Unformatted text preview: based on homogeneity; that is, a cost
center ideally includes a collection of completely homogeneous activities. Clearly, complete homogeneity rarely is
possible, and even if it were, the cost of making the requisite computations might be prohibitive. Thus, compromises frequently are necessary. We will return to this issue later in the chapter, once we have covered the remaining
cost accounting decisions.
The management-oriented answer to the question is that the choice of cost centers depends largely on senior
management’s plans for using the information. For example, LI’s three-cost-center structure may be helpful to
management in pricing its services competitively, or in comparing its costs with those of other lawn care companies. A comparison between Lawncare Inc.'s administrative costs and those of other similar organizations, for example, could reveal areas of potential inefficiency, and thereby assist management in an effort to streamline the
company’s administrative operations. Of course, management would need to bear in min...
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- Spring '14