Question

In: Accounting

Based on your understanding of how chains are managed, would you agree or disagree that an...

Based on your understanding of how chains are managed, would you agree or disagree that an outlet of a large department store chain should be treated as an investment center? What about the maintenance department within that outlet? What about a single department within the store?

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Expert Solution

Ans-Based on my understanding of how chains are managed,

It is disagreed that an outlet of a large department store chain should be treated as an investment center.It should treated as a profit center. This is because an outlet has control over the product, price, purchase, promotion and sales but not over the investment . In other words, a profit center manager has the responsibility for revenues and cost of the products or service they generate or incur.

A maintenance department within the outlet is treated as a cost center. It is because this department would control only costs but not revenues or investment.

A single department within the store may be a cost center or a revenue center. If the department is repairs and maintenance department or production department, It should be treated as a cost center. If it is a sales department or stores department, it should be treated as a revenue center.


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