Responsibility centers is based on the idea that an organization is simply a group of individuals working towards common goals. The more each individual can be assisted in the performance of his or her tasks, then the better chance the organization has of achieving the goals it has aimed for. Responsibility centers recognizes each person in an organization who has any control over cost or revenue to be a "separate responsibility center" whose stewardship must be defined, measured and reported upward in the organization (Dictionary of Accounting Terms).
Kieso, Kimmel, & Weygandt (2003) explained that there are three types of responsibility centers. These are cost centers, profit centers, and investment centers. Through the presentation we would learn more about these three types of responsibility centers.
A cost center is any responsibility center that has control over the incurrence of cost. A cost center has no control over sales or generation of revenue.
It incurs the costs and expenses but not directly related to generating revenue or earnings. They instead make the product and/or support. This is a center which control cost. But it has no control over sales or generation of revenue. Example: All department in the organization.
Examples of cost centers include research and development departments, marketing departments, help desks and customer service.
Analyzing costs and how to lower them is important.
By contrast to a cost center, a profit center has control over both cost and revenue. An autonomous division is a profit center. Profit centers are another one of the particular parts of a collective responsibility center. In this center, employees control profits, costs, and revenues. Their main target candidate is the chain operations units. They have no bearing on investments. Their main job is to find the best and least expensive way to run...