Operating department income statements are used to evaluate the performance of which type of responsibility centers?

• A. Profit centers
• B. Revenue centers
• C. Investment centers
• D. Cost centers

Answer: (A)

Verified step by step guidance

1. Understand the concept of responsibility centers: Responsibility centers are segments within an organization where managers are responsible for certain activities and their financial outcomes. The four main types are profit centers, revenue centers, investment centers, and cost centers.
2. Define each type of responsibility center: Profit centers focus on generating revenue and controlling costs to achieve profitability. Revenue centers are responsible for generating sales or revenue but not controlling costs. Investment centers manage assets and investments to maximize returns. Cost centers focus on controlling costs without generating revenue.
3. Recognize the purpose of operating department income statements: These statements evaluate the financial performance of a department by analyzing its revenues and expenses, which directly ties to profitability.
4. Match the purpose of operating department income statements to the correct responsibility center: Since these statements assess both revenues and expenses to determine profitability, they are most relevant to profit centers.
5. Conclude that operating department income statements are used to evaluate the performance of profit centers, as they focus on both revenue generation and cost control to achieve profitability.