your answer. (4 marks)
(c) Assume that a user department has requested a particular service, one that is time consumingand costly to perform. The maintenance group's actual cost incurred in providing this service is$17, 800, and the user has agreed to pay $20, 800 if the switch to a profit center is made. If this caseis fairly typical within the firm, which of the two forms of organization(cost center or profit center)will result in a more responsive, service-oriented maintenance group for Wirefree? Critically evaluate your answer. (8 marks)
d)Critically evaluate the term"responsibility accounting (5 marks)
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