Question

Grandpa Jim’s Cookie Company sells homemade cookies made with organic ingredients. His sales are strictly Web based. The business is taking off more than Grandpa Jim ever expected, with orders coming from across the country from both consumers and corporate event planners. Grandpa decides to decentralize and hires a full-time baker who will manage production and product costs and a Web site designer/sales manager who will focus on increasing sales through the Web site. Grandpa Jim can no longer handle the business on his own, so he hires a business manager to work with the other employees to ensure the company is best utilizing its assets to produce profit. Grandpa will then have time to focus on new product development. Now that Grandpa Jim’s Cookie Company has decentralized, identify the type of responsibility center that each manager is managing

Short answer

The Full-time baker will be the cost center, the sales manager will be the revenue center and the business manager will be the investment center

Step-by-step solution

Definition of decentralization

Decentralization is defined as the exercise or method which is used by the top-level management of the organization in which the daily operation and decision-making related to them is delegated to middle-level and low-level managers of the organization.

Identification of type of responsibility center

1 Full-time baker: The person is managing the production process and controls the cost incurred on the product. So, this center should be considered the cost center of the organization.

2 Website designer/Sales Manager: The main responsibility assigned to the sales manager and web designer is to increase the revenue of the business. So, it will be a revenue center.

3 Business manager: The responsibility which is assigned to the business manager is to look after the best utilization of the resources of the business which is in the best interest of the company to generate profits. So, it will be the investment center of the business.