Question

Name the four types of responsibility centers and describe the manager's responsibility and authority in each

Answer 1

cost centres are a responsibility centres in which manager is responsible for cost incurred in the organization. In cost centres standard cost is compared with the actual cost incurred and evaluation is done whether the centres are able to control the cost. Cost centre's manager is responsible for all the cost of the segment. Example May be that in a manufacturing department, different departments of manufacturing organization may be set as cost centres

2-Revenue centres are a responsibility centres which are responsible for generating sales revenue. Performance of revenue centres are measured in terms of comparison of standard sales or revenue with the actual sales and revenue. Marketing manager of any product line may be an example of revenue centres

3- Profit centres are a responsibility centers which are responsible for revenue and profit both. In this system purpose of profit centres are to increase revenue and profit by increasing sales and reducing cost. Profit centres manager are responsible for production and marketing of products. Example of profit centres are super market, multi brand retail stores

4- Investment centres are a responsibility centres where managers are responsible for revenue, cost and profit also. Centre's manager is also responsible for credit policy of the company and this will have effect on company debt collection and inventory policy of the company.