Question:
Responsibility centers, agency theory, and performance measures.Your brother recently bought a small business with several coffee carts located around the city. Two workers share responsibility for each cart. All beverages are prepared using identical recipes and ingredients, but the baked goods and other items sold by each cart are chosen by the employees who operate the carts each day. Your brother asked your advice in determining how best to compensate the employees. He thinks he should give them bonuses when costs are contained, and pay them a flat salary otherwise.
Required
A. What type of responsibility center is each cart?
B. Explain how agency theory relates to your brother's situation.
C. List several financial performance measures that might be relevant for measuring employee performance.
D. List one nonfinancial measure that might be important to the success of this business.