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Many companies view performance margin as a more useful tool than a responsibility margin for evaluating segment managers
Many companies view performance margin as a more useful tool than a responsibility margin for evaluating segment managers. This is because:
A. Managers have no control over traceable fixed costs.
B. The performance margin is not affected by the size of the department.
C. Performance margin indicates the change in operating income that would result from closing the department
D. Performance margin includes only those revenue and costs under the manager's direct control
San Francisco's famous St. Francis Hotel is owned by Westin Hotel and Resort Group. One of the unique services provided by San Francisco's St. Francis Hotel is cleaning and polishing coins (pocket change) for the guests. From the standpoint of hotel management, this money laundry should be viewed as:
A. A contribution center.
B. A cost center.
C An investment center.
D. A profit center (other than an investment center).
Expert Solution
1. Option (D) is correct because it is helpful in order to evaluate quality as well as the capability of segment managers. It can be better assessed with the help of revenue and cost that are directly in control of the managers.
Option (A) is incorrect because the manager can control traceable fixed costs.
Option (B) is incorrect because the performance margin can be affected if the size of the department is extensive.
Option (C) is incorrect because a change in operating income does not close the department.
2. Option (B) is correct because a cost center directly contributes income to a business organization.
Option (A) is incorrect because the contribution center includes fixed as well as the variable cost of profit.
Option (C) is incorrect because, in an investment center, business profit is used to generate more profit.
Option (D) is incorrect because the profit center is a part of business activities that bring assignable profits in business.
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