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ACCA Applied Knowledge · Management Accounting · Nature and purpose of budgeting

Dara Ltd's production manager is responsible for output volumes, material usage and labour efficiency in the factory, but has no authority over selling prices or the level of capital investment. Which type of responsibility centre is the production manager most likely running?

The manager runs a cost centre. Their accountability is limited to costs such as material usage and labour efficiency, with no control over selling prices or capital investment. Profit centres need control of revenue as well, and investment centres need authority over capital expenditure.

  1. AProfit centre
  2. BInvestment centre
  3. CCost centreCorrect
  4. DRevenue centre

Explanation

A manager accountable only for costs, with no control over revenue or capital investment decisions, runs a cost centre. A profit centre requires control over both costs and revenues. An investment centre also controls capital investment, which is excluded here.

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