wood4fun makes wooden playground equipment for the institutional and consumer market 544759

Responsibility Centers

C 2. Wood4Fun makes wooden playground equipment for the institutional and consumer markets. The company strives for low-cost, high-quality production because it operates in a highly competitive market in which product price is set by the marketplace and is not based on production costs. The company is organized into responsibility centers. The vice president of manufacturing is responsible for three manufacturing plants. The vice president of sales is responsible for four sales regions. Recently, these two vice presidents began to disagree about whether the manufacturing plants are cost centers or profit centers. The vice president of manufacturing views the plants as cost centers because the managers of the plants control only product-related costs. The vice president of sales believes the plants are profit centers because product quality and product cost strongly affect company profits.

1. Identify the controllable performance that Wood4Fun values and wants to measure. Give at least three examples of performance measures that Wood4- Fun could use to monitor such performance.

2. For the manufacturing plants, what type of responsibility center is most consistent with the controllable performance Wood4Fun wants to measure?

3. For the sales regions, what type of responsibility center is most appropriate?