What type of responsibility center generates revenues incurs and makes investments in operating assets?

What is a Responsibility Center?

A responsibility center is a functional entity within a business that has its own goals and objectives, dedicated staff, policies and procedures, and financial reports. It is used to give managers specific responsibility for revenues generated, expenses incurred, and/or funds invested. This allows the senior managers of a company to trace all financial activities and results of a business back to specific employees. Doing so preserves accountability, and may also be used to calculate bonus payments for employees.

There may be many responsibility centers in a business, but never less than one such center. Thus, a responsibility center is usually a subset of a business. These centers are usually stated on a firm’s organization chart.

From an accounting perspective, a financial report should be issued to each responsibility center that itemizes the revenues, expenses, profits, and/or return on investment for which the manager of each center is solely responsible. This can result in quite a large number of customized reports being issued on an ongoing basis.

The use of multiple responsibility centers requires a certain amount of corporate infrastructure to develop each center, track its results, and manage expectations with the various managers.

Types of Responsibility Centers

A responsibility center may be one of four types, which are noted below.

Revenue Center

A revenue center is solely responsible for generating sales. A typical revenue center is the sales department.

Cost Center

A cost center is solely responsible for the incurrence of certain costs. A typical cost center is the janitorial department.

Profit Center

A profit center is responsible for both revenues and expenses, which result in profits and losses. A typical profit center is a product line, for which a product manager is responsible.

Investment Center

An investment center is responsible not only for profits, but also for the return on funds invested in the group's operations. A typical investment center is a subsidiary entity, for which the subsidiary's president is responsible.

What are the 4 types of responsibility centers?

Which responsibility center generates revenue and cost?

What is responsibility center and its types?

What is a profit center responsible for?