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Q2) Briefly define Discretionary Expense center, Engineered Expense Center, ProfitCentre and Investment Center? How budget prepared in Discretionary ExpenseCenter? How is performance of the manager evaluation in Discretionary ExpenseCenter?1. The Profit Center.
Many operating unit managers have responsibility and authorityfor both production and sales. They make decisions about what products and services to produce, how to produce them, their quality level, price, sales and distribution systems. Butthese managers may not have the authority to determine the level of capital investment intheir facilities. In these cases, operating profit may be the single best (short- term) performance measure for how well the managers are creating value from the resources thecompany has put at their disposal. Such a unit, in which the manager has almost completeoperational decision-making responsibility and is evaluated by a straightforward profitmeasure, is called a
profit center.2. The Investment Center.
When a local manager has all the responsibilitiesdescribed above as well as the responsibility and authority for his or her center’s workingcapital and physical assets, the manager is running an investment center. The performance of such a unit is best measured with a metric that relates profits earned to the level of physicaland financial assets employed in the center. Investment center managers are with metrics asreturn on investment (ROI) and economic value-added.
3. Engineered Expense Center
. Engineered cost are those for which the right or proper amount can be estimated with reasonable reliability, for example material and directlabour. It have the following characteristic1. Their input can be measured in monetary terms2. Their output can be measured in phisical terms3. The optimum dollar a,,ount of input required to produce one unit of output can bedetermined.For engineered expense center, it decides whether the proposed operating budgetrepresent s the unit cost of performing its task efficiently. In discretionary expense center,