Definition of Responsibility Center
A responsibility center is a part or subunit of a company in which the manager has some degree of authority and responsibility. The company’s detailed organization chart is a logical source for identifying responsibility centers. The most common responsibility centers are the numerous departments within a company.
Examples of Responsibility Centers
Responsibility centers are often categorized by the degree of authority and responsibility given to the manager:
- Cost centers. In a cost center the manager is responsible only for costs. Examples of cost centers include a production department, maintenance department, accounting department, human resource department, etc.
- Profit centers. In a profit center the manager is responsible for its costs and revenues. For example, a company may have a consumer products division and an industrial division to more effectively market the company’s products. Each division’s manager is responsible for sales and expenses. However, if the company’s executive team makes all of the investment decisions, the divisions are considered to be profit centers.
- Investment centers. In an investment center the manager is responsible for investment decisions as well as costs and revenues. For instance, in a large corporation with many subsidiary companies, the corporation may give authority to the head of each subsidiary to make decisions on the needed investments. In that situation the manager is the head of an investment center.
