Characteristics of Responsibility Accounting

Characteristics of Responsibility Accounting

Under this system business is divided into smaller parts for the better control and management of this business. The ideally supervisor of each unit which is technically called a center is responsible for the required level of performance.

Types of Centers

There are basically four types of centers Cost Centers Revenue Center Profit Center, Investment Center

1.    Cost Center

The costs are grouped by using appropriate bases. Typically cost center are establish to have more information about the incurring of cost and control cost .The example of cost center are

·                     Product line

·                     Department

·                     Region

·                     Manager/Supervisor

2.    Revenue Center

In case of revenue center the manager is responsible for the revenue of that center. The possible revenue center may be

·                    Product

·                    Department

·                    Region

·                    Distributor

3.    Profit Center

Profit center is combination of both cost center and revenue center. Typically Profit center is an independent unit of business which can be analyzed for his performance and contribution towards overall profit of the organization. The center is important for the efficiency measurement.

4.    Investment Center

This is an extension of profit center and more autonomy is provided to this center. The relatively senior management is heading this center. The important factor of this center is that it can make some investment decision. This center can make capital asset purchase decision. This center is typically a divisional headquarter of a multinational company.