Question

Most decentralized subunits can be described as one of four different types of responsibility centres. List the four most common types of responsibility centres and describe their responsibilities. List the four most common types of responsibility centres and select the choice that describes the responsibilities of each of the centres.

Answer 1

A responsibility center is a part or subunit of a company These centres can be classified or differentiated by the nature and scope of responsibility assigned and managers have some degree of authority and responsibility.

Four types of responsibility centers:

1)Cost Centre:

Here in this center, the managers are responsible for the costs that incur and not profit or revenue. Responsibility in a cost center is restricted towards cost only. Budget estimate, performance evaluation all are cost-based, All are guided by actual and budgeted cost for the period.

2)Revenue Centre:

The primary responsibility of a revenue center is the generation of sales revenue. These managers have no control over the cost or investment but have a bit of control over the marketing expenses. The revenue center performance is being evaluated by comparing the actual revenue and marketing expenses with budgeted revenue, marketing expenses.

3)Profit Centre

Here the manager responsibility is towards both revenue and cost. Here the manager has the authority to make decisions that affect both the cost and the revenue which in turn affects the profit margin. Main purpose of this center is to earn profit. These managers are more concerned towards increasing center's revenue.

4) Investment Centre

Here the manager has the responsibility for both investment and profits. The investment center manager has control over revenues, expenses and the amounts invested in the center’s assets.