Accounting

Virtual Assignment 3

Essay Questions

1. What is a profit center? 

A Profit center incurs cost, and generates revenue as well. A department that sells is often considered profit center.

2. What is a cost center? 

A cost center incurs cost without generating revenue directly.

3. What is the main difference between a cost center and a profit center?

The main difference is the way managers who work in the departments who handle cost and profit centers will be evaluated on the below. A profit center manager will need to generate excess revenue over the cost it incurred. The cost center manager will need to keep cost low because they are evaluated on their ability to control cost. The cost center manager will need to keep cost within a certain range.

4. What is the purpose of a departmental accounting system? 

The purpose of departmental accounting system is used to show information about resources used and what was achieved or outputted by each department. It will then be used to evaluate or measure revenue and expenses for each department. This will be used for internal managers to control the cost for operations for each department. This will help determine whether a department is meeting its goal and can expand or not meeting its goal and needs to downsize, or if a department is overspending. If a certain department is underperforming this report will help the managers be able to make changes.

5. What is the purpose of a responsibility accounting system? 

The purpose of responsibility accounting system is help managers keep controllable cost and expenses assigned to their department under control. This system will help Upper level management to evaluate and make sure their lower level managers are controlling cost and expenses and keeping them within the budgeted amounts. This system can be used from the top-level executives to the lower managers to make sure...