Differentiate between centralized and decentralized operations.Differentiate between a profit center and an investment center.Weyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser's activities in its central Financial Services Department:PayrollAccounts payableAccounts receivableDatabase administration—report preparationWhat is the major shortcoming of using income from operations as a performance measure for investment centers?In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations?How does using the return on investment facilitate comparability between divisions of decentralized companies?

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Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 3DQ

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Differentiate between centralized and decentralized operations.
Differentiate between a profit center and an investment center.
Weyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser's activities in its central Financial Services Department:

Payroll
Accounts payable
Accounts receivable
Database administration—report preparation

What is the major shortcoming of using income from operations as a performance measure for investment centers?
In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable even though it earned the largest amount of income from operations?
How does using the return on investment facilitate comparability between divisions of decentralized companies?

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