Question

Question: In each blank next to the following terms, place the identifying letter of its best description.

1. Cost center	A. Incurs costs without directly yielding revenues.
2. Investment center	B. Provides information used to evaluate the performance of a department.
3. Departmental accounting system	C. Holds manager responsible for revenues, costs, and investments.
4. Operating Department	D. Engages directly in manufacturing or in making sales directly to customers.
5. Profit center	E. Does not directly manufacture products but contributes to profitability of the entire company.
6. Responsibility accounting system	F. Incurs costs and also generates revenues
7. Service department	G. Provides information used to evaluate the performance of a department manager

Short answer

1. Cost center	A. Incurs costs without directly yielding revenues.
2. Investment center	C. Holds mAanager responsible for revenues, costs, and investments.
3. Departmental accounting system	B. Provides information used to evaluate Incursthe performance of a department.
4. Operating Department	D. Engages directly in manufacturing or in making sales directly to customers.
5. Profit center	F. Incurs costs and also generates revenues
6. Responsibility accounting system	G. Provides information used to evaluate the performance of a department manager
7. Service department	E. Does not directly manufacture products but contributes to the profitability of the entire company.

Step-by-step solution

Definition of Department

Department can be defined as a small unit in which a large business entity is a dividend for increasing the efficiency in the operation of the business entity.

Cost center

A. Incurs Costs without directly yielding revenues.

Reason: The department that does not increase the profit of the business entity, but the business entity still required to incur a cost for such department is known as a cost center.

Investment center

C. Holds manager responsible for revenues, costs, and investments.

Reason: The unit or department of the business entity using the company’s capital and contributing to the profitability is known as the investment center.

 Step 4: Departmental accounting system

B. Provides information used to evaluate the performance of a department.

Reason: The accounting system under which the accounting information of all departments is maintained separately that will be held in evaluating the performance of each department is known as the departmental accounting system.

Operating Department

D. Engages directly in manufacturing or in making sales directly to customers.

Reason: The department of the business entity that carries out the basic or primary function of the business entity is known as the operating department.

Profit Center

F. Incurs costs and also generates revenues

Reason: The department that directly increases the business entity's bottom line/net income is the profit center. Such a department incurs costs and generates profit for the business entity.

Responsibility Accounting System

G. Provides information used to evaluate the performance of a department manager.

Reason: An accounting system that collects and provides information to the managers regarding the performance of each department of the business entity is known as a responsibility accounting system.

Service Department

E. Does not directly manufacture products but contributes to the profitability of the entire company.

Reason: The department assists the company’s production facilities and is responsible for maintaining costs as per the budget.