Which item should not be allocated to a profit center when evaluating its performance?

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Prepare for the WGU ACCT2350 Intro to Business Accounting Exam. Practice with multiple choice questions and detailed solutions to sharpen your accounting skills. Master your exam with confidence!

Multiple Choice

Which item should not be allocated to a profit center when evaluating its performance?

Explanation:
Allocating costs to a profit center should include only costs that the center can influence. Headquarters costs are corporate-level and not under the control of the profit-center manager, so allocating them would distort the center’s true profitability. Direct costs and variable costs are tied to the center’s operations and are appropriate to assign to reflect the true cost of producing its output. Revenue isn’t a cost to allocate; it’s the income the center earns and is used alongside the allocated costs to gauge profit.

Allocating costs to a profit center should include only costs that the center can influence. Headquarters costs are corporate-level and not under the control of the profit-center manager, so allocating them would distort the center’s true profitability. Direct costs and variable costs are tied to the center’s operations and are appropriate to assign to reflect the true cost of producing its output. Revenue isn’t a cost to allocate; it’s the income the center earns and is used alongside the allocated costs to gauge profit.

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