Final answer:
A manager of a revenue center is responsible for only the revenues of the center, focusing on income generation without the direct responsibility for costs. When a center earns more in revenues than its variable costs, it should continue in business, while a deficit might indicate a need to shut down. Understanding explicit and implicit costs also helps in decision-making related to operations and profitability.
Step-by-step explanation:
A manager of a revenue center is responsible for only the revenues of his center. Hence, the correct answer to the question is C) for only the revenues of his center. A revenue center focuses on generating income and does not have responsibility for costs, which distinguishes it from a profit center that is responsible for both costs and revenues. Managers of revenue centers are evaluated based on the revenues they generate, without direct concern for expenses. However, to ensure the long-term success of any business unit, understanding the relationship between cost and revenue is essential. To elaborate, when the center earns revenues of $20,000 and has variable costs of $15,000, the center is generating a surplus and should continue in business. On the contrary, if revenues were $10,000 with the same variable costs, the center is operating at a loss and should consider shutting down unless there are strategic reasons to operate at a loss temporarily.
The difference between explicit costs and implicit costs also plays a crucial role in managerial decision-making. Explicit costs are direct, out-of-pocket payments for inputs to production, like wages or material costs, while implicit costs are indirect, non-cash expenses such as the opportunity cost of using the owner's resources. Understanding these costs helps managers in making informed decisions about the center's operations and profitability.
We will see later that total cost is a function of the sum of all input costs required for production and selling, and this can vary in the short run vs. the long run. It is imperative for managers to monitor this to ensure the viability of their revenue centers.