What type of responsibility center would a Kohl’s Café within the department store be considered?

Photo of a Kohl's Store

Source: Wendy Tietz

In an effort to increase the number of shoppers coming into its stores and the length of time those shoppers stay, Kohl’s (KSS) is adding a small café (Kohl’s Café) to each of two of its department stores in the Milwaukee, Wisconsin area. Each café will sell Caribou Coffee items including lattes, cappuccinos, and other coffee items. Granola bars, chips, cookies, and other grab-and-go snacks will also be available. These cafés are experimental at this point; Kohl’s has no plans to add the cafés to other stores.

Questions

  1. What type of responsibility center would the Kohl’s Café within a given store be (cost center, revenue center, profit center, or investment center)?
  2. What costs do you think could be traced directly to a café in a given store?
  3. Assume that Kohl’s wants to evaluate the profitability (performance) of a café within a given store. What, if any, costs should be allocated to the café? Explain your answer.
  4. Now assume that Kohl’s wants to evaluate whether the café has been a good investment from the standpoint of having increased overall store sales. What revenues and costs are relevant to this evaluation?
  5. Let’s now assume that Kohl’s wants to allocate the net costs of a café to all of the departments within a Kohl’s store (Juniors, Men, Shoes, etc.). Are there any potential issues with allocating the café costs across the store? Explain.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below. Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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