Question

Consider the following three statements:

i. a profit centre has control over both cost and revenue.
ii. an investment centre has control over invested funds, but not over costs and revenue.
iii. a cost centre has no control over
Which of the following statement(s) is/are correct?
A. Only I and II
B. Only II
C. Only I and III
D. Only I

Answer 1

Statement I is correct since a profit center has control over costs and revenues, while Statement III is correct as a cost center only controls costs. Statement II is incorrect because an investment center controls cost, revenue, and invested funds. Therefore, the correct statements are I and III.

Step-by-step explanation:

The question pertains to the differences between profit centers, investment centers, and cost centers within a business. Let's look at each statement closely:

• Statement I: A profit center does indeed have control over both costs and revenues. Managers are responsible for making decisions that affect both the costs of their operations and the revenues they generate.
• Statement II: This statement is incorrect. An investment center has control over cost, revenue, and invested funds. The performance is often evaluated based on return on investment (ROI) or other profitability ratios that reflect the efficiency of using the capital invested.
• Statement III: A cost center focuses solely on controlling costs, and it does not have control over revenue generation. This is generally correct as cost centers are evaluated based on how well they manage costs.

In conclusion, the correct statements among the given options are I and III which makes the correct answer C. Only I and III.