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What is a responsibility center?

Short Answer

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Answer

The responsibility center refers to the section or unit of an organization responsible for specific tasks assigned to the same.

Step by step solution

01

Meaning of Organization

The term organization refers to the association of individuals and other bodies who agree to perform particular activities for the accomplishment of common goals specified by the management.

02

Meaning of Responsibility Center

The term responsibility center refers to a unit of anentity or organization responsible for all the events, tasks, and activitiesassociated with such a particular unit. Each responsibility center carries its separate tasks and goals.

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Most popular questions from this chapter

The Harris Company is decentralized, and divisions are considered investment centers. Harris has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for \(22 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 800 chairs per quarter, and the Cushion Division is operating at capacity, which is 800 cushions per quarter. The two divisions report the following information:

Chair Division Cushion Division

Sales Price per Chair \) 85 Sales Price per Cushion \( 32

Variable Cost (other than cushion) 42 Variable Cost per Cushion 13

Variable Cost (cushion) 22

Contribution Margin per Chair \) 21 Contribution Margin per Cushion $ 19

Requirements

1. Determine the total contribution margin for Harris Company for the quarter.

2. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company?

3. Assume the Chair Division purchases the 800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company?

4. Review your answers for Requirements 1, 2, and 3. What is the best option for Harris Company?

5. Assume the Cushion Division has capacity of 1,600 cushions per quarter and can continue to supply its outside customers with 800 cushions per quarter and also supply the Chair Division with 800 cushions per quarter. What transfer price should Harris Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter.

Explain the difference between a lag indicator and a lead indicator.

What are the goals of a performance evaluation system?

Usually, which outweighs the other in decentralizationโ€”advantages ordisadvantages?

Question: Determining transfer pricing

The Hernandez Company is decentralized, and divisions are considered investment centers. Hernandez has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for \(32 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,800 chairs per quarter, and the Cushion Division is operating at capacity, which is 1,800 cushions per quarter. The two divisions report the following information:

Chair Division Cushion Division

Sales Price per Chair \) 95 Sales Price per Cushion \( 34

Variable Cost (other than cushion) 56 Variable Cost per Cushion 12

Variable Cost (cushion) 32

Contribution Margin per Chair \) 7 Contribution Margin per Cushion $ 22

Requirements

1. Determine the total contribution margin for Hernandez Company for the quarter.

2. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current sales price. What is the total contribution margin for each division and the company?

3. Assume the Chair Division purchases the 1,800 cushions needed from the Cushion Division at its current variable cost. What is the total contribution margin for each division and the company?

4. Review your answers for Requirements 1, 2, and 3. What is the best option for Hernandez Company?

5. Assume the Cushion Division has capacity of 1,800 cushions per quarter and can continue to supply its outside customers with 1,800 cushions per quarter and also supply the Chair Division with 1,800 cushions per quarter. What transfer price should Hernandez Company set? Explain your reasoning. Using the transfer price you determined, calculate the total contribution margin for the quarter.

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