Responsibility Center refers to a particular segment or unit of an organization for which a particular manager, employee, or department is held responsible and accountable for its business goals and objectives. It refers to the part of the company where a manager has authority and responsibility. A responsibility center is a
functional entity within a business that tends to have its own goals and objectives, policies, and procedures, thereby giving managers specific responsibility for revenues, expenses incurred, funds invested, etc. There are usually 4 types of responsibility center which are identified as under.
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Advantages of Responsibility CenterGiven below is how the responsibility center helps an organization.
Disadvantages of Responsibility CenterCertain disadvantages may crop up and impair the system of responsibility centers.
Limitations of Responsibility Center
ConclusionThe method of assigning responsibility centers within an organization to help achieve the organizational goals through segregation and tagging to each manager undoubtedly helps achieve delegation and control apart from tracking the performance that tends to act as a motivational booster. However, it becomes important for management to realize that one should not be too focused or process-oriented, which would cripple the initial objects set. A company is most likely to sabotage itself by doing so when it focuses on the hierarchical scheme of things. As a result, outcomes may not be achieved, and targets may just become numbers to frown upon. Hence to solve such problems, it becomes imperative that the responsibility centers are not process-oriented and that they tend to miss out on the initial objectives set forth. When done efficiently, it helps in tracking and measuring the performance of each of the segments as listed out. Recommended ArticlesThis has been a guide to the responsibility center and its definition. Here we discuss the responsibility center types and examples, advantages, and disadvantages. You can learn more about accounting from the following articles –
What are the 4 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. ... . Cost Center. A cost center is solely responsible for the incurrence of certain costs. ... . Profit Center. ... . Investment Center.. What is a responsibility center in an organization?A responsibility center is an operational unit or entity within an organization, that is responsible for all the activities and tasks structured for that unit. These centers have their own goal, staffs, objectives, policies and procedures, and financial reports.
What is the manager's role in a responsibility center?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.
Is a responsibility center in which a manager is responsible only for costs?A cost center is an organizational segment in which a manager is held responsible only for costs.
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