Please help me answer the following questions 1. What type of center is the Char

Question

Please help me answer the following questions

1. What type of center is the Charlotte facility? Would you characterize it as an investment center, profit center, revenue center or cost center? Give specific reasons why you chose your answer.
2. What are the advantages and disadvantages of a decentralized organization structure?
3. The Charlotte plant receives some products used in the manufacturing of envelopes, cups and packaging from the South Carolina plant. Recently there have been some heated discussions about the prices charged Charlotte by the South Carolina plant. The product, cremodium, has cost Charlotte $80 per batch. This covers all marginal costs incurred by the South Carolina facility. The South Carolina facility is a profit center and agues that they can sell cremodiumon the open market for $120. Which method, as presented in your text, should be used in this instance and why? Does it make a difference if the South Carolina plant has idle capacity?

Explanation / Answer

1. The Charlotte facility provides business solutions. I would characterize it as an investment center. The reason for this is that businesses invest for business solutions. 2. The main advantage of a decentralized organization is empowerment and the main disadvantage is the problem of co ordination. 3. Transfer pricing should be used in this case. The reason for this is that though it is a profit centre, it may be under contract to provide goods at a cost plus rates.

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