Responsibility centers

Definition

Responsibility centers are distinct units within an organization for which a manager is accountable. These centers can be evaluated based on the financial performance and specific objectives they control.

5 Must Know Facts For Your Next Test

1. It includes cost centers, revenue centers, profit centers, and investment centers.
2. Cost centers are only responsible for controlling costs.
3. Revenue centers focus solely on generating sales or revenue.
4. Profit centers are responsible for both revenues and costs, thus measuring profitability.
5. Investment centers are accountable for revenues, costs, and the efficient use of assets.

Review Questions

• What distinguishes a revenue center from a cost center?
• Which type of responsibility center is evaluated based on profitability?
• How does an investment center differ from other responsibility centers?

Related terms

Cost Center:

A unit where the manager is responsible only for controlling costs.

Revenue Center:

A unit where the manager is accountable primarily for generating revenue.

Investment Center:

A division where the manager is responsible for revenue, costs, and asset utilization.