Q2SE - Horngren'S Financial And Managerial Accounting

Question

Question: Each of the following managers works for a national chain of hotels and has been given certain decision-making authority. Classify each of the managers according to the type of responsibility center he or she probably manages. 

a. Manager of the Central Reservation Office 

b. Managers of various corporate-owned hotel locations 

c. Managers of the Northeast and Southeast Corporate Divisions 

d. Manager of the Housekeeping Department at one hotel 

e. Manager of the complimentary breakfast buffet at one hotel

Step-by-Step Solution

Answer

Answer

Part a is a revenue center, parts b and c are classified into a profit center and parts d and e are considered as the cost center

Step 1: Explanation on manager of the Central Reservation Office

The Manager of the Central Reservation Office should be given the revenue center because the manager of the central reservation has the responsibility to generate the revenue for the organization.

Step 2: Explanation on manager of various corporate-owned hotel locations

In this case, the managers of various corporate-owned hotel locations have full control over the operations of the business which means it will be classified under the categories of the profit center.

Step 3: Explanation on managers of the Northeast and southeast corporate divisions

The Manager of the Northeast and southeast corporate divisions are having full control of their particular divisions and the operations of their divisions. So, this means it will be classified as a profit center.

Step 4: Explanation on managers of the housekeeping department at one hotel

The managers of the housekeeping department at one hotel. In this case, they have the responsibility to control the costs, which means it will be classified as the cost center 

Step 5: Explanation on manager of the Complimentary breakfast buffet at one hotel

The Manager of the Complimentary breakfast buffet at one hotel also has the responsibility to control the cost which means it will be classified as the cost center for the business.