Burton Electronics produces radios, computers, and navigation systems. Although

Question

Burton Electronics produces radios, computers, and navigation systems. Although all high level decisions are made at company headquarters by top management, rapid expansion and increasingly specialized products have caused the company to consider decentralizing into three divisions. Each division manager would be responsible for costs, revenues, and investments in assets.

a) How should the company classify the three divisions, as cost centers, profit centers, or investment centers? Explain.

Explanation / Answer

All three centers will be responsible for managing both costs and revenues. A division which is responsible for managing both costs and revenues should be classified as a profit centre. Since all high level decisions are taken at headquarters, it is the investment center.

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