Hewett and Hefner, LLP is a regional public accounting fi rm with 34 offi ces th
ID: 2717876 • Letter: H
Question
Hewett and Hefner, LLP is a regional public accounting
fi rm with 34 offi ces throughout the southeastern United States. To provide employees
with cost-effective continuing professional education, the company maintains an in-house
education and training staff that develops and delivers one-day seminars on current topics in
accounting and taxation. There is no charge to employees to attend these seminars.
Required
a. Should Hewett and Hefner, LLP treat the training department as a cost center, a profi t
center, or an investment center? Why?
b. Suppose Hewett and Hefner, LLP has received numerous requests from smaller fi rms to
participate in the seminars provided by its training staff. Some of the fi rms are willing to
pay a fee and travel to a Hewett and Hefner offi ce to attend the seminars. Others have
expressed interest in engaging Hewett and Hefner’s staff to deliver customized seminars
at their own offi ces. If management decides to allow the training staff to provide external
training for a fee, how should Hewett and Hefner treat the training department? Why?
Explanation / Answer
a) Training departments are usually treated as cost centres as they do not contribute in a measurable way in one of the following 3 business drivers which are relevant for a profit or investment centre
1. Increase revenue
2. Protect Revenue
3. Increase Efficiency
All the above 3 drivers are most easily defined and are the backbone of any business , Training department is aligned with increasing knowledge with a total absence of increasing performance measures. This is the prime reason for training departments to be treated as cost centre.
b) Once the training department starts participating in training prgrammes and seminars for a fee to other small firms it shifts from a cost centre to a profit centre as now the department is increasing revenue of the organisation which is the key driver for a profit centre.
Hence , as soon as the department starts producing measurable revenue it shifts to becoming a proit centre.