Responsibility Center

Responsibility Center

Responsibility Center Definition

In accounting, a responsibility center refers to an organizational subunit in a corporation. For instance, a large corporation may consist of numerous smaller business groups or divisions, some or all of these organizational subunits could be set up as responsibility centers.
The manager of a responsibility center is responsible for the activities of the organizational subunit. In addition, they are responsible for the results of specified financial and non-financial performance measurements. The concept of the responsibility center as an organizational subunit in a larger corporation is a part of the larger concept of a responsibility accounting system.
Furthermore, there are four different types of responsibility centers. These different types include the following:

Responsibility Accounting

Responsibility accounting is a system of organizational architecture designed to promote goal congruence among managers and employees in a company or organization. It is also intended to appropriately measure and evaluate the performance of people and organizational subunits within the corporation. Many also employ responsibility accounting systems to ensure both responsibility and accountability among the hierarchy of the ranks within the organization.

Types of Responsibility Centers

The following include the types of responsibility centers:
1. Cost Center / Discretionary Cost Center
2. Revenue Center
3. Profit Center
4. Investment Center
Cost center managers are responsible for the incurring as well as controlling costs in their organizational subunit.
Discretionary cost center managers are typically responsible for adhering to a budget.
Revenue center managers are responsible for revenues generated by their organizational subunit.
Profit center managers are responsible for revenues and expenses generated as well as incurred by their organizational subunit.
Investment center managers are profit as well as the capital investments required to generate the profit.


If you want to learn how you can be the best wingman, then access our free How to be a Wingman guide!
Responsibility Center
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
Responsibility Center
 
Sources:
Hilton, Ronald W., Michael W. Maher, Frank H. Selto. “Cost Management Strategies for Business Decision”, Mcgraw-Hill Irwin, New York, NY, 2008.
Barfield, Jesse T., Michael R. Kinney, Cecily A. Raiborn. “Cost Accounting Traditions and Innovations,” West Publishing Company, St. Paul, MN, 1994.
 
See Also:
Service Department Costs
Transfer Pricing
Value Drivers: Building Reliable Systems to Sustain Growth
Value Chain
Cost Driver

ARTICLES YOU MIGHT LIKE

The Struggles of Private Company Accounting

Hiring the right accountant  When I meet a business owner operating at a successful $10 million in revenue, they often mention, “My CPA”… I immediately know that CEO/Entrepreneur is referring to their Tax CPA.  That is because one thing that all Entrepreneurs have in common is that they must file a tax return.  So, from

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »

CPA’s are Specialized

The Difference in CPAs Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

September 12-15th 2022

Days
Hours
Min
SHARE THIS ARTICLE

JOIN THE NEXT STRATEGIC CFO™ WORKSHOP SERIES

Strategic CFO™ Financial Leadership Workshop
The Art Of The CFO®

Days
Hours
Min

December 5-8th, 2022