Performance Reports in Cost Centers
Performance reports are often prepared for organizations that do not have any source of outside revenue. In particular, in a large organization a performance report may be prepared for each department—including departments that do not sell anything to outsiders. For example, a performance report is very commonly prepared for production departments in manufacturing companies. Such reports should be prepared using the same principles we have discussed and should look very much like the performance report in Exhibit 9–7 —with the exception that revenue, and consequently net operating income, will not appear on the report. Because the managers in these departments are responsible for costs, but not revenues, they are often calledcost centers.