In: Accounting
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?
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.