Question Tag: Investment Center

Search 500 + past questions and counting.
Professional Bodies Filter
Program Filters
Subject Filters
More
Tags Filter
More
Check Box – Levels
Series Filter
More
Topics Filter
More
  • 3 Marks

MA – Dec 2023 – L2 – Q1c – Divisional performance

This question asks for a comparison between profit centers and investment centers in management accounting.

State ONE (1) similarity and TWO (2) differences between a Profit centre and an Investment centre.

Similarity:

  • Both centers are responsible for effective cost minimization and maximization of profit.

Differences:

  1. An Investment center has additional responsibility for capital investments, whereas a Profit center does not handle capital investments.
  2. The performance of an Investment center is measured by return on investment (ROI) or residual income (RI), while the performance of a Profit center is measured based on controllable profit.
  • 6 Marks

MA – May 2017 – L2 – Q1c – Performance analysis, Other aspects of performance measurement

Explain cost center, revenue/profit center, and investment center in terms of their managerial objectives and performance measurement indexes.

Explain in brief the following terminologies as used in performance evaluation, highlighting their managerial objectives and the performance measurement indexes:

i) Cost centre
ii) Revenue/profit centre
iii) Investment centre

(6 marks)

i) Cost Centre:

Cost centres are responsibility centres where the managers have authority only to incur costs. These centres only incur costs but do not directly generate revenues. Managers of such cost centres are therefore evaluated based on their ability to control costs. The manager’s ability to meet the goals of budgeted controllable costs becomes the main focus. The evaluation reports for the centre compare the actual controllable costs with flexed controllable costs budget data.

(2 marks)

ii) Revenue/Profit Centre:

Managers of profit centres have responsibility to incur costs as well as generate revenues. Managers of these centres are therefore evaluated based on the profitability of their centres. To evaluate the performance of managers of profit centres, information on controllable costs and revenues are gathered. Fixed costs must be distinguished between direct and indirect costs. The profitability of these centres is measured by the controllable margin (contribution less controllable fixed costs).

(2 marks)

iii) Investment Centre:

Investment centres, in addition to incurring costs and expenses and generating revenues, have control over investment decisions (acquisition and disposal of long-term assets). Managers of investment centres are evaluated both on the profitability of the centres they manage and the rate of return on the funds invested. Since investment centre managers have control or significant influence over investment funds, the primary basis for evaluating the performance of the managers is the return on investment (ROI).

(2 marks)

  • 20 Marks

IMAC – DEC 2022 – L1 – Q4 – Accounting for Inventory and Labour

Explanation of inventory discrepancies, preparation of a FIFO inventory statement, sources of management information, and explanation of an investment center.

 

a) Inventory refers to the goods and materials that a business holds for the ultimate goal of resale, production, or utilization in the near future. Inventory could be in the form of raw materials, finished goods, work in progress, among others.

Required:
Identify FIVE (5) reasons actual inventory counted may be different from the balance in the inventory records. (5 marks)

a) Causes of discrepancies in closing inventory:

  • Theft by staff
  • Evaporation in the case of liquids and gas
  • Error in counting
  • Casting errors
  • Errors in recording
  • Over or understatement in stocks issued
  • Wrong classifications/coding
  • Error in counting at the time of receipt of stocks.
    (Any 5 points @ 1 mark each = 5 marks)

b) Statement of inventory movement (FIFO):

Date Receipt Issued Balance
2/1/2022 1,000 @ GH¢40 1,000 @ GH¢40 = GH¢40,000
5/1/2022 600 @ GH¢45 1,000 @ GH¢40 = GH¢40,000
600 @ GH¢45 = GH¢27,000
10/1/2022 800 @ GH¢40 200 @ GH¢40 = GH¢8,000
600 @ GH¢45 = GH¢27,000
11/1/2022 150 @ GH¢40 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
15/1/2022 1,200 @ GH¢42 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
1,200 @ GH¢42 = GH¢50,400
18/1/2022 850 @ GH¢42 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
350 @ GH¢42 = GH¢14,700
24/1/2022 900 @ GH¢48 1,000 @ GH¢42 = GH¢42,000
900 @ GH¢48 = GH¢43,200
(Marks are evenly spread using ticks = 10 marks)

c) Sources of management information: Examples

  • Internal: Ledger books, invoices, budget statements.
  • External: Internet, journals, print media, social media, reports from regulatory bodies.
    (2 marks)

d) An investment center is a segment of an organization that has the authority to invest resources of the organization, incur cost, and generate sufficient revenue to pay off the investment in assets. When a firm evaluates an investment center, it looks at the rate of return as measured by ROI and RI that it can earn on its investment.

Take control of your business data with insight and in-depth understanding by taking this course. 

Services

Contact Info

  • +233203701923
    +233543919232
  • info@noohrabusiness.com

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope