1.Karl Krader oversees a staff of over 200 persons and a budget of close to a million dollars per year. He is responsible for the upkeep of all buildings and equipment at a large university. However, any reconstruction project is budgeted and administered separately. Karl’s responsibilities include selection and evaluation of personnel, negotiating with suppliers, choosing the kinds of landscaping, and so on. Karl’s services, however, are not priced out to the user departments or to individual units within the university.
a. Should Karl be evaluated as a profit center or a cost center?
b. How should the university evaluate Karl’s performance?
2.The Production Department of Advent Cordless Phones is a cost center. The following table provides budgeted and actual cost information for the most recent year.
Production volume (units) 175,000 200,000
Total variable costs $7,875,000 $9,450,000
Total fixed costs 1,200,000 $1,350,000
Evaluate the performance of the Production Department.