CMA Foundation · Fundamentals of Financial and Cost Accounting · Cost, Cost Centre, Cost Unit and Cost Drivers
Sundaram Textiles runs a Weaving Division. Its manager controls selling prices, production and costs, but cannot decide on capital expenditure, which is approved by the head office. The division is best classified as a:
The Weaving Division is a profit centre because its manager controls both revenue and costs but has no authority over capital expenditure. An investment centre needs control over investment decisions as well, and a cost centre is accountable for costs alone.
- ACost centre
- BProfit centreCorrect
- CInvestment centre
- DRevenue centre
Explanation
The manager is accountable for both revenue (selling prices) and costs, so the division is a profit centre. It is not an investment centre because the manager has no authority over capital investment decisions. A cost centre would be accountable for costs only.
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