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What are the different types of Responsibility Centers?
A Responsibility Center is a functional division of a business organization, with its own goals and objectives, policies, working staff and financial report. Such centers help the senior business managers to evaluate their employees’ responsibility and accountability. They serve to help in calculation of bonus payments as well.
A responsibility center can belong to one of these four types:
- Revenue Center:
The purpose of this center is to generate sales for the company. A Revenue Center is basically the company’s sales department. However, they do not possess any control over cost. This can be a negative point since managers often undertake costly methods to increase revenue or sales.
- Cost Center:
This is the janitorial department, responsible for incurring all types of cost. They produce goods and provide services to different units of the company and have no control over sales. They can reduce the cost by using goods which are not very expensive but are of high quality.
- Profit Center:
This center is responsible for profit and loss, and hence has control over expenditures as well as revenues. They can be considered to be smaller business units within a larger business. The managers of profit centers have the power to select the products to be bought and sold, and also to determine their prices.
- Investment Center:
Not only profit, but this group is also responsible for the returns on the funds that have been invested for this group’s functioning. A subsidiary president is in charge of this subsidiary group.
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