Responsibility accounting is based onidentifying individual parts of a business which are the responsibility of asingle manager.
A responsibility centre is an individual part of a business whose manager has personal responsibility for its performance.
A cost centre is a production or service location, function, activity or item of equipment for which costs are identified and recorded.
A paint manufacturer cost centres:mixing department; packaging department; administration; or marketing departments
Cost centre managers need to have information about costs that are incurred and charged to their cost centres.
The performance of a cost centre manageris judged on the extent to which cost targets have been achieved.
A revenue centre is a responsibility centre that is devoted to raising revenue (or generating sales) without any link to the associated costs.
Revenue centres aregenerally associated with selling activities, for example, regional sales managers may have responsibility for the regional sales revenues generated.
Each regional manager would probably have sales targets to reach and would be held responsible for reaching these targets.
Sales revenues earned must be able to be traced back to individual (regional) revenue centres so that the performance of individual revenue centre managers can be assessed.
Revenue centres might be encountered in the not-for-profit sector or in the marketing operationof a commercial organisation.
If a manager is responsible for revenue as well as costs, the responsibility centre is a profit centre
Profit centres are often found in large organisations with a divisionalised structure, and each division is treated as a profit centre.
The manager responsible is held accountable for the profitability of the operations in his or her charge.
Data and information relating to both costs and revenues must be collected and allocated to the relevant profit centres.
}If a manager is responsible for investment decisions as well as for revenue and costs, the responsibility centre is an investment centre, and the manager responsible is held accountable not only for profits, but also for the return on investment from the operationsin his or her charge.
}There could be several profit centres within an investment centre.
}The performance of investment centres ismeasured in terms of the profit earned relative to the capital invested(employed). This is known as the return on capital employed (ROCE).
