Write a 1.5 page summary outlining some of the major business segments, cost cen

Question

Write a 1.5 page summary outlining some of the major business segments, cost centers, or departments that make up the company (for example: consumers, sellers, enterprises, etc.). Then select two of the departments that you just described and give some examples of how those departments or segments might benefit from using process costing versus other costing techniques. Explain the reasons for your answer.

Use the following link for financial data..

Amazon 2015 10k Annual Report

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjI4NTg0fENoaWxkSUQ9MzI5NTMwfFR5cGU9MQ==&t=1

Explanation / Answer

Solution.

Responsibility centers are identifiable segments within a company for which individual managers have accepted authority and accountability. Responsibility centers define exactly what assets and activities each manager is responsible for.

How to classify any given department depends on which aspects of the business the department has authority over.

Managers prepare a responsibility report to evaluate the performance of each responsibility center. This report compares the responsibility center’s budgeted performance with its actual performance, measuring and interpreting individual variances. Responsibility reports should include only controllable costs so that managers are not held accountable for activities they have no control over. Using a flexible budget is helpful for preparing a responsibility report.

Revenue centers usually have authority over sales only and have very little control over costs. To evaluate a revenue center’s performance, look only at its revenues and ignore everything else.

Revenue centers have some drawbacks. Their evaluations are based entirely on sales, so revenue centers have no reason to control costs. This kind of free rein encourages Al the concession manager to hire extra employees or to find other costly ways to increase sales (giving away salty treats to increase drink purchases, perhaps).

Cost centers usually produce goods or provide services to other parts of the company. Because they only make goods or services, they have no control over sales prices and therefore can be evaluated based only on their total costs.

One way for a cost center to reduce costs is to buy inferior materials, but doing so hurts the quality of finished goods. When dealing with cost centers, you must carefully monitor the quality of goods.

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