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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

Short Answer

Expert verified

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 by step solution

01

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.

02

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.

03

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.

04

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

05

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.

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Most popular questions from this chapter

List the disadvantages of decentralization.

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

Zims, a national manufacturer of lawn-mowing and snow-blowing equipment, segments its business according to customer type: professional and residential. The following divisional information was available for the past year:

Net Sales Revenue Operating Income Average Total Assets

Residential \( 550,000 \) 65,280 $ 192,000

Professional 1,090,000 164,820 402,000

Management has a 26% target rate of return for each division.

Requirements

1. Calculate each division’s ROI. Round all of your answers to four decimal places.

2. Calculate each division’s profit margin ratio. Interpret your results.

3. Calculate each division’s asset turnover ratio. Interpret your results.

4. Use the expanded ROI formula to confirm your results from Requirement 1. What can you conclude?

Match the responsibility center to the correct responsibility report.

Responsibility Centers

Responsibility Reports

14. Cost center

a. Includes flexible budget variances for revenues and costs.

15. Revenue center

b. Includes flexible budget variances for costs.

16. Profit center

c. Includes flexible budget variances and sales volume variances for revenues.

List the advantages of decentralization.

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