Unformatted text preview: are for relatively homogeneous groupings of activities. For example, if a photocopying company had an extremely sophisticated photocopying machine and an extremely simple one, it would most likely want to create two cost centers: one for each
machine. The sophisticated machine no doubt was more costly to purchase (and hence has higher depreciation), is
more costly to service and repair, and perhaps requires a more highly skilled (and hence higher salaried) operator.
David W. Young • Management Accounting for Managers • Chapter 1
Page 8 Copyrighted Material. Do not reproduce without written permission.
Calculating the average cost of a photocopy by combining the two machines, their operators, and their other costs
would produce a misleading cost figure. The average would overstate the cost of a copy on the simple machine and
understate it on the sophisticated machine.
For this reason, senior management’s choice of cost centers ordinarily is...
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This document was uploaded on 03/30/2014.
- Spring '14