Question

Cost centers are evaluated primarily on the basis of their ability to control costs and:_______.

A) Their return on assets.
B) Residual income.
C) The quantity and quality of the services they provide.
D) Their contribution margin ratio.

Answer 1

C.

The quality and quantity of the services they provide

Step-by-step explanation:

When we talk of cost centers in an organization, we refer to such as departments that does not contribute to the overall profitability of the organization but still cost the organization some amount to operate.

What this means is that although, they give no profit to the organization, they add to the total bill of the organization.

So how do we evaluate them?

Since they are not here for profitability, the measure of how they are relevant to the company is measured on two basis.

They are evaluated on their ability to control costs and also the quality and quantity of the services these centers provide