ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting
A manager of a division is responsible for sales revenue, costs and also decisions on capital investment in new equipment. Which type of responsibility centre is this?
This is an investment centre. Its manager controls revenues and costs and also decides on capital investment in assets, so performance is normally judged by ROI or residual income. A profit centre lacks investment authority, while revenue and cost centres control only sales or costs respectively.
- ARevenue centre
- BProfit centre
- CInvestment centreCorrect
- DCost centre
Explanation
An investment centre manager controls revenues, costs and the level of investment in assets, and is usually judged by return on investment or residual income. A profit centre manager controls revenue and costs but not capital investment decisions. Revenue and cost centres control only one element.
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